Should Robots that Displace Workers Be Taxed?

by Jeff Kerns
Mar 10, 2017

Bill Gates made quite a stir recently when he said we should tax robots that replace workers. As technology grows at an ever-increasing pace, could this be a way to support and fund programs like Social Security and Medicare for an aging country? I am interested to hear what our audience thinks, so please leave your thoughts in the comment section below.

I am not a financial or tax expert, but my initial reaction to this comment was to wonder: If someone were replaced to increase a company’s profits, would those profits be taxed? An article in Forbes stated, “…The Feds still get some 18% of everything, U.S. government at all levels around 26%...” So would taxing robots that replace workers matter? It might.

All salaried workers pay a 7.65% payroll tax to cover Social Security and Medicare, and higher earners owe another Medicare tax, according to Bloomberg. Employers must match this payment in payroll taxes for each worker. If the worker is replaced by a robot, they wouldn’t have to match this amount. In addition, companies can write off the capital investment of the robot through depreciation deductions. So with fewer workers, there are less payroll taxes, and less money that goes toward the programs Gates was specifically talking about.

While the Forbes article makes sense, I think something was missed. There were two points that stuck out to me…

  • Taxing production will reduce it.
  • The government gets its tax one way or another.

First, Gates said nothing about taxing production of the worker or robot. Gates said that companies should pay the same income or payroll tax they would have paid if a human were still working at a specific job. This is based off the worker’s income—not productivity. If Gates said, “We should tax productivity,” the tax would generally increase because robots often improve production, and yes I believe taxing productivity would negatively affect a company’s growth. The devil is in the details.  

In an interview I had with Mark Tarpenning, he mentioned that advancements in technology might displace the individual, but society as a whole still improves. As things become more automated, we may need a new social contract. Taxing the robots that displace workers might be Gates’ way of starting a conversation on this new social contract.

However, there is a trend in which employment increases with robot sales. If we tax robots that replace workers, shouldn’t there be a rebate or incentive if employment is increased overall due to robots? Technology often increases jobs, and demand for more things that leads to more jobs. While I personally do not like this unsustainable model, it is happening. 

While costs decrease, we are buying more. A family may have only had one TV in the past, but today the national average household has 2.93, according to Nielsen.com. This increase in mass consumption, along with increased taxes, means the government is getting plenty of money.  I don’t think more taxes are the answer. Engineers already have to compete with the world. This means we need to make it cheap enough to compete with China, but advanced enough to compete with Europe. But until I have a better idea than Bill Gates, I’m going to listen, and look forward to a productive discussion on new and crazy ideas. Please share your thoughts below.

Discuss this Blog Entry 16

on Mar 13, 2017

You can't tax a robot, its not a person who has an income. But you can tax the owner of the robot, and to do so would not be a good idea because the effect of the tax would be to make the product being created by the robot to become more expensive.

The idea of using the robot is to reduce the production costs, to be less than what was previously done by human labor. This means that over a long time period, there would be less people earning wages and more robot's activity, resulting in some dividends to those who invested in the robots.

Unfortunately there seems to be so much money circulating that the investors in robots will eventually manage to displace many human workers, which suggests that the demand for the more cheaply produced goods (which otherwise would be more, due to the lower prices likely to be charged) will be less (due to fewer sums of money being provided as wages).

So it seems to me that within the "Big Picture" of macroeconomics, a balance between investment in robots and in employment of people must be met or the investors would find themselves with little or no dividends from their robots activities. A tax on robots is in fact a tax on capital investment and when this is included in the above described situation it will result in even less demand for the goods due to their greater prices.

The income to the government from the additional tax would be balanced by the reduced income tax coming from human employment. This means that there is no significant amount of greater employment by the government possible. So the proposal to tax robots is adverse to more economic activity and to national progress..

on Mar 13, 2017

The subject has many effects, as described by my other comment. To properly understand the effect of more robots (industrial investment in machinery) and of taxing their activity, we need to simulate a model of the whole macro-economy. This is not as difficult as first might appear, for which see my book "Consequential Macroeconomics--Rationalizing About How Our Social System Works" an e-copy of which for free may be obtained from me at chesterdh@hotmail.com when you tell me where lays your interest in this matter. This book is the first attempt to make macroeconomics of our social system a truly scientific subject, unlike the pseudo science that has been applied to it is past texts.

on Mar 13, 2017

How can a man that is so smart and has such a deep understanding of both business and technology arrive at such a ludicrous proposition? First, how does one define the word "robot"? Is it any device or system that performs automated physical tasks in an industrial environment? One man's automated system as another man's robot. Second, what are his priorities? Is he concerned that government won't get all the income it's due? What about the revenue from increased profits and productivity of businesses that invest in automation? He himself had to overcome the "what about the displaced workers" argument in the beginning of his career. The fear that computers would displace accountants and bookkeepers all over the world was very real... and completely unfounded. Actually the whole proposal just strikes me as driven by immature spite.

