In an interview with Quartz editor-in-chief Kevin Delaney, Bill Gates said that as robots are used to do work that used to be performed by humans, that robots should pay a tax:
“Right now, if a human worker does, you know, $50,000 worth of work in a factory, that income is taxed. If a robot comes in to do the same thing, you’d think that we’d tax the robot at a similar level.”
Bill gates goes on to express concern that as automation from robots replace jobs, that income taxes will be lost, resulting in the government being unable to fund important causes such as education and helping out the elderly.
The first thing to understand is that taxes are still being paid on the value the robot creates. If a company develops a robot that cuts labor costs by 10%, the money will end up in one of three places:
- In the consumers pocket, due to a reduction in prices providing them with more money leftover, of which they either save/invest and pay taxes on interest, or spend, triggering taxable events elsewhere.
- As bonuses for employees that have not yet had their jobs automated, who pay income taxes.
- As an increase in net profit for the company, that ends up going to shareholders of company, who pay taxes on their investment income
Even if the company keeps its profits overseas to avoid taxation, their growth still triggers taxable events. First off all, value of shares in the corporation will likely increase, causing sellers to incur a capital gain that they must pay taxes on. In addition, if the company chooses to pay dividends to its shareholders, the investors must pay income taxes on the dividends received.
Due to the progressive nature of our federal tax system, profit generated through robotics will generally be taxed at a higher rate than personal income from a factory worker making $40,000-$50,000.
Some may argue that the wealthy don’t pay as much in taxes as working people. This is only true if you ignore several indirect taxes on investors:
- The 39.6% federal corporate tax rate. In order to pay dividends, companies must bring profits overseas, which then get taxed. These taxes reduce the dividends corporations can pay out, thus being an indirect tax on shareholders. So while the investor may only pay a 20-23.8% federal tax rate on qualified dividends, they’re only taxed at a lower rate because the corporation already paid taxes on it which are passed onto the investor in the form of smaller returns.
- The tax of inflation. The dollar loses a substantial percentage of its value every year due to the federal reserve increasing the money supply. Investors cannot deduct inflation against their capital gains, so their real effective gain in wealth is substantially less than what it is taxed as. In addition, CPI can be a misleading measure of inflation, because increases in productivity act as market forces against increasing prices.
An analysis by FactSet found that between 2010 and 2014, companies in the S&P 500 paid an effective average tax on profits of approximately 28.5%, which is substantially higher than the effective income tax rate of most working-class citizens. Investors also pay taxes on their income, on top of corporate taxes, effectively making it double taxation.
An important thing to understand is that automation and the use of technology to improve productivity has been going on for hundreds of years. It used to be that the majority of the population was employed in agriculture. This is no longer the case, as most of the population has been able to specialize, and provide products and services that were not available back then.
Human desire is limitless. As robots improve productivity and replace jobs, the economy will expand and create other jobs elsewhere, and the workers at these jobs will also pay income taxes. This has happened for the past 100 years as automation has put people out of work, and will continue to happen as industries such as transportation adapt autonomous technologies.
Yes, the factory that lays off 1000 factory line workers won’t hire 1000 programmers, machine operators, engineers, etc. But the reduction in prices and increased profits will cause the profits to flow elsewhere, increasing quantity demanded in other sectors. So as one industry shrinks employment due to automation, other industries will experience growth due to capital being freed up, and create jobs to fulfill a surge in demand.
One of the largest examples of this has been the recent boom of the food service industry.
In 2015, restaurant sales exceed grocery store sales for the first time ever. Costs of material goods have been declining(relative to inflation) for decades due to both globalization and automation enabling cheap production overseas. Cheaper product have left consumers with more to spend on other services, such as dining out. While it’s true that many of these jobs pay quite poorly, recent expansion in the economy has created competition among employers, and wages have begun to rise. Ideally, improved access to education through affordable online learning programs would reduce the surplus of unskilled labor, resulting in improved wage growth due to competition.
