Paul L. Caron
Dean


Monday, February 25, 2019

NY Times: Don’t Fight The Robots. Tax Them.

New York Times:  Don’t Fight the Robots. Tax Them., by Eduardo Porter:

Many companies invest in automation because the tax code encourages it, not because robots are more productive.

When Bill Gates floated the idea of imposing a tax on robots a couple of years ago, Lawrence Summers, a former top economic adviser to President Barack Obama, called the Microsoft co-founder “profoundly misguided.” How do you even define a robot to tax it? And taxing innovation is a sure way to make a country poorer. Europe has also rejected the idea. In 2017 the European Parliament soundly defeated a draft motion, proposed by its committee on legal affairs, that recommended considering a tax on the owners of robots to fund retraining programs for workers displaced by the machines and shore up the finances of their social security system.

And yet properly constructed, a tax on automation may not be as destructive as it sounds. South Korea, the most robotized country in the world, instituted a robot tax of sorts in 2018 when it reduced the tax deduction on business investments in automation.

There are two sound arguments for taxing robots.

The easiest is this: Governments need the money. In the United States, income taxes account for half of the $3 trillion collected every year by the Internal Revenue Service; payroll taxes account for another third. ...

The case for taxing robots is stronger when you consider that a lot of automation these days is not deployed to enhance economic productivity. Instead, many businesses are investing in automation simply because the tax code is urging them to do so.

The purpose of taxing robots is not simply to stop them from killing jobs. It is to level the playing field, to ensure that investments in automation raise productivity.

The tax system incentivizes automation even in cases where it is not otherwise efficient,” wrote Ryan Abbott and Bret Bogenschneider of the University of Surrey School of Law in Britain, in an analysis of tax policy toward automation in the United States and other rich countries. “The vast majority of tax revenues are now derived from labor income, so firms avoid taxes by eliminating employees.” ...

In practice, taxing automation is likely to be difficult. Taxing robots would, first of all, require defining what robots are. Would a robot tax also apply to, say, machine tools? Regardless of where we drew the line, a robot tax could distort investment decisions in other ways.

Nonetheless, there is a wide gap between the way that the tax code treats human labor and the way it treats automation. The hole could be filled by reducing tax subsidies on capital investment altogether. Taxes on labor could also be reduced.

We may not want to tax innovation, but there is no reason to subsidize investments that are designed merely to take away jobs. At the very least, a tax on robots would force businesses to think harder about when and where to deploy them.

https://taxprof.typepad.com/taxprof_blog/2019/02/ny-times-dont-fight-the-robots-tax-them.html

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Comments

The E Cary Brown equivalence tells us that allowing expensing of capital items is the equivalent of taxing income from those items at an effective rate of zero. If those items are debt-financed, the effective rate of tax goes negative. My basic tax textbook takes students through spreadsheets illustrating the problems. One of the problems, illustrating the law between 1981 and 1986, involves a real estate project with a negative effective tax rate of over 400%. Porter's point -- that income from robots should be taxed at the same effective rate as income from humans -- should be noncontroversial. Nevertheless, the Code currently favors robots over humans.

Posted by: Theodore P Seto | Feb 25, 2019 2:01:57 PM

Define "robot." Is any electronic labor-saving device a "robot?" Private "robots" or just commercial/business "robots?" Opening another Pandora's Box to provide political institutions access to confiscate people's assets. Government is a bottomless black hole of want and "need" for people's money. Any excuse will do.

Posted by: ruralcounsel | Feb 26, 2019 3:56:21 AM

The logical extension of this idea is that all computer systems would be taxed. Knowing how laws tend to be expanded far beyond the original intent, this is a real danger. For example, a shipping system which generates labels for packages may be considered a robot. Consider the implications.

Posted by: David | Feb 26, 2019 9:38:05 AM

Luddites redux.
IF there is a distortion in the tax code "buy machine," we ought not correct it by a countervailing error. Remove the original distortion. The purpose of the tax code is to raise revenue, not micromanage society.
The underlying issue is that technology may be moving beyond the grasp of an increasing share of the population. A humane society will provide a safety net. Do that directly and transparently, not indirectly.
E.g. minimum wage. We feel 30k/year, $15/hour, is decent. Worker worth $10. The $5 extra must come from all of us, not from a narrow imposition on "retail and related" SIC.

Posted by: Robert Arvanitis | Feb 26, 2019 6:32:25 PM