Governments should tax capital, not labor, as AI makes human work less central to the economy

First of all, our tax system taxes wealth less than it taxes work. That's a problem. That's an even bigger problem now that AI is coming for jobs because there's basically a thumb on the scale, a subsidy in effect from the US government saying, giving you a little more reason to …

In the United States, for example, labor income is taxed significantly more than capital income. If a business pays a worker $100, it will have to hand over as much as $30 in tax and spending obligations. But paying $100 for automation equipment leads to a tax burden of less than…

Our tax system basically gives companies huge tax savings when they automate a job, because we currently tax wages but not AI. If you replace a worker with an AI-powered robot, you save on payroll taxes: That’s functionally a tax break. That’s wrong, and an AI tax would start to …

The right answer is the opposite and simpler: stop overtaxing labour relative to capital. Close the gap that the tax code has opened between a human and a machine, so that the choice between them is made on real productivity and not on fiscal arbitrage.

The tax code in the US and many other countries places a heavier burden on firms that hire labor than on those that invest in algorithms to automate work. [...] Policymakers should aim to create a more symmetric tax structure, equalizing marginal tax rates for hiring (and trainin…

Should artificial intelligence cause mass unemployment, workers will not be thrilled. But neither will the taxman, even if he hasn’t been automated. For most of the past century, rich countries have had simple rules for sharing prosperity: raise money mostly by taxing work and co…

If AI leads to a transformation, where the labor share goes down by a lot more and the capital share goes up by a lot more, you can't run the kinds of programs you're running, in terms of entitlements, without having a higher capital income tax. It's just not viable.

AI threatens to erode the first pillar—taxes on labor—by reducing demand for human labor across many occupations. [...] The main burden of taxation will have to shift away from labor.

While we project that AI growth will raise revenue, without substantial changes to how the U.S. taxes capital income, the federal government will be leaving a lot of revenue on the table.

If governments continue to rely on wage taxes while fewer people earn wages, the system will stop working properly. Changing how profits are taxed helps ensure tax revenue continues to align with where the money is actually being made.

The AI economy should not become another engine for inequality. The wealthiest beneficiaries of AI should pay their fair share just like working people do.

What is reasonable to assume is that with AI, the share of gross domestic product that goes to capital will increase at the expense of the share that goes to labor. There will be fewer workers needed for the same level of production. This can only increase inequality, since capit…

AI will favor capital over labor in the historical capital versus labor battle, and so there’s no reason in the AI age to have a capital gains tax that’s different than ordinary income tax.

Labor income is subject to both payroll and income taxes and has high tax compliance rates due to third-party reporting. Capital income, including income from excess profits, is often lightly taxed in the United States and has lower compliance. [...] While labor income is already…

In the AI era, a portion of excess profits should be returned to the entire public.

Corporations are already laying off workers and raking in the profits from AI systems trained on human work – without ensuring workers share in those gains. That's why Congress needs to act now by preparing the economy for AI, creating guardrails so it augments workers instead of…

The legislation would dedicate revenue generated by limiting bonus depreciation for AI data center infrastructure to a National Workforce Transition Fund supporting worker retraining, individual workforce training accounts, employer retention and redeployment grants, tuition assi…

And much of the data center buildout is to advance new technologies that could lead to substantial workforce upheaval. The U.S. has been caught flat-footed in the past by the labor impact of major technological shifts. This time, we need to be ready. To address the impacts on com…

American communities are rightfully questioning whether the rapid buildout of data centers across the nation will benefit them, as local disruptions rise and Americans grow concerned about the long-term career prospects of millions of workers. These proposals are a first step tow…

If AI-driven labor displacement ends up being large in magnitude and permanently drives down the demand for labor, it will likely be necessary to go beyond mere incentive programs to long-term income support for a significant fraction of the labor force. Mechanisms such as univer…

Higher taxes on capital income reduce the return on investment, weakening firms' incentives to invest in AI infrastructure, advanced equipment, and productivity-enhancing technologies, which in a global environment where countries such as China are aggressively investing in AI co…

Raising the cost of all those innovation- and productivity-enhancing uses of computing would unequivocally harm American productivity, innovation, and global competitiveness. Knowingly imposing these costs on ourselves because of concerns about certain disruptive consequences of …

We should not respond to AI by taxing capital, compute, data centers, or other forms of productive investment more heavily. And we definitely should not pretend that taxing servers, chips, algorithms, or machine-intensive infrastructure solves the deeper problem.

Why pick on robots? [...] I don't think simply trying to resist or stop technology is a viable strategy. I don't think it would be a viable strategy if it was adoptable on a global basis, but it's even less viable for a single country in international competition. A sufficiently …

Policymakers should not focus on slowing the development of AI through an AI compute tax; they should focus on helping workers transition to a labor force increasingly augmented by AI.

As such, policymakers should refrain from changing the tax base on the assumption that labor income will decline while corporate capital gains increase. Instead, they should focus on diffusing AI across the economy to ensure U.S. businesses remain globally competitive and on supp…

Policymakers should not adopt tax policies designed for outlandish AI technology scenarios, but some policies are justified regardless of scenario, such as shifting to consumption-based taxation and reforming unemployment insurance and the tax treatment of worker training.

One approach gaining support is to slow the displacement of workers with new taxes on AI services and investments. [...] The challenge these proposals aim to address is real — but trying to hold back the tide is the wrong answer.

The proposals differ in detail, but they cite the same story: Labor’s share of national income has declined, and AI is accelerating workers’ losses by shifting more economic activity to capital. The tax code makes all of this worse by undertaxing capital relative to labor. Every …

The features of AI that people worry about (easy substitution between capital and labor, mobile capital, self-replicating infrastructure) are exactly the features that make capital taxation counterproductive.

“Out of six popular policy fixes, we find that five of them fail,” says Tsoukalas. “In our model, only a tax on automation itself actually changes the calculus. Most of the policy debate assumes displacement will happen and focuses on picking up the pieces. That’s all necessary, …

To date, BPC has not taken a position on whether AI should be taxed and does not endorse any particular option in this issue brief. [...] The code treats labor and capital differently: Employers owe payroll taxes on wages, while investments in equipment and software receive more …

Avoiding blunt “robot taxes,” strengthening capital income taxation at the individual level with safeguards against base erosion, and leveraging AI to improve compliance and enforcement are important across scenarios.

Because effective tax rates on labor substantially exceed those on capital, a shift in national income from labor toward capital means the current tax system captures a shrinking share of a growing economy, even as the cost of sustained income support rises. Potential revenue sou…

As labor income taxation becomes less viable, the primary lesson is that consumption taxation must carry more fiscal weight. This shift aligns naturally with pro-innovation policies, as consumption taxes avoid penalizing the capital investments essential for future innovation. [.…