Who Will Pay the Taxes When Robots Take Your Job?

It seems we are always talking about jobs and unemployment numbers, doesn’t it? After all, no matter who you are or where you live, earning a living is your major priority and concern. That applies even if you see yourself as a minimalist who is focused on being totally earth friendly and working just for yourself on the internet or even if you are a corporate mogul running a Fortune 500 corporation out in Silicon Valley. But as was heard long ago on the old 60’s “Lost in Space” TV show: “Danger, Will Robinson! Danger!”

In a world of increasing automation, tech and AI, is a robot tax in our future? How will government fund itself when our jobs are taken over by robots?

What will happen when robots take your job?

Robots are taking over the world’s workforce—and why shouldn’t they? For so many jobs, machines are faster, more consistent, smarter, and cheaper than you or I will ever be. As advances in artificial intelligence (AI) accelerate, robots will spread into all corners of the labor market: blue collar and white collar, service work and knowledge work alike.

Just this week, I read about what’s happening in the banking industry (of which I was a part a few years ago) with AI. According to Citigroup former CEO Vikram Pandit, 30% of all banking jobs will be replaced by AI in the next 5 years.

Along with their jobs, people will lose their incomes. When that happens, governments will also lose theirs. Where will the government’s money come from without incomes to tax?

I was watching CNBC the other day, and they were talking about one San Francisco lawmaker who is trying to get ahead of this likely revenue gap by going after the source of the problem: she wants to tax the robots. Supervisor Jane Kim has been meeting with labor leaders, academics, and tech types to explore what is a really radical plan. She believes we should tax robots to replace the taxes that will be lost when robots replace workers. That idea seems like a really good fit in a place like San Francisco, a city where billion-dollar tech companies and liberal politicians both hold sway. But there’s at least one problem with Kim’s plan: No one can really agree on what a robot is. I’ll explain that in a moment.

The Robot Tax Idea Came from Bill Gates

The concept of a robot tax isn’t new—Kim got the idea from Bill Gates’ infamous interview with Quartz last February.

When interviewed he said: “Right now, the human worker who does, say, $50,000 worth of work in a factory, that income is taxed and you get income tax, Social Security tax, etc. If a robot comes in to do the same thing, you’d think that we’d just tax the robot at a similar level.” The reaction to that comment was swift and not exactly measured, in no small part because tech types appreciate regulation about as much as they appreciate not wearing hoodies and jeans with flip-flops in the office. But it’s hard to imagine a future in which the US economy loses a third of its jobs to automation and governments just sit on their hands and do nothing, isn’t it?

Kim said on CNBC, “I do think that government is going to have to regulate it. I know tech hates hearing that word, but we’re all part of a larger community and society, and there are implications when a huge part of the workforce isn’t working anymore.”

Kim is not a robot-tax evangelist. She’s a supervisor in a city with one of the starkest income inequalities in the world. In fact, according to her CNBC comments, “San Francisco has the largest income inequality in the nation”, and that gap is increasing at warp speed! The spread of robotics and AI promises to further expand that inequality of wealth.

I, Robot

Ask any 10 roboticists (is that a real word?) what a robot actually is and you’ll get 10 different answers. They might say something like “they are a system that exhibits ‘complex’ behavior and includes sensing and actuation”. That’s a pretty broad and general definition but it shows just how complex a problem we may be up against. A self-driving car is a robot by that definition. So is a 747 on autopilot. And that’s to say nothing of all the other AI being developed which will arguably replace far more jobs in the near future even if it’s only via the algorithms running on your smartphones. So would this proposal be a robot/AI tax?

Show Me the Money, I Beg You!

The question is not just a philosophical one. The idea of making life easier, improving its quality, and saving us all time and money through the technology of robots and AI is something that sounds terrific. But, what will make up for the fiscal gaps after the robot takeover? Politicians may have to choose what kinds of automation really are most important and take a count of potential job loss and revenue shortages from payroll taxes before that loss of revenue begins to impact government operations.

