Should Robots Pay Tax?

Around half of all tax receipts come from payroll taxes. So where will tax revenue come from if robots take all the jobs?

Photo by Craig Sybert on Unsplash

There is no dispute that AI, robots, automation generally, can do more and more jobs that used to be done by humans. Inevitably, that trend will continue.

Sounds great - the work still gets done but we all have more leisure time.

But this means that, unless new types of jobs are created, fewer people will have productive work in the future. Which means they won’t be paying income tax!

Worse still, those who can no longer work will need to be supported by social security payments or something like a universal basic income. This will create an enormous fiscal challenge for the government.

The country runs on income tax

Income taxes make up a very large proportion of government income and without it the government would have much less to spend. In the US and in the UK, for example, payroll taxes (including National Insurance contributions in the UK) make up about half of all tax receipts.

Cutting government spending might sound like a great idea to some people but in reality, without a revolutionary change in the way society works, a 50% reduction in tax is unlikely to be achievable particularly when there are more unemployed people to support.

So, who or what is going to make up for the subsequent shortfall?

Tax the robots

Easier said than done. First of all, what is a robot and how do you count them.

Something that replaces a human, whether it be a machine operator in a factory or a lawyer analyzing a contract, might be software or hardware, or a combination of both.

Furthermore, a single system might replace more than one person. Or, a single person could utilize an automated system to do more work.

Imagine an automated call center: here a single software ‘robot’ can replace a whole bunch of people sitting at desks with headsets, providing front line customer support ("press ‘1’ for this service, press ‘2’ for a different one").

Or how about, ‘platooning’, which is being trialed in Europe and the US, where one truck driver drives a single truck, but five, or so, other semi-autonomous trucks follow it (saving money on drivers, being more fuel-efficient and very possibly safer, too).

Is that a case of robots replacing five drivers, or is it one driver becoming more productive?

It’s not straightforward to identify a single robot and tax it like a person, but you could consider levying a tax based on the number of people it replaced. It shouldn’t be too difficult to count the number of workers that are made redundant — at least initially.

That could completely compensate for the lack of government revenue.

Bill Gates came out in favor of a robot tax in an interview with Quartz in 2017. He suggested that companies that use robots should be taxed to slow down automation and subsidize other forms of employment. So those who are made redundant by automation could be re-trained in areas where humans excel such as teaching, or as care workers. Or, one might imagine, as musicians or artists.

In the same year, however, EU legislators considered, but ultimately rejected, a tax on robots that would be used to retrain workers who had been made redundant.

Where’s the incentive to invest in robots?

It’s highly likely that, at least some, companies could complain that taxing automation was a disincentive to increased efficiency. That would be, of course, an entirely justifiable complaint.

The concern should perhaps be whether an income tax is a suitable method of revenue collection, at all. Maybe we should tax something else.

Traditionally, people worked and their labor was the primary means of production — people used their time and effort to produce things. But automation means that less labor is needed. Automation shifts the balance of production. When machines do the work, it is capital that becomes the primary means of production, not labor, because it requires only cash investment to buy those machines.

And it’s worth bearing in mind that income tax is a fairly modern phenomenon. It was introduced in the UK to support the French revolutionary war in 1798 and in the US to support the Civil War in 1861. Before that, tax was generally based upon wealth, not income.

If not income tax, then what?

Income tax may have been a suitable method of raising money in the last couple of hundred years but perhaps, in a world where jobs are scarce, a new method will have to be found.

So, why continue to tax labor? Why not tax capital? Or production? Or something else?

An economy where robots do most of the work could be a boon to a society where people are freed from the need to spend many hours each week doing something they don’t particularly like to do.

Or it could become a dystopian nightmare where ex-workers live in poverty, while the owners of the robots receive all the benefits.

The bottom line is that if society is to hold together in a similar way as it does now, the money to support that society has to come from somewhere. And if there are not enough people working to provide that money, then it will be industry that has to bear the brunt of it.

Sources referred to in the article:

The robot that takes your job should pay taxes, says Bill Gates
Robots are taking human jobs. But Bill Gates believes that governments should tax companies' use of them, as a way to…

European parliament calls for robot law, rejects robot tax
FRANKFURT (Reuters) - European lawmakers called on Thursday for EU-wide legislation to regulate the rise of robots…

Why robots should be taxed if they take people's jobs | Robert Shiller
The idea of a tax on robots was raised last May in a draft report to the European parliament prepared by MEP Mady…


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