Robotic Taxes?

Should we institute a tax on robots?

Photo: Xavier Caré. Source: Wikimedia Commons

That’s what Bill Gates thinks. When people fear what new technology is going to do to them, they’ll avoid it rather than try to shape it. If there’s a robot tax, that might allow countries to provide pensions and training so people can adjust to their new economies. If the robots are eating our jobs, then we need to find new jobs – like blacksmiths learning how to build and repair cars at the beginning of the 20th century.

But does this make sense? Taxes affect the costs and incentives around investment and innovation. Businesses invest in robotic manufacturing when it can save them money and make them more productive. Farmers switched to tractors and trucks from horse-power because it allowed them to use their land more effectively. A tax on tractors might have slowed the transition, but not very much. It would have been just another tax on farmers.

And that’s what a robot tax would be: just another (and higher) tax on corporate income. This would come at a time when the US taxes corporate income at a higher rate than almost any other country. Yes, we have innovative places like Silicon Valley and Seattle and New York, but there’s no rule that says that these hubs can’t move. In fact, if we create special taxes designed to slow innovation and punish creativity, it’s almost certain that they will move. Los Angeles used to be where computer-generated special effects were created, until other cities in other countries started bidding for that business. (There’s a reason why much of The Lord of the Rings was filmed in New Zealand, and it isn’t because the story required a lot of sheep.)

New Zealand’s Mt. Cook. Source: Giiku

A tax on robots might slow their adoption, but it won’t stop it. And what’s a robot, anyway? Mortgages used to require people to read credit reports and underwrite them. Now we use credit-scoring algorithms. Are they robots? The mutual fund industry is losing out to quantitative, algorithmic ETFs. Are they robots? The devil is in the details – and in the definitions.

Artificial Intelligence and robotic manufacturing is just another stage in our continuous search for improved productivity. That’s what has led to the massive improvement in our economies and living standards over the past 200 years. We’re worried about robots taking our jobs, when we should be concerned about slowing productivity growth.

When you raise the price of something you get less demand for that thing. Taxing innovation will slow innovation. I don’t think that’s a good idea – especially in a globally competitive world.

Douglas R. Tengdin, CFA

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