The Case Against Taxing Robots

Abstract

A disturbing trend in the world of public policy in recent years has been the extent to which fads and groupthink now shape public debates and galvanize support for ill-advised ideas and proposals. In the first phase of this process, someone — often a person of some notoriety, but not necessarily expertise — puts forth a new idea or claim, which is then amplified by a media increasingly focused on marketing the next new thing. Then comes a wave of articles, speeches, blogs, op-eds, and of course TED Talks, all providing supporting “evidence” and arguments for why the initial idea is the “best thing since sliced bread.” Voila: What begins as a loopy, even harmful, idea is now all the rage. Once this critical point of no return is reached — when “everyone” knows something is true — policymakers have only a short distance left to travel to turn what appears to be an inspired analysis into actual law. In the subcategory of science, technology, and innovation policy, there is no better case in point than today’s increasingly popular view that governments should increase taxes on capital equipment. Or, as the advocates say, “It’s time to tax the robots.” This idea has been around for a while, and gained considerable traction in 2017 when Microsoft founder Bill Gates argued, “At a time when people are saying that the arrival of that robot is a net loss because of displacement, you ought to be willing to raise the tax level and even slow down the speed of that adoption somewhat.” After all, as a technology pioneer and billionaire, Bill Gates is anything but a tin foil hat-wearing Luddite. Since then, the calls for taxing those job-killing robots have become a veritable tidal wave. One can barely go a week without reading yet another article or comment on the topic. Robot taxers make three main arguments in support of their position: As this paper will show, all three arguments are wrong. At the end of the day, robot taxers are suffering from and contributing to a techno-panic over jobs. “Help!” they cry, “Robots are coming for our jobs! We can’t just eliminate any policies that support automation; we need to proactively erect barriers to it.” In fact, moving in that direction would be the worst possible thing for policymakers to do. Given that the U.S. economy has been in an unprecedented productivity growth slump for more than a decade, and the massive baby boom retirement wave is rising, economies desperately need faster productivity growth to have any hope of increasing after-tax wages faster than some minimal rate of growth. The last thing policymakers should do is reduce the incentive for companies to invest in new machinery and equipment, as that would slow down needed productivity growth. Instead, with first-year expensing provisions set to expire automatically at the end of 2022, one of the best things Congress could do to ensure strong growth in the future would be to make that provision permanent and then couple it with an investment tax credit.