The Bill Gates “Robot Tax” is as quaint as it is wrongby@kevinzimmerman
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4,283 reads

The Bill Gates “Robot Tax” is as quaint as it is wrong

by Kevin ZimmermanFebruary 18th, 2017
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I don’t often claim to know better than modern-day genius Bill Gates, but as a <a href="" target="_blank">student</a> of both accounting and <a href="" target="_blank">economics</a> with a masters in taxation, when I heard that <a href="" target="_blank">Gates had proposed </a>taxing robots in order to protect workers who might be displaced by automation, I immediately knew that would be a bad idea. The idea is cute, really. Robots take our jobs, so why don’t they take our taxes? The answer, like a lot in the world tax, lies in the weeds.

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I don’t often claim to know better than modern-day genius Bill Gates, but as a student of both accounting and economics with a masters in taxation, when I heard that Gates had proposed taxing robots in order to protect workers who might be displaced by automation, I immediately knew that would be a bad idea. The idea is cute, really. Robots take our jobs, so why don’t they take our taxes? The answer, like a lot in the world tax, lies in the weeds.

First, let’s set aside the historical understanding in economics that robots — and technology in general — don’t steal humans’ jobs. To the average reader this may seem like heresy, but the majority of economists hold that technology does not destroy jobs, it merely shifts laborers into better jobs. (Sewing machines may have drastically shrunk the number of seamsters and seamstresses, but those individuals are now free to become nurses and chefs.) To think that technology permanently destroys employment opportunity, as Bill Gates suggests here, actually has a name: The Luddite Fallacy, named for a group of textile workers in the 19th century who opposed weaving machinery. Now the term Luddite is colloquially used as anyone who opposes technological progress. Ironic, that Bill Gates has suddenly become its poster child.

So why should we disagree with the majority of economists? Well, currently more of them are wondering what advanced artificial intelligence will mean to our workforce. If a robot could one day replace the most sophisticated of human professions, such as a doctor or a lawyer, then what will those individuals do then? What “better job” is available? We may be approaching that day faster than we think. Besides, all economists admit that in the short term, technology can disrupt personal employment as a laid off worker must spend some time searching for their next job and likely retraining. This could take months or even years. For these points, let’s assume that robots can displace human workers in the long term.

With that settled, the first and possibly most pertinent argument against a robot tax is simply implementation (even if it’s the least sexy out of the reasons I’ll describe). Lawmakers don’t get to operate in the world of economic theory, they must operate in codified law. So how would “robots” be defined for a “robot tax”? Is a robot any anthropomorphic contraption with two metal arms and two metal legs, or does it merely have to be a machine? Does a robot have to take over all aspects of a laborer’s job, or merely part of it to be taxed? These questions may sound boring but any answer proves to be problematic.

If lawmakers decided that only fully formed C-3PO-esque robots were subject to the tax, what happens when a business only wanted to employ its arms? Or its head? Humans don’t have the luxury of altering their humanity to get out of the personal income tax, but robots — and their corporate owners — easily could, and would, find loopholes. On the other hand, if all machines capable of performing human-like activities were subject to the tax, what would that mean to a laundromat owner, or a general contractor, or even that seamstress mentioned above? It would seem crazy to have these businesses paying an additional layer of tax simply because they don’t wash clothes by hand, screw with their finger nails, or hand stitch every garment, but these tools often have computers embedded inside them and could easily be defined as robots. Exceptions could be put into place to protect small businesses, sure, but the amount of regulations needed to run such a tax already seems disproportionately large in comparison to the tax its collecting.

And this isn’t even to say anything about the rights of robots, which although sounds like something out of science fiction, is rapidly becoming an issue we will surely be dealing with. Wouldn’t a robot tax constitute a taxation without representation? Would we need robot lawmakers in our house of representatives before we could implement a tax on their kind? It’s a real question we’ll have to encounter.

But moving out of the bureaucracy, the tax is more detrimental at a macroeconomic level. Like Donald Trump’s proposed Mexican Wall tax, Bill Gates’ robot tax doesn’t take into account its real payers. Sure, businesses would be responsible for collecting the robot tax, but the unfortunate reality is that consumers would feel the end-run burden. Why is this? Well, business owners are seldom content with seeing their profits decline over a tax, so naturally, they raise the prices of their products to make up the difference. This increase would result in higher prices and fewer products produced (versus a world with the robots but without the tax), effectively negating part of the efficiency gained in the first place.

But even further, any time a tax is placed on a consumer product we know that regressive effects are going to come into play as well. Essentially, any tax on a consumer good (think sales taxes) constitutes a larger portion of the customer’s annual income and thus hurts lower income individuals more than it hurts higher income individuals. Although a 15% robot tax on clothing may not mean much to the highest 1% of the population, it would definitely be felt by the lowest tiers. In this sense the robot tax would clearly be defined as a regressive one.

Not to be outdone, the robot tax could hurt inventors as well. If, in addition to a tax on the usage of robots, corporations also had to pay a property tax on them, corporations would be forced to purchase these inventions for a smaller price from their original creators. These reduced prices would lead to inventors being proportionately disincentivized to produce their robots in the first place. This concept is a little more esoteric, but to see how this is the case, consider an inventor with an idea for fully automated hamburger maker which could only be funded if she found a company like McDonald’s to purchase it for $1,000,000. If McDonald’s knew that a 15% property tax was going to be attached on the purchase by the government, they may only be willing to pay $850,000 on the invention, thus leading the inventor to cancel the development altogether in favor of a more profitable one. Clearly, this is a simplified example, but the effects would nonetheless be embedded into the market pushing innovation downward.

As an aside, Bill Gates also proposes that any robot taxes collected should be earmarked for social welfare programs. This is a separate topic, but it seems quite outlandish to think that the government would segment these tax revenues for specific programs rather than lumping them into the overall budget. Not to mention any robot tax (set at a reasonable rate) would do little to patch up the funding of our nation’s welfare programs to get us out of our national debt.

So with all that said, what is the answer? I actually agree with the sentiment Bill Gates has in protecting our workers from unemployment due to robotic automation, but I know the answer is far simpler than a robot tax. We should allow innovations and business to flourish, inventors should be able to create their inventions without any constraint of a robot tax, and we should allow corporations to maximize their profits with the same constraint. The only missing piece here is the one that we as a country seem so unwilling to produce: a baseline level of standard of living guaranteed by the government. Guaranteed healthcare. Guaranteed housing. Guaranteed education. And guaranteed food. These programs should not need to be paid by a nascent group of taxpayers such as robots, they should be paid by the top deciles of our society who have been allowed to snatch up the majority of wealth creation for the last forty to fifty years. Yes, I’m getting political, but it’s because the answer is so simple. Taxing the vast amount of wealth sitting at the top of our society would require no new taxes, no new regulations — simply a better, fairer, implementation of the ones we already have. In fact, the proposal of a robot tax only distracts citizens away from this real solution that we have been avoiding for so long.

So for all these reasons, I wholeheartedly disagree with Bill Gates’s robot tax and hope he can support a plan that would actually solve our problems.