Robots shouldn’t be taxed
Alittle-noticed consequence of the tax reform law signed by President Trump is a dramatic increase in tax incentives to acquire robots instead of hiring workers. Businesses can claim a 100 percent up-front expense deduction for purchasing automation equipment displacing human workers. There is no equivalent tax benefit for preserving or increasing jobs for humans.
In February, Bill Gates embraced a seemingly simple answer to this problem: If robots are taking jobs away from humans, then tax the robots to slow the pace of automation and use the money to benefit displaced workers. Since then, proponents of a robot tax have gained momentum across the globe, with proposals surfacing in the United Kingdom, South Korea and elsewhere.
The rise of automation and technological advances in artificial intelligence means more and more people will face the risk of being replaced by a machine or algorithm. A recent report from McKinsey & Co. estimates that up to one-third of all jobs could be automated by 2030.
Now, the leader of a statewide effort in California to impose a tax on businesses installing “robots, algorithms, or other forms of automation,” is a candidate for mayor of San Francisco. If a robot tax can be enacted in San Francisco, the epicenter of innovation, the momentum for such proposals elsewhere will only increase.
The enthusiasm of robot tax proponents is matched by the lack of detail on how such a tax would work. Unfortunately, robot taxes are so difficult to administer that they would not solve the problem they are meant to address.
The first problem is how to define what a “robot” is. Does it include the laptop on which I’m writing this article, which arguably displaced a professional typist? How about an ATM, which takes the place of a bank teller?
Who would pay a robot tax? Robots don’t earn wages or own bank accounts, so a tax on robots will be paid either by consumers directly, or by businesses that will inevitably pass the costs along to consumers. Either way, a tax meant to help human workers would punish human consumers.
How is the tax to be calculated? Proponents usually reference the amount of payroll taxes that would have been paid by the now-displaced workers, as if there is always a clear correlation between jobs lost and robots acquired. Real life is not so simple. Assessing a robot tax would degenerate into a fact-specific debate between the IRS and businesses over whether, and how many, workers were actually displaced.
Based on my own experience litigating tax cases, I know a robot tax would inevitably lead into a morass of tax disputes that would benefit only tax lawyers and accountants.
The risk of displacement by automation is a real concern, and tax policy can be part of the solution. A tax credit for employing and/or retraining displaced workers would provide such an incentive. So would a cut in the payroll tax, which essentially punishes employers for hiring human employees. The efforts of policymakers should be dedicated to finding real solutions to the problem of workers displaced by automation. Robot tax proposals make for great sound bites, but they don’t work.
Robert Kovacev is a tax partner with Steptoe & Johnson LLP, a Washington, D.C., law firm. He was formerly senior litigation counsel at the U.S. Department of Justice, Tax Division.