on Mar 13, 2017

The "robot" definition is my immediate concern. Why is a purchased robot, as in the photo, different than a purpose-built assembly machine? If the concern is displaced workers, the same concept applies to agricultural machines, like grain harvesters and milking machines. Then we can get on to construction equipment and mining equipment. As someone else noted, Microsoft's products made many folks more efficient, and in doing so, eliminated jobs, such as the corporate typing pool. I don't see how a tax on robots can be justified that also has a logical limit to the subject of the tax. My mistake - I just used "logic" in relation to legislation - never mind.

on Mar 13, 2017

Like you're getting at EdB_VT, I also think this is a moot point. The logic gets muddy very quickly.

If we were to start using the definition of "robot", or even worse, "something that replaces a human worker" to justify a tax, this would be flawed policy. It would no doubt increase the cost of the end product, stifle investment in automated systems to increase productivity, and make a bad precedent.

This statement from Bill Gates sounds like it stems from a social agenda and not an economic agenda.

on Mar 13, 2017

" Why is a purchased robot, as in the photo, different than a purpose-built assembly machine? "

Is the worker displacement by automation more poignant if the automation is more anthropomorphic?

on Mar 13, 2017

Automation is my career, and I am in a position to witness, first hand, the displacement of good people in the name of profit. Many of these people are exceptionally competent is their former capacity, and would make exceptional technicians, programmers, field installers, etc. for the automated systems that took their jobs, but cross-training into the "automation service" side is out of reach for many people, for various reasons, but chief among these is the expense of the training. Taxing automated systems could provide several benefits, such as slowing the application of these systems which could provide more time for soon-to-be-displaced workers to cross-train, but it seems that allocating a portion of these tax revenues for education grants could provide additional opportunities to escape the sudden loss of income when jobs formerly performed manually become obsolete. The ideals of automation supporting a better quality of life have vaporized into the typical thrust to maximize profits by supplanting the most expensive resource of all, the human. But this can only be taken so far, because unemployed workers cannot afford the goods produced by the machines that replaced them, which is the antithesis of the system put in place by visionaries like Henry Ford, who paid scale far above that paid to industrial workers of the day, allowing these workers to enjoy a better quality of life, while the Ford company still enjoyed record growth. Yes, things are different now, because corporate greed has made profit a priority over humanity, and you can take that to the bank!

on Mar 13, 2017

It strikes me as government social engineering. I'm not a fan because it subverts the natural development process. Societies go thru upheavals and changes because of technological progress, natural calamities, or natural growth. The systems we live in can only handle certain conditions, and once these conditions are altered, society must adapt. These upheavals tend to change who is in power, and those in power have a vested interest in stunting growth so they can maintain their positions of power. Taxing change will only slow the process so that the suffering is long and drawn out instead of quick and done. Since I prefer to pull the Band-Aid off quickly, I'd prefer that the government not hinder change by taxing technological innovation.

on Mar 13, 2017

1) If robots are taxed, do they get to vote? OR
2) If robots displace voters out of a U.S. congressional district, do the displacing robots count as 3/5 voters?
3) Unless there is a monopoly, automation does not increase profits so much as it reduces product prices.
4) Automation is a huge displacer, historically. Nevertheless, automation has resulted in amazing macroeconomic growth over the last century. A lot of people doing a lot of stuff (OK, half of people, the other half is drawing government checks, but it seems to work?).

on Mar 13, 2017

A brilliant man has made a less-than-brilliant suggestion to attack this problem. Bill Gates has suggested that we tax the robots in proportion to the jobs they displace. It is not clear if this is intended to compensate for the lost income taxes no longer paid by the workers that were replaced or to discourage the use of robots. Given the tireless consistency of the output of robots and their ability to function in dangerous and unpleasant environments, they may still be a better choice in many if not most circumstances. The calculation of “robot tax” will be complex and changing as the robots take on more and more functions. Likely a whole new Washington D.C. building will have to be filled with bureaucrats calculating the robot tax and imposing more regulations on American industry. Some categories of employment will increase due to robots!
Rather than making American industry more competitive by reducing business and corporate income taxes and regulations, this approach imposes more taxes and regulations. It seems the fundamental causes of job destruction are not understood. First taxes and regulations drove companies with large numbers of employees out of the country. Having failed to absorb that lesson, we proposed to add new taxes and regulations that will drive out companies with higher skilled workers who take care of the robots. Even fewer jobs will be left. This demonstrates the heavy propensity to use taxation and tax breaks as a solution to too many problems while remaining blind to the damage caused. All too often, higher taxes lead to lower tax revenue as business and industry are demotivated.
Water S Ciciora, Ph.D.

