Last Week in Tech Policy: #46 Is Taxing Robots Really the Answer?

(by Ben Epel, Colorado Law 2L)

The world is facing a new problem when it comes to innovation: automation and robots increasingly have been replacing individual workers. Robots have moved out of the factories and will soon be coming to a fast food restaurant near you; in 2016, McDonald’s former CEO Ed Rensi said that it is cheaper to buy a $35,000 robotic arm than it is to hire an employee who makes $15 an hour bagging French fries. As robots become cheaper and the need for higher wages increases, what will happen to displaced employees?

What would Bill Gates do? A robot tax. Private companies would be taxed whenever the company replaces an individual with a robot. Gates claims that the government should implement this tax to slow down the rate of automation in the United States. 

Why have a Robot Tax?

The concept seems simple enough. If a worker in a factory earns $50,000 a year, he or she then pays income tax, social security tax, and so forth. However, if a company then decides to replace the worker with a robot, the worker’s tax revenue is lost unless the company is taxed for replacing the worker with a robot. Gates suggests that the money generated from a robot tax would then go to financing education and training to make sure the worker who is replaced is able to find a new job later on.

Gates argues that a government tax would be the best policy because the private sector will not be willing to take on this problem by itself. For corporations the bottom line is key, and there will be no incentives for the companies to continue to train or hire employees if a robot can do that job at the same level for less money.

Is the Robot Tax new?

The idea of a robot tax is not new or unique; the European Union recently tried to implement a similar plan. The EU resolution did not pass because industry representatives argued that it would stunt innovation. The International Federation of Robotics (IFR) has argued that robots actually create new jobs and increases productivity in industrial nations. It points to the increase in the size of the German car industry workforce, as well as the increased demand for medical, domestic, and personal robots over the years. In a study of six countries, IFR claims that only Japan saw a decline in jobs because of the introduction of robots.

If the robot tax is not popular or practical enough to succeed, are there other options?

Universal Basic Income

Universal Basic Income (UBI) is the basic concept that every person should receive a basic income, regardless of wealth, citizenship, or job status. The government would pay every individual a regular cash payment and would not factor in whether the individual was willing to work. This is not just a thought experiment; it has been implemented in the United States and internationally as well in small communities in the United States. It is important to note that the studies have not had samples larger than one city, and it has been difficult to find studies that have been over a long period of time. In Winnipeg and Dauphin, Canada the government experimented with guaranteed annual income (GAI) from the 1974 to 1979. It found that overall people worked less, but that the system had an overall benefit. Unfortunately the budget for the program ran out in less than 4 years, showing a key flaw to the system.

In North Carolina a basic income program was implemented and showed a very positive effect on the lives of the children parents in the community. The Great Smoky Mountain Study of Youth study looked at the lives of Cherokee Indians after each family received $4,000 annually from casino profits. After a decade of studying the test found that the children had lower instances of behavioral and emotional disorders as well as higher levels of conscientiousness, agreeableness, and neuroticism (which is a good thing in low doses.

However, many people are against the idea of a UBI. One critic, Mark Cuban, raised many key questions

  • How much should people receive?
  • Who will pay for it?
  • How will they pay for it?

Cuban observes that the success of UBI programs in developing nations does not guarantee the same results in developed nations. Cuban argues that people find satisfaction in having a job beyond the salary and said that this system might punish people who are looking for jobs.

Hybrid Concepts

To answer the question of how to pay for a UBI, France’s Benoit Hamon suggested creating a robot tax to cover the costs of the program.  Critics point out, however, that the tax would not be able to cover a sufficient UBI for France. Furthermore, a study by Cortes, Jaimovich and Siu to test the hypothesis that robots and automation were the cause of unemployment and career changes in less-educated Americans found that automation would have had to increase several times as fast as it actually has to account for the changes seen so far. There are other factors that need to be accounted for, like outsourcing, globalization, and general workforce trends. A decrease in routine manual work can be due to demographic realities in the shifting economy. It can be a combination of lack of jobs as well as certain demographic groups no longer seeking those types of jobs. The study looked at the introduction of automation from 1989 to 2014 and found that technology alone did not explain why routine manual employment declined.

What should be done?

Are the robot tax and the UBI workable, or can they be modified to become workable? If not, what policies should governments turn to to address the consequences of worker displacement? Finally, should people fight automation of certain jobs, or merely accept it as the inevitable harm caused by progress?