Arguably, in one area, tax software has already replaced many tax professionals. An awful lot of us are using it to do our own taxes. So if are you using something like TurboTax, are you contributing to the potential problem? And it’s not hard to imagine a future where you order goods from a bot like the one in your Amazon Echo. The bot then dispatches a delivery robot to your home. So are both parties complicit in circumventing the UPS delivery worker’s job? Hmmm, see where this might be headed?

Ambiguity in defining what a robot is will likely also open up accounting loopholes. Maybe you’ll have a robot with multiple arms so that instead of having to get five robots you get one robot but it does the work of five robots. That would mean you could avoid the tax on the other four. Ingenuity and the ability to get around the rules is pretty much an American talent. I’m sure someone will figure out how to beat the system.

Ultimately, however, the question isn’t how many robots, but how much productive labor humans lose to them. A job lost is a job lost, whatever the reason, and the consequences are likely to be the same.

Take Me Home Country Roads (with apologies to John Denver)

Take for example West Virginia. The coal industry has declined there even without heavy robotic infiltration, and mass unemployment has followed. Even though our president has said he’s bringing back the coal miner’s jobs, I think most of know that just ain’t gonna happen. For every displaced worker, the state loses out on collecting income tax and the federal government loses out on all the payroll taxes. Losing your job means you stop spending money so there’s no sales tax revenue because there are no sales. Then when that happens, property values are depressed because nobody wants to buy a property in those towns and so that reduces property tax revenue too. That’s what essentially has happened in West Virginia.

The ironic difference between a traditional economy in decline and an economy in which robots come to dominate is that robots spur greater overall wealth through increased productivity. But the tax system in the US is still people-centric, which in a robot future could lead to a revenue death spiral. Cities and states get their revenue from property taxes, sales taxes, and individual income taxes. When you’ve got mass unemployment, those revenue sources will all tumble in unison. Taxes on corporations, which will benefit most from the lower costs and higher output of robot labor, won’t make up that difference.

If revenues drop dramatically, it will mean government services will need to be cut back, either through trying to be more focused or efficient with the services they do provide, or by actually having to eliminate some of what the government does. And, here’s the irony, those cuts will come at a time when thanks to mass unemployment driven by automation, demand for those government services will be soaring.

What Could a Robot Tax Actually Do?

A robot tax isn’t going to save jobs, but the idea is that it could help cushion the impact of mass automation by funding the idea of a universal basic income. It could be a stipend like Social Security checks are, given to every displaced worker based on the tax collected and what a person needs to escape total poverty and survive. It would be a support for the displaced worker. Does that sound too farfetched and a bit too progressive?

What about using the robot tax collected to fund job retraining centers—assuming jobs will still exist to be retrained for. Well…I don’t have the answer but I do have a lot of questions, that’s for sure.

Not Everyone is on the Robotic Tax Bandwagon

Not too keen on a robot tax, unsurprisingly, is the Association for Advancing Automation. Namely, their objection is concern about being competitive in an explosive young industry. China, in particular, is overflowing with robotics companies. Start taxing our robots and you’re likely to step on our very own capitalistic toes. Ironically, automation helped us create and benefit from manufacturing jobs in the first place. The idea of bringing back manufacturing jobs to the US was in part being enabled by the fact that we can compete when we automated, as opposed to doing the manufacturing in an off-shore low-wage nation. Remember the old phrase “Made in Japan” or should I say China? Or how about Taiwan or Sri-Lanka or India or well, you see my point.

As for Ms. Kim, she’s still exploring her options. Again, she’s no robot-tax evangelist. She’s a politician who, like most Americans, hasn’t yet been replaced by a robot. And bully for that: I, for one, would prefer not being replaced by one, even if batteries were included.

The Scary Part

Here’s what scares me. With all the talk about creating new jobs from our president and the new administration (they project over 20,000,000 in the next decade), have you heard anything about how robotics and automation will be affecting our future? I haven’t heard much.

I was telling my wife while I was writing this that whenever I watch a movie that is set in the future, I always see the technology and robotics working miracles in the lives of the characters, but I rarely see anyone who actually has a “regular job” in those films. In most cases, they either appear to be scientists, government officials, or in the military. Think about that for a second. It seems to me that what the everyday population actually does in a robot/AI world is almost ignored.