on Mar 13, 2017

We like to apply science to this, by viewing it mostly as an economic or technological issue. That's OK, but it's only part of it. The problem is also very much social. Above commenter made reference to "the other half is drawing government checks." This hints at the concept of government support for displaced workers - large numbers of them, perhaps - with a Guaranteed Minimum Income. This is being tried right now in Ontario, Canada, and in some other places. In one sense, it's better than leaving people to possibly starve. On the other hand, it's not a whole lot better because people who are not productive start to feel bored and useless. Either way, there is social unrest on the horizon, perhaps on a large scale. No clear solution here, but it is certainly worth our attention.

on Mar 13, 2017

"... people who are not productive start to feel bored and useless."
or feel entitled. Wealth that is derived from automation does not come from return on reduced operating cost, but on completely new products and services that are impossible without the automation; no family car without assembly lines displacing hand crafted cars, no cell phones without automated IC displacing handcrafted transistors.

on Mar 13, 2017

Should Robots that Displace Workers Be Taxed?
The topic is not all that simplistic. We do not tax other labor saving commercial and industrial machines. We ignore the labor saving impact of machines to wash dishes in restaurants, convey grain in elevators, dig holes in the earth, cut and form sheet metal and cut grass at home like our lowly lawn mower. Companies know and can calculate annual savings (ROI) yields of each machine they have. Plus machines already get a governmental financial benefit called depreciation.
Here are two of many different approaches moving forward. The first is to apply a simple 10 percent tax on the ROI for each machine. The issue here is to figure out which machines get the charge. For example is it the auto lift at your local automotive repair shop that gets taxed? The second approach is to eliminate machine depreciation and add a labor depreciation for each 10,000 hour block of labor hours paid. This would encourage employment and boost the basic financial situation of millions of people. This improves spending power and improves the economy. A fundamental of commerce is to make money flow. This is a win-win-win concept.
This is also not simplistic but certainly innovative and should kick off some interesting conversations.

on Mar 13, 2017

Suppose that the reduction in the resulting production cost is enjoyed as a greater dividend by the owners of the robots or of the more automated production lines. What happens to the extra money in this individual's possession? He/she will inevitably want to use it for some purpose to be of benefit to him/her self or somebody else in need, and this will involve spending or investing it somewhere.

If we look at the big picture of our social system we will find that even if the extra dividend were to be taken as a tax (or if it were not), this money would be used to give some kind of benefit to somebody through the demand for their greater activity. So when we look at the effect of the greater production efficiency created by the robot we see that its a win-win situation because it means a faster rate of circulation of money and more people being involved. Cheaper goods means more man-power being made available from the saving that results. This man-power meets with the spare cash "needing" to be better used (spent).

The best example was the Industrial Revolution in Britain, where the "curse of the machines" resulted in a reduction of child labor but an increase in schooling when the benefits were transferred into social benefits. There was immediate hardship, but it did eventually result in higher living standards. The robot is not out to get you, but is your friend.

on Mar 13, 2017

It's interesting that Gates does not also include Computers in his tax proposal. These are of course "office robots" that eliminated huge amounts of workers like secretaries and clerks. Microsoft Word eliminated word processor operators. Excel reduced manual calculations. So we should TAX-TAX-TAX Microsoft!!

There's a point that replacing manual labor with robots today will reduce payroll and also taxes. But this has been debated since the beginning of the Industrial Revolution around 1764. The economic benefits of increased productivity exceed the disadvantages over the long term.
The question is more how Social Security should be financed. The US corporation have scored a gigantic windfall by eliminating defined benefit pension plans and replaced them with SS and really cheap 401ks. This has increased profitability - just like automation does.
The current proposal to cut the corporate tax in the US is highly questionable when companies have essentially pushed costs over to the government for increased profits.
Perhaps a portion of SS should be financed with a Federal Sales tax. This way imports also contribute - as well as sales of Microsoft products.

on Mar 13, 2017

In my opinion, the main purposes of all taxes for today's governments have nothing to do with revenue, and everything to do with control. We want you to make this investment over here, but not that one over there. We want you to hire from this pool of labor, but not that one. We want you to buy your raw materials from this source but not that one. Has it ever crossed your mind that if businesses paid ZERO tax on profits, that the total government revenue would probably increase due to the increased activities in other areas? But the politicians won't go for that at all because then they have no control. That little fact reveals their true priorities to me.

Please log in or register to post comments.