Governments will need to balance their responsibility to sustain employment and the social fabric with the need to support new technologies that could bolster future economic growth.
Tax threat
Determining a course of action will not be easy for governments as businesses accelerate their use of AI and robotics — whether physical robots in the factory or robotic process automation software in the office.
On one hand are complex and critical tax questions. If job losses cut into countries’ income tax revenues, how would governments fill the gap in their treasuries?
What will be the public cost of continually reskilling populations for an ever-increasing-tech world, as well as providing adequate support for people put out of work by robotics and AI?
On the other hand, governments want to encourage technological innovation, and putting taxes or regulation on new technologies at an early stage could hinder their development.
Experimental solutions
Some academics and governments are already conceiving and experimenting with targeted tax and wage solutions. Even the most fundamental tax precepts could be rewritten, according to Charles Davis, EY Global Tax Lead Analyst in London.
For example, effective corporate income tax rates tend to be lower in many countries than the effective tax rate (i.e., income and social security taxes) that employees pay on their wages.
So an increase in corporate profits and reduction in employee costs because of the use of robotics would produce less tax revenue for the government as employees are taxed at a higher rate than businesses.
“The balance between the two could become a really tough question, over time, because — if value creation moves from being delivered by humans to robots — you’re talking about quite a big potential hit to government revenue,“ Davis says.
Many suggestions, few answers
In an interview with Quartz in early 2017, Microsoft Co-founder Bill Gates caused a stir by suggesting the creation of a “robot tax” — basically, taxing a robot at a similar level to a human worker performing the same task. One way could be by taxing profits generated by the labor-saving efficiency of robotics and AI, Gates said in the interview.
During the past year, proposed tax solutions have only proliferated. For example, taxing capital investment in automation could be an alternative to taxing profits.
In another twist, a robot tax could be paired with minimum income payments for everyone, since a robot tax alone would have to be extremely high to address societal goals, according to research by Sergio Rebelo, a professor at the Kellogg School of Management at Northwestern University, and Pedro Teles, a professor at the Universidade Católica Portuguesa.
There is growing discussion about the merits of a universal basic income in the AI age, providing all individuals with a minimum amount paid regularly and unconditionally. Proponents argue that the approach could actually incentivize entrepreneurship, volunteerism and other socially desirable outcomes.
One World Economic Forum (WEF) panelist this year broadly suggested eliminating corporate tax breaks and subsidies to support a universal basic income for all, regardless of work status.
A pilot of the basic income concept is planned for Stockton, CA, in 2018. Finland is expected to publish the results of its pilot at the end of 2018.
Other alternatives include wage insurance, which could provide incentives for workers with old-economy skills to take a pay cut in the short term as they get on-the-job training for 21st-century positions, according to a white paper co-written by Kellogg School Professor David A. Besanko.
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Giving — and taking — incentives
In a report released in January 2018, the WEF called for a “reskilling revolution” saying that, “For companies, reskilling and upskilling strategies will be critical if they are to find the talent they need and to contribute to socially responsible approaches to the future of work.”
As for governments, “reskilling and retraining the existing workforce are essential levers to fuel future economic growth [and] enhance societal resilience in the face of technological change.”
The question is how to pay for that training. One proposed solution would be a financial transactions tax or a new tax on high-net-worth households to fund job training, according to Besanko. This would be in lieu of a robot tax, which critics warn could slow innovation.
Tax incentives are also cited as a possible solution. For example, tax credits could go to companies that hire and retrain displaced workers, suggested an op-ed written by a tax lawyer in the San Francisco Chronicle, which also pointed out that the new US tax law provides more incentive to invest in automation equipment than in jobs for people.
Looking ahead
As the debate over robotics, AI, the future of employment and the impact on tax continues, businesses need to monitor the situation closely. At a minimum, they need to understand the one- to three-year horizon — and plan for various tax and employment scenarios as part of their strategy for digital transformation.
Corporate training programs should be continually reevaluated, given the acceleration of these advanced technologies and the growing intensity of the surrounding debate.
Businesses should also help policymakers understand the nature of robotics and AI, as well as their implications for the future economy and the future of work.
Governments will need to balance their responsibility to sustain employment and the social fabric with the need to support new technologies that could bolster future economic growth.
This article was originally published in Tax Insights on 15 March 2018
Summary
With robotics and artificial intelligence continuing to spread into all corners of the business world globally, the debate whether both will create greater opportunities or problems is heating up. |