Automation plays a substantial role in today’s economy and its impact will only increase in the future. One risk associated with this process is that automation could outpace societies in terms of our ability to deal with large-scale job displacement. If so, mass unemployment and structural public budget deficits would be the result. An oft-heard solution entails slowing down the pace of automation through changes in our tax regimes.
As French intellectual André Gorz stated in 1988, “The abolition of work is a process already underway … The manner in which [it] is to be managed … constitutes the central political issue of the coming decades.” In fact, automation and job displacement have been commonplace since the start of the Industrial Revolution and, so far, mass unemployment has never been the result (although one might question whether displaced workers are actually better off in their new jobs). Yet, this time around, with AI and robotization threatening an unprecedented number of jobs, concerns foster a debate on possible actions to shield our economies from the dangers of automation. Among the proposed solutions, the introduction of automation taxes stands out.Currently, most countries incentivize automationia depreciations and tax deductions on capital investments. The idea behind such incentives is that governments should stimulate innovation and productivity to support GDP growth. AI-tax opponents contend that automation increases productivity and that taxing innovation will slow down economic growth. Interestingly, one of the main arguments for taxing automation stems from this exact concern for ensuring a thriving economy. Professor Acemoglu argues that automation does not necessarily favor efficient investments in productivity. Indeed, the structure of capital taxation favors automation even when it is not the most efficient tool to achieve growth. Implementing a tax on automation would make investments in AI more efficient, by eliminating their distorted comparative advantage with respect to labor investments.Another economic justification for implementing automation taxes is the imbalanced composition of government tax revenues. AI-tax enthusiasts worry that automation will create massive unemployment and that payroll and employment taxes will be lost as sources of government revenue. To make matters worse, public expenditures for unemployment schemes, social security and re-training of displaced workers will grow accordingly. On the other side, AI-tax opponents claim that taxing automation would only lead to increased outsourcing of labor to developing countries and hence to decreasing job security and ultimately a further reduction of tax revenue and increase of aforementioned expenditures. According to them, we should focus instead on alternative measures such as wealth taxation, in-firm re-training of workers and new forms of labor compensation (e.g. universal basic income and minimum wages).Most of today’s proposals to tax automation are quite moderate and seek a balance between protecting employment and stimulating economic growth. These are mostly based on indirect taxation, i.e. on reductions of current incentives for investments in automation. For instance, Professors Abbott and Bogenschneider suggest that firms with high levels of worker automation should have less tax depreciation on capital investments. Similarly, a recent study by the University of Oxford and the Singapore Management University proposes cutting the depreciations on investments depending on their effect on employment. They contend that some automation processes substitute employment while others complement it and that only the former should be taxed.Other proposals are more radical. For example, in The Software Society, William Meisel asserts that businesses that replace human labor with automation should be asked to continue to pay payroll taxes for displaced workers even after they stop working. Critics of such taxes point to the fact that it is hard and extremely costly to determine the targets of automation taxes, and we should thus find simpler solutions. Besides concerns over the practicalities of automation taxes, there are disagreements on the rationales for implementing them. Nonetheless, policy proposals on how to regulate the effects of automation share common goals that suggest a common directionality towards more focus on redistribution and job security and new sources of government revenue.