Robot tax: Do androids dream of personal deductions?

Technology revolutions sometimes have unexpected long-term consequences for the finances of a nation - and its citizens. A century ago, the US tax system was changed permanently by the social upheaval caused by a wave of new technology sweeping through agriculture and transport.

"Farmers were up in arms, and that largely caused the Progressive movement," says Joel Mokyr, an economic historian at Northwestern University in Chicago. Along with anger at the great fortunes amassed by the industrialists of the gilded age, these pressures led to the introduction of a permanent personal income tax.

If that earlier bout of technology-fuelled disruption brought such deep social and fiscal dislocation, then it may pale in comparison to the effects of the latest advances in robotics and artificial intelligence. "The number of jobs lost in 1890-1914 was nothing like today," Mr Mokyr says.

This time, however, it could be the machines that end up paying the taxes.

That, at least, was the idea emanating from an unlikely source last week. Bill Gates, the world's richest person, suggested that a fiscal rethink may soon be necessary. If the latest wave of automation causes large numbers of job losses, the Microsoft co-founder said, then taxing the robots and using the money to retrain the humans may be one way to deal with the upheaval ahead.

Mr Gates claimed a further potential benefit from a robot tax: By slowing the pace of automation and putting fewer people out of work, it might reduce the risk of a more serious backlash that could lead to some new technologies being banned altogether.

But to deliberately delay technologies that could bring sweeping benefits is guaranteed to stir unease - not least among the engineers and entrepreneurs working in the fields of robotics and AI.

Taxing technology directly was not the only idea floated by Mr Gates. An alternative, he suggested, would be to tax the higher profits that come from higher productivity. But by broaching the idea of a robot tax, one of the most successful capitalists has placed himself in unlikely company. A number of European politicians, including Benoît Hamon, the French Socialists' presidential candidate in the April election, have backed a robot tax. The idea was also proposed recently in a report to the European Parliament, though it was dropped this month.

A robot tax is not completely out of line with some aspects of tax policy today, says David Autor, an economics professor at the Massachusetts Institute of Technology. "We tax phone lines to cover universal service. We tax housing to help pay for public housing," he says.

But a sweeping impost on the fruits of robotics and AI - the driving forces behind expected disruptions such as driverless cars and smart computers capable of replacing many human analysts - would represent a fiscal intervention on an entirely different scale.

Critics claim there are plenty of reasons why taxing automation would be a bad idea. One is that it is not at all obvious how job-destroying technologies could be identified or taxed.

"Robots" are not always easy to identify. The term conjures up images of humanoid machines that simply step into the shoes of the humans they replace. But most forms of automation usually involve technologies that cannot be directly linked to specific job losses.

"A robot is not a unit equal to a human," says David Poole, a self-declared "automation optimist" and chief executive of Symphony Ventures, which advises companies that are automating their processes. "Most are not physical robots, they're software robots. It's no different, really, to a spreadsheet."

Many software programs and computer services, for instance, will soon be infused with machine learning, feeding a higher level of intelligence into most technologies. It would be impossible to create rules for tax purposes that define which of these systems are job-killers.

A similar problem stems from trying to target technologies that wipe out old forms of work without harming those that create the jobs of the future. Often, in fact, they are one and the same. The personal computer - ironically, the machine that accounts for Mr Gates' $86bn fortune - is a case in point.

"Before we had PCs, we had spreadsheet clerks. There were hundreds of thousands of them," says Mr Poole. VisiCalc, the first software application to make PCs useful as work tools, spelt the end of those jobs. But by automating spreadsheets, the same PCs also created new employment possibilities.

"What happened is, they became analysts," says Mr Poole. "You get a whole new industry that didn't exist before."

The net effect of such technological change is that fewer workers are needed to achieve the same results. But at the same time, new tasks become possible that were not economic before.

By replacing the most routine tasks, some of the jobs that remain after automation can be more satisfying - at least for those still in work. That provides another reason not to slow its adoption through higher taxes.

Café X, a robot coffee bar, recently opened its first outlet in San Francisco after raising venture capital. A robotic arm that looks like a scaled-down version of the machinery used in manufacturing plants moves cups to and from a coffee machine. A single human tends the bar, dealing with customers and handling other tasks. "They do many of the things a barista does, with the exception of making coffee and moving cups around thousands of times a day," says Henry Hu, Café X's founder. "They can have more enjoyable jobs doing human things."

Taxing new equipment could also hamper a promising new industry that is being born from the latest advances in robotics and AI.

"It would certainly add a tax overhead and would be detrimental to these new industries," says Jeremy Conrad, a partner at Lemnos Labs, a venture capital firm that backs robotics and other hardware start-ups.

Some note that the higher profits that derive from automation are already being taxed. "If the robots are creating wealth for their owners, that for sure should be taxed," says Sam Altman, head of Y Combinator, Silicon Valley's leading incubator of tech start-ups. "When the robots surpass us and are no longer something humans own, that is a different can of worms."

These arguments point to the strength of opposition likely to be aroused by any specific proposal to identify and tax job-destroying technologies. Nevertheless, pressure will build for some adjustment to the tax system if the impact of the next round of automation is as profound as many predict.

Mr Gates is among the pessimists. "You cross the threshold of job-replacement of certain activities all sort of at once," he said. The result could be the eradication of whole classes of work at the same time - including "warehouse work, driving, room clean-up".

Others agree that the impact of job losses will force some form of redistribution through the tax system.

"If you compare this to the agricultural revolution and the industrial revolution, it's pretty clear we are moving at four to five times the speed - and those revolutions came with pretty big social dislocation," says Mr Moore. "If you increase productivity but make the distribution of wealth crazily worse, that would not make the world better."

The idea of paying a flat stipend to all citizens, called a universal basic income, is one response that has been gaining ground with some economists. Stopping short of that, Mr Gates proposed using robot tax receipts to train workers for the jobs the robots cannot do - particularly in the caring professions, which may offer the best hope for avoiding mass human unemployment.

His ideas are echoed by Satya Nadella, Microsoft's current chief executive. "We have a nursing shortage. We have amazing elderly care shortages in [the US]," Mr Nadella says. "The human qualities of empathy, expressed well, can lead to a lot of employment."

If such hopes are borne out, robots and humans may one day each end up secure in their own spheres of employment. But that does not mean it will be easy to share the tax burden.

Copyright The Financial Times Limited 2017