A Taxing Dilemma:Robot Taxes and the Challenges Of Effective Taxation of AI, Automation And Robotics In The Fourth Industrial Revolution
Written By Robert J. Kovacev

Introduction

Michele Wucker coined the phrase “gray rhino” to describe a “highly probable, high impact threat” that leaders “ought to see coming but nevertheless fail to recognize and react to in time.”2 The impact of the rise of artificial intelligence (“AI”), robotics, and automation on the tax system falls squarely within the definition of a gray rhino. Technological change promises major dislocations in the economy, including potentially massive displacement of human workers. At the same time, government revenues dependent on the taxation of human employment will diminish at the very time displaced workers will increasingly demand social services. It is undeniable that drastic changes will have to be made, but until recently there has been little appetite among policymakers for addressing the situation.

One potential solution to this dilemma has emerged in the public discourse over the past few years: the ‘robot tax.’3 This proposal is driven by the idea that if robots (and AI and automation) are displacing human workers, and thereby reducing tax revenues from labor-based taxes, then the robots themselves should be taxed. In theory, this kills two birds with one stone: the robot taxes make up the shortfall caused by reductions in income and payroll taxes, and the revenues raised are used to support and retrain the displaced workers. To supporters of a robot tax, “a taxation of robots, or the use of robots, represents a powerful and interesting alternative solution to a potential crucial issue: the decline, or at least the complete change, of labor market and the distributional implications on persons of the growing use of automation.”4
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