Sunday, February 19, 2017

Bill Gates's Robot Tax

Bill Gates wonders if we should tax robots who take jobs from people:
"Right now, the human worker who does, say, $50,000 worth of work in a factory, that income is taxed and you get income tax, social security tax, all those things. If a robot comes in to do the same thing, you’d think that we’d tax the robot at a similar level." -- Bill Gates
Gates is suggesting taxing robots as a way of financing the retraining of displaced workers -- not as a measure to inhibit their introduction. But, of course, taxes act as disincentives for the taxed activity as well as revenue generators.

Tim Worstall thinks taxing robots is a bad idea "because we don't want to tax production at all." What does Worstall propose instead of taxing robots?  "Exactly the same places we get the tax revenue from today, from some combination of everyone's incomes and or consumption." Worstall believes that since the introduction of robots will increase aggregate production, that will automatically increase tax revenues to offset the lose of tax revenues from the incomes of workers displaced by robots.

Unfortunately for Worstall's argument, he fails to distinguish between physical production and value production and as a consequence overlooks the question of distribution of the latter. There may be a larger quantity of goods and services produced, having a greater aggregate value but a larger proportion of that value may consequently be sheltered from taxes. In fact, it probably is because of tax policies that seek to encourage investment (not to mention tax havens and other loopholes).

In short, taxation is not some exogenous distortion imposed on a fine-tuned, market-based economic machine. It is part of the underlying structure. Whether or not "taxing robots" makes sense, Gates's comments address a real conundrum. Changing the income shares of capital and labor has an impact on tax revenues that is not automatically compensated by aggregate growth of GDP.


ProGrowthLiberal said...

You are being too kind to Worstall. Here is his closing paragraph:

'What Gates is saying here is that we tax the production of the worker and we should thus also tax the production of the robot. But we don't tax the production of the worker at all. We can and do tax the income of the worker (income tax etc) and sometimes too the consumption of the worker (sales tax) but we really don't tax the production of the worker.'

Income taxes do not tax production. Some one call Worstall's free marketers as they think it does.

OK the value of marginal product from robots shows up as profits. Do we tax profits? According to the same free market types we should not. So what do we tax - on yea, consumption only. Which of course is regressive.

But wait - do robots consume? If they do, then will be afforded at their sales tax. Which means they will rebel and take over the world. OK, I have gone a bit batty with this last one but mind you - reading Worstall tends to make all of us batty.

Sandwichman said...

Perhaps what Worstall means is that income taxes on workers don't tax production because workers are "takers not makers." The real makers are the job creating investors who create jobs by eliminating them. It's all so Schumpeterian -- in slogan, if not in substance.

"The market process provides the common man with the opportunity to enjoy the fruits of other peoples’ achievements."as Ludwig von Miser proclaims in his lyrical "Ode to Abstinence."

Myrtle Blackwood said...

Perhaps the more fundamental question is whether it's possible at all to impose such a tax in the first place. Given the size and power of the global corporate networks that are the most avid users of robots.

If you tax them they'll simply up and move their robots to another country.

William Ryan said...

I think it is universally understood that if you tax something you will get less of it. And id you don't tax something you will get more of it. Did Bill gates with all his billions not know this? I was really surprised when I first read this from Gates...I think trump has figured this out long ago but I think Gates was thinking of something more along the lines of a universal wage for the displaced workers of the robots...

Sandwichman said...

Yes, William, if you tax something you get less of it. But have you ever noticed that labor is taxed on its gross income minus some limited deductibles while firms are taxed on their net income?

The impracticality of Gates's suggestion is obvious. The reality of the issue he is raising is more subtle than that.

ProGrowthLiberal said...

Myrtle - it is easier than that. The robots can stay here but the tax attorneys will declare that they are owned by a Cayman Island post office box that charges them sky high intercompany lease rates. This is how Transocean does it with their oil drilling rigs. And Google REIT and transfer pricing and you will get a similar story made in the gold old USA.

Pinkybum said...

Isn't the solution to just tax the rich person's income at a higher marginal rate? I know, good luck doing that because high incomes are a god given right.