As artificial intelligence (AI) and automation continue to advance at an unprecedented rate, their impact on the labor market cannot be ignored. While these technologies bring numerous benefits, including increased efficiency and improved productivity, they also pose challenges, particularly in terms of job displacement. As societies adapt to this evolving landscape, it becomes essential to reevaluate our tax systems to ensure fairness and sustainability.
In this article, I will explore why taxing AI and automated services based on their productivity is a viable solution, one that can mitigate the effects of labor displacement while addressing the potential decline in local and state tax revenues. I will also purpose an alternative Fair Wage System managed by a Labor Department instead of relying on the idea of a minimum wage.
Job Displacement and Economic Implications
AI and automation have the potential to replace many jobs that were traditionally performed by humans. Tasks ranging from manufacturing and transportation to data analysis and customer service are increasingly being automated, leading to potential job losses and income inequality. This displacement can have significant economic consequences, such as reduced consumer spending and increased dependence on social welfare programs.
We are currently sitting at a cross roads between the cost of labor and the affordability of AI and Automated solutions. No longer does the minimum wage increase mean that low-skill workers will be brought lifted out of poverty with a livable wage. It means that businesses now have affordable and comparable options to diminish labor costs.
Taxation as a Mechanism for Social Equity
It is important to understand that when labor is reduced, there is often a reduction in local and state taxes which directly affects communities. If the workforce were to ever be replaced or reduced at a significant rate, due to the rise of AI and automated technologies, it would severely affect budgets for government, education, and social programs.
One could suggest increasing the corporate tax to account for AI/Automation tools, or maybe an income tax per robot is required in order to maintain some fiscal sustainability. Either way these taxes and costs of the tax would likely be passed down to the consumer thus increasing costs of products generated by AI and Automation.
In my opinion, taxing AI and automated services based on their productivity is the best approach, as governments can generate revenue to invest in programs that promote social equity and address the challenges posed by labor displacement. This approach ensures that the benefits derived from automation are not concentrated solely in the hands of corporations or the wealthy but are instead shared across society. The revenue generated can be utilized to fund retraining programs, provide assistance to affected workers, and support the creation of new industries and job opportunities.
Mitigating Revenue Shifts
As AI and automation take on a larger role in the economy, the tax base may shift from labor-intensive industries to technology-driven sectors. This shift has the potential to reduce local and state tax revenues derived from income taxes, payroll taxes, and sales taxes. To maintain fiscal stability and ensure adequate funding for public services, governments need to adapt their tax systems to capture a portion of the value created by AI and automated services. Taxing productivity can help offset any decline in traditional revenue sources, ensuring a fair distribution of tax burdens while supporting essential public services.
Trigger Alert: It’s pretty clear at this point that the idea of a minimum wage is a double edged sword. What was expected to pull low-skill workers out of poverty, but is actually having the opposite effect in the long term. Each time the minimum wage increases, automated technologies become more affordable. We could certainly get into the details of how wages increase the price of goods and products which leads to inflation and results in the worker being back at square one trying to make a fair wage. (Price-Wage Spiral)
Example: An employer could hire an employee full time for $15 an hour. This is likely around a $31,000 ANNUAL salary. Employers must also offer health insurance. The employee is mandates a break, and days off. The employee could be cooking burgers for eight hours per day.
Now comes the technology, for one time, $30,000 you can buy a robot to cook burgers all day. You don’t need to pay for health insurance, the robot can perform 24/7, and and the employer can begin to focus on quality. Not only that, the manufacturer of the robot would likely provide updates that enable the robot to be faster and more efficient.
There is increasing evidence in cities which have $15 minimum wage where low-skilled workers are seeing unintended implications of a raised wage in which their average working hours are reduced, and there is even some evidence that raising the minimum wage is causing an increase in homelessness. The consequences of raising minimum wage have resulted in increase racial inequality, and thereby suggesting that the minimum wage laws are not in favor of bringing the lower class out of poverty.
High paying corporate white collar workers are not safe either, Robot Process Automation within industries such as finance, healthcare, life sciences, and government is disrupting task oriented jobs.
Example: An insurance claim specialist who reviews Emergency Room claims daily. The specialist often observes and handles similar or common claims like hand stitches from an injury. With an RPA Agent that can observe, identify, and recommend process changes, could automate and perform the common claims itself thereby eliminating the need for a manual review. Such changes could allow an insurance company to reduce staffing and focus on the more technical complicated claims which may have multiple procedure or diagnosis codes.
The majority of the tax lost to states and local municipalities will be lost when middle-class jobs are eliminated or automated away.
A Fair Wage System might be able to track an average or fair wage per job / career. The labor department would act as the middle man in evaluating the skillsets of workers and negotiating a fair wage. This would ideally allow someone who lacks the skills for $15 an hour to be hired. (This type of person may have mental, addiction, or education limitations). This compromise between employer and labor department is intended to help low-skilled, poverty workers. This type of system also benefits everyone involved. The state makes tax revenue, the employer has a fair wage employee to solve their problem or task, and the worker has a purpose and income which may enable them to become an asset as they build skills, eventually making beyond the initial negotiated fair wage.
Regardless of the job or career, these disruptions and unemployment are going to place pressure on social programs as income, sales, and property taxes are diminished by lack of human produced income stemmed by reduced labor opportunities.
Assessing Productivity for Taxation
Determining how to tax AI and automated services based on productivity requires careful consideration. One possible approach is to establish a tax rate that reflects the degree to which these technologies displace human labor. This can be measured through indicators such as the number of jobs replaced, the cost savings realized by businesses, or the economic value generated. By linking taxation to productivity, governments can create a system that captures the economic benefits generated by automation while maintaining fairness and accountability.
Encouraging Responsible Innovation
Taxing AI and automated services can also incentivize companies to invest in responsible innovation. By implementing a tax structure that considers productivity and the potential impact on the labor market, businesses are encouraged to develop technologies that complement human labor rather than replacing it entirely. This approach promotes the creation of hybrid systems where humans and AI work together, fostering a more inclusive and sustainable future of work.
While no country has implemented a ‘Robot’ tax, there have been a few that have considered it. Some believe reducing the minimum wage would create more jobs, maybe even eliminating the minimum wage, but that appears to be fruitful idea, as the cost of Innovation, Robotics, and Automation is decreasing rapidly.
Lastly, the rise of AI and automation presents both opportunities and challenges for society. While these technologies have the potential to increase productivity and efficiency, they also disrupt the labor market, leading to job displacement. Taxing AI and automated services based on their productivity offers a way to address these challenges, ensuring a fair distribution of benefits while generating revenue to support affected workers and invest in future job creation. By carefully designing tax policies that adapt to the changing economic landscape, we can embrace technological progress while safeguarding social equity and fiscal sustainability.