Should robots pay tax?

Bill Gates, Microsoft founder and the richest man on the planet, made headlines recently with a call for a tax on robots, to equalise some perceived advantage in employing robots in preference to people. “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,” he told the online magazine Quartz. “If a robot comes in to do the same thing, you’d think that we’d tax the robot at a similar level.”

Mr. Gates is of course aware that the adoption of robots in industry would be slowed down by his proposed tax, but that is a price he is apparently prepared to pay in order to lessen the impact of technological advances on workers who are squeezed by the efficiency of their robot competition. Although there is a distinct Luddite tint to his proposal, Mr. Gates does clarify that the workers relieved from their duties by robots should re-skill themselves and find work in other areas where there is less competition from automatization. But that doesn’t detract from the fact that the idea is regressive; a backward policy idea from one of the most visionary persons of the 20th century. And Mr. Gates is not alone in promoting this type of policy. The Socialist candidate for France’s presidential election, Benoît Hamon, has proposed a similar tax, with the proceeds used to fund a minimum income for all.

What should we make of these ideas? For starters, if Mr. Gates proposal was to be accepted as a viable idea in theory, how would it work in practice? It’s tricky. How do you define a robot? Is a combine harvester a robot for example? How about an ATM? Whatever the definition, expect factories to be filled with machines which are clever but just fail to meet the definition of “robot” such that it is not taxed.  Competition between companies producing robots will be skewed towards producing not the best product they can make, but the best product given that is must not be good enough to meet the tax authorities’ definition of a “robot”. Is that sort of regressive world really what the Microsoft founder is yearning for?

It is of course very reasonable to worry about inequities in the cost of labour and capital goods. Now, the fundamental problem for labour is that while we humans have many qualities such as intelligence and flexibility, we are expensive: people need medical care, childcare, pensions and all sorts of other stuff which a machine doesn’t. So our productivity needs to compensate for that, and as robots get increasingly sophisticated that becomes harder. But in one respect Mr. Gates is correct in his claim that humans are at an unfair disadvantage: the income tax, to the extend workers hand over more in tax than they would otherwise pay for the services they receive from the government, is a tax on jobs. The solution to creating a level playing field between humans and robots is therefore really simple: stop taxing labour. Cut public services and let workers meet those expenses from gross income; in turn forcing employers to meet the real cost of supporting the living of their employees, but not their tax liabilities. This is very likely to lower the cost of labour, but that of course is not an aim in itself.

Mr. Gates is therefore right when he calls for equitable treatment of humans and robots in production. But that means each being priced at the true cost of employment, and slapping a tax on robots does nothing to meet that objective.

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