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Robot Taxes Are A Good Idea As Long As The End Goal Is Basic Income

As automation increases, a new study finds that a tax on companies that buy robots will be beneficial–but only up to a point.

Robot Taxes Are A Good Idea As Long As The End Goal Is Basic Income
“Without changes to the current U.S. tax system, a sizable fall in the costs of automation would lead to a massive rise in income inequality.” [Photo: kynny/iStock]

If companies adopt robots (and other artificially intelligent tools) widely in the future, then calls for taxes on robots–to help offset the lack of income for the workers they’ve replaced–are likely to grow. If people are going to lose their jobs in substantial numbers, then voices will rise for some form of rebate, insurance premium, or basic income for everyday workers–and perhaps a tax on automation to pay for (at least partly) such schemes.

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Bill Gates has endorsed a robot tax as a way of substituting for the loss of government tax revenue. “You ought to be willing to raise the tax level and even slow down the speed” of automation, he told Quartz. “If a robot comes in to do the same thing, you’d think that we’d tax the robot at a similar level.”

The European Parliament winked at a robot tax in a report last summer. Nobel-winning economist Robert Shiller has given it serious consideration. San Francisco politician Jane Kim set up a commission to discuss it. And South Korea has already implemented a sort-of robot tax: It recently reduced the tax break available for companies employing robots–a nod, it was said, to the impact of robots on jobs and income inequality.

“Taxing robots reduces their use and generally results in lower levels of production. For this reason, it is not optimal to tax robots once full automation occurs.” [Photo: kynny/iStock]
Indeed, inequality is a good reason for worrying about robots. If robotization leads to a world where some people are working and some of us are not (perhaps because we don’t have the skills, or because there isn’t the need for human work) income gaps seem likely to grow. Inequality, of course, is already increasing significantly, though whether that’s because of automation is a fiercely contested question among economists.

A new working paper from economists Joao Guerreiro and Sergio Rebelo, at Northwestern University, and Pedro Teles, at Portugal’s central bank, assumes that inequality deepens in a world lacking in work. It considers a situation where automation becomes cheaper and cheaper, allowing companies to reduce what they need to pay workers (who have to compete with the machines). Wages fall in industries that can be automated, going out of step with industries that are not so automatable and where wages keep rising.

“Without changes to the current U.S. tax system, a sizable fall in the costs of automation would lead to a massive rise in income inequality,” the paper says. “Even though routine workers keep their jobs, their wages fail to make them competitive with the possibility of automating production.”

The economists propose taxing the purchase of equipment that replaces routine work, while at the same time increasing the personal taxes of higher earners (who still have jobs). That dampens the attraction for companies to adopt new machinery and it minimizes after-tax differences between higher and lower earners.

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But they say this approach has decreasing benefits as time goes on because automation is a double-edged sword even for low earners. Yes, a robot may put someone out of work, but higher levels of production, which become possible because of new machines, are good for everyone.

Higher productivity leads to economic growth and, all things being equal, more jobs and wage growth. “Taxing robots reduces their use and generally results in lower levels of production,” Rebelo says via email. “For this reason, it is not optimal to tax robots once full automation occurs.”

As the economy moves towards “full automation,” they argue it would be more economically efficient–that is, good for everyone–if we move to distributing a “lump sum”–or a minimum basic income.

The economists disagree with Gates, who argued robots should be taxed to return payroll tax revenue lost by governments. This no longer becomes feasible once robots are a way of life–adopted in every warehouse, factory, and office. Instead, the government would need to transfer “a certain amount to all the agents in the economy, regardless of their occupation or income,” Rebelo says.

The paper is a little theoretical (and being of the “working” variety, not yet peer-reviewed). But its message is practical. If widespread automation is going to exacerbate income inequality (which seems plausible and likely), we need to think about how to redistribute economic resources. A world lacking in work is a world lacking also in a mechanism to parcel out the riches of the future economy. That either has to happen through a tax and/or a social dividend payment like a universal basic income, the economists say.

About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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