Implementing a Robot Tax Isn’t Easy
The most difficult aspect of implementing a robot tax is finding a way to fairly and accurately classify what is and isn’t a robot. When you think of a robot, you might think of a human-shaped hunk of metal that performs the same labor that humans do. But the reality is that automation comes in many different forms, some involving mechanical devices, some involving sensors and image processing, and some existing purely on a computer, performing digital actions.
Here are many examples of the use of technology to reduce the amount of workers needed to produce a given level of output:
- A calculator performing basic calculations for engineers, saving them time to work on more importing things.
- A computer program that takes input and organizes data, reducing the amount of administrative staff needed.
- A electrical circular saw, reducing the amount of time it takes for a human to cut wood, reducing the amount of workers needed
- A machine that performs the work of 5 people, but requires a supervisor to oversee its operation.
- A device that automatically performs welds in a pattern, replacing the work of welders.(but requires someone to design and maintain the machine)
- An automated chat program on a website that answers 50% of users’ questions, reducing customer support staffing requirements by 50%.
- Trucks that drive themselves, but require workers to monitor their travel and perform repairs.
- Online learning software that reduces the amount of work required by the instructor, enabling them to teach more classes or increase class sizes, and therefore reducing the amount of instructors needed.
Which ones would you consider to be a robot, eligible to be taxed? All of them perform work that was once done by humans. All of them potentially reduce the amount of staff needed to produce a given product or service, and thus could be labeled “job killers”.
If a robot tax was to implemented, it would most likely be a bureaucratic mess, filled with loopholes, special interest lobbying, and wasteful spending by companies intended to avoid paying taxes.
For example, suppose the law says that a technology is a robot subject to taxation if it is a mechanical device containing sensors and a computer unit used to determine output, that does not require a human operator.
Suppose there is a robot that completely assembles a car through image processing. Engineers could easily create a loophole by adding a meaningless part to the device that must human can control manually, that simply involves walking down a line and pressing buttons that wave a “tail” on the back of the machine back and forth. The machine now has a human operator. One completely unproductive job might be created for the purpose of dodging Millions of dollars worth of taxes, something that does not benefit society at all.
To prevent nonsense such as this, there would have to be a bureaucracy that investigates factories to ensure their technology doesn’t fit their definition of robots, which of course would open up the door to bribery, lobbyists, and corruption, all while costing a ton of money to administer.
There’s Better Ways to Fund Progressive Goals
Utilizing public policy to punish companies that use robots will have negative effects on everyone. Corporations will find a way to legally dodge the robot tax while the government spends a ton of money trying to enforce it. Even if the government does manage to successfully enforce the tax, the tax will end up passed onto consumers in the form of higher prices. When you impose costs on business for the use of productivity-increasing technology, you’re actively increasing costs of production, which requires businesses to raise prices to break even- corporations will not sell at a loss unless sale of the product/service builds market share or increases sales of other products/services they sell.
Instead of creating bureaucracies that evaluate the usage of robots and calculate taxes owed, it would be ideal to make taxes purely results-based.
Taxes on profit are generally passed onto investors. Companies are already seeking the highest profits possible, so they can’t simply pass on the cost of higher profit taxes to consumers in the form of higher prices(if higher prices increased revenue, they would’ve done it already). Employees will only see the profit taxes passed onto them if they receive some sort of profit sharing.
It is true that high corporate taxes reduces investment, and thus can reduce job creation, and therefore hurting workers, but at least the taxes aren’t passed onto consumers or workers directly. The U.S already has one of the highest corporate taxes in the world, so raising it further would be an unintelligent move that would reduce investment in the US, and encourage investment overseas where corporate taxes are cheaper.
It is important to understand that the economy is not a fixed pie. Increases in productivity are a good thing for everyone, and government efforts to prevent or penalize the use of technology to improve production will only make everyone poorer.
The best way to ensure the needs of the working class are met is to simply let the market to continue operating as is, but reform it in areas in where excessive regulations provide companies with monopolies, causing higher prices due to limited competition(such as pharmaceuticals and Internet Service Providers). Jobs will continue to be created in new and existing fields as capital is freed up, Robotics will decrease the cost of many government services over time enabling the government to provide more for less, and overall cost of living will continue to decline in cost as production of necessities becomes cheaper.