If the trend continues, do you see the dangers ahead? What will you or your children do in a world that has so much technology and fewer and fewer jobs? Do you see the technology as a boom or danger?

And if you want to see some interesting robotics and automation, check out this video of a pizza company in California.

About Gary Weiner @ Super Saving Tips

Over the last 45 years I've worked in retail (department stores and supermarkets) and financial planning. In addition, I am a shopper, born and bred, who enjoys the challenges of finding the best items for the best prices. When I'm not busy saving money or writing here at Super Saving Tips, I enjoy baseball, music, and classic movies. I am retired and live in New Jersey with my wife.
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8 Comments

  1. I just don’t buy that robots are going to replace all of us. I do believe they’ll cause a shift in the type of jobs people pursue, but that happens all the time. The concern before this was all the manufacturing jobs that left due to outsourcing. Before that it was computers. When was the last time you met a phone operator? Yet my grand mom and millions like her held that job 60 years ago. That’s just one example but change in job structure is constant. Some other job will become the thing. The key is adaption to whatever humans due after the next structural change. Gear up education now.

    • I hope you’re right, FTF. History does provide the documentation to back up what you’ve said. However, as someone once said, past performance does not guarantee future results. The only thing that I can say for certain is that we have to improve the educational prospects so that our future generations are prepared for whatever comes. Thank you for your comments.

  2. The risk we are facing in the near future is mass unemployment for some categories of workers, combined with lack of skills in other categories – and the political and social implications of such imbalances. Will companies, individual governments and society at large (including educational systems and social safety nets) be able to adapt quickly enough to this new paradigm and create an environment in which all can contribute? For this to happen, all parties will need to collaborate in order to invent a systemic, social and sustainable model for a better future of work.
    Sagar Nandwani recently posted…Finding Social Reviews Of Potential Consultants To HireMy Profile

    • The questions you raise are very good ones. In a future that doesn’t make some adjustments for the advance of AI and robots, the prospects for employment seem much more limited than they are now. While robotics certainly will increase efficiency, future populations will still need to support themselves with some form of income and the question is how that will happen. Thank you for your comment.

  3. I agree with FTF.

    Even if we do lose substantial jobs to “robots”, I’m not currently a fan of the robot-tax idea. The devil is in the details, so perhaps I could be convinced later, but at first glance I don’t like it.

    We don’t tax productivity, we tax incomes.

    Also, consider the reality of the math…

    Look at a fairly standard small business. If they pay an employee $50k then the employee pays perhaps 10% (?) income tax on that money.

    That is an expense to the company though. If the company doesn’t have that expense (deduction) then it is income for them. The business is likely paying close to 50% in income taxes – I know this first-hand from running my own business for 20 years.

    So, even with Trump’s ideas of lowering corporate tax rates, it’s likely that tax revenues would increase in the described scenario.

    Now, this ignores of course the impact to people losing their jobs, which is a real concern for them. But from a tax perspective, I’m not concerned over the proposed (scare-tactic) scenario described.

    They pay an
    Brad – MaximizeYourMoney.com recently posted…3 Super-Simple DIY PortfoliosMy Profile

    • Brad, I’m not 100% sure that the increased productivity from robotics and AI would mean increased tax revenue because of greater profits. From what I’ve read, the actual corporate tax rate in America after all of the loopholes is only 19% on average. In addition, those lost jobs that are happening now and will be increasing will affect the way consumers spend and that may be a detrimental factor to tax collection as well. Those are things that I think about. Only time will tell what actually will happen, but I appreciate your perspective.

  4. If robots become all so prevalent than taxing the robot would be an obvious way to avoid making our governments bankrupt. Automation, when started 2 centuries back, never thought of reaching to this level that even so called skilled laborer’s jobs would be at threat. Earlier automation affected only unskilled laborers but now there seems to be no limit and Matrix appears more real.
    Ron Pickle recently posted…7 Factors Affecting Your Roof’s Life SpanMy Profile

    • Ron, I would feel a lot better if I were to see that local, state, and federal government agencies were preparing our population to deal with the onslaught of robotics into our workplace. Right now, I don’t see any discussion about it and that worries me. Thanks for your comment.

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