When companies replace people with machines, the government loses the ability to tax workers resulting in millions of pounds worth of lost tax revenues a year. Can taxing robots as if they are human employees be the solution? What are the pros and cons of a robot tax?
What is a robot tax?
A robot tax is essentially the concept that companies replacing employees with automated workers should be required to pay a tax. Proceeds raised by a robot tax can then be diverted to the displaced workforce, for example in the form of reskilling or retraining programmes.
Robot tax definition
The idea of a “robot tax” is yet to be fully defined; mainly due to the fact that there are two ways that it could work.
A company could pay income tax on each robot based on the displaced human employee’s salary. Alternatively, a company could pay higher rates of corporation tax for using robots in their workforce out of their profits, which are likely to have increased due to the powerful efficiency of a robotic workforce.
Bill Gates: why robots should be taxed
Bill Gates has argued that the best way to slow down the speed of automation so that society can cope with the transition is a robot tax. He foresees that the proceeds of a robot tax would go towards improving education through smaller class sizes, “reaching out to the elderly” and helping people with disabilities; all jobs that require human empathy.
In terms of how a robot tax will actually work, Gates envisages the following:
“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. If a robot comes in to do the same thing, you’d think that we’d tax the robot at a similar level.”
In response to criticisms about stifling innovation, Gates argues that advancing technology should not be at the expense of vulnerable communities and that governments should take responsibility for solving inequity, especially with the inevitable boost to the economy the technology will provide.
Which countries have enacted a robot tax?
South Korea is the only country to have any kind of robot tax (see below). However, calls for a tax are starting to emerge in the UK, US, Japan and Canada. The Green Party in Canada have argued for a robot tax in order to reduce anxieties for individual workers, and current UK Labour Party leader Jeremy Corbyn wants individuals to get the benefit from “greedy” global corporations that make money out of advanced technology.
Robot tax in South Korea
On 6 August 2017, South Korea introduced the first robot tax. Korea has been very quick to adopt robots in the workplace, particularly in the manufacturing industry, which is led by robot-produced semiconductors. Another factor that is hurrying Korea along is that its unemployment rate has hit a 17 year high, with 1.7 million unemployed. However, the tax itself isn’t exactly the tax on individual robots that Gates envisaged; instead Korea is changing the corporate tax code to provide disincentives for capital investments in technology. In fact, it isn’t really a robot tax at all, but an economic recognition that Korea’s automation is advancing at such an extent that mass unemployment may be round the corner.
Robot tax in New York
New York’s Mayor, and 2020 presidential candidate, Bill de Blasio has called for an automation policy designed to protect the 36 million jobs that may be made obsolete by technology by 2030. The revenue from a robot tax would be put toward creating new jobs in green energy, health care and education, and help to prevent the tax loopholes where companies that invest in automation deduct it from their taxes, even though they know that their investment will destroy jobs. His suggested reforms go further than many politicians in the US – one critic remarks that the robot tax would force companies to pay out five years' worth of wages for every worker displaced, which would ultimately drive innovation away from the country. Another critique of de Blasio’s tax is that it may not be necessary; a German think tank has found that the risk of US job loss reduces from 38% to 9% when allowing for workplace heterogeneity – jobs won’t be destroyed; workers will just take on new roles.
EU robot tax
In 2017, the European Parliament called for EU-wide legislation to regulate automation, which would include a framework for their development and deployment, and the establishment of liability for their actions. The majority of European leaders agreed that the rise of automation should be controlled. However it is important to note that none of these reforms included a tax. The EU was concerned about a robot tax that may stunt innovation and competition. Certain commentators, such as MEP Mady Delvaux from Luxembourg, were disappointed that there was a failure to take into account "possible negative consequences on the job market".
Benefits of a robot tax
Many see robot tax as the ticket to a utopian future, where efficient robots will generate so much taxable profit that humans can live a life of government funded leisure. Monetary benefits aside, robot tax is seen as a way to control the displacement of human workers, so that the workforce is adjusted at a pace that allows alternative work sources to be developed.
What are the economic benefits of a robot tax?
Automation threatens jobs which are currently generating £290bn in wages; that is a lot of income tax – around hundreds of millions of pounds worth. Given the prediction that robots will increase productivity and therefore profit, this figure is only likely to increase, and one of the ways to recoup that cash is to tax the robots. Taxing robots may also counteract tax avoidance by large multinationals, which typically works by transferring taxable profits to tax havens. A robot tax, like a salary, would be calculated on an amount notionally payable out of revenue, so payable in the tax jurisdiction in which the robot was located, and therefore avoiding taking the taxable profit out of the jurisdiction.
Robot tax could slow job destruction
Robot tax could reduce the rate at which jobs are lost to automation - keeping more people in employment for longer. The skills that people will need to transfer from one industry or type of work to another take time to acquire, as do the government schemes needed to provide adequate training. Slowing the implementation of robots gives those workers the time to train up elsewhere. Governments could also consider how to reduce the tax burden on companies of employing individuals, and instead encourage investment into individuals through initiatives such as a recent rollout scheme in Liverpool to support retraining.
Robot tax could lead to a universal basic income *UBI)
Universal basic income (“UBI”) proposes that all citizens receive a regular sum of money that covers the basic living costs. Supporter of the UBI, Elon Musk, argues that it will become necessary in the age of automation. Many think that our current welfare systems are already cumbersome and inefficient, and the UBI would be more cost effective. A study in India has also revealed that productivity was doubled when individuals received grants. This could mean that hospitals, schools and care homes will not suffer such a significant depletion in staff if a UBI becomes the norm, as people may be more willing to inject their energy into these industries given that they have the security of a guaranteed wage.
In Europe, there is no common approach to the concept of UBI. There have been numerous experiments and pilots around the world, most notably in Finland. Alongside our existing concepts of a minimum wage, state pensions and benefits that perform a similar role of providing minimum standards of welfare and a basic social security safety net, the debate on the benefits (or otherwise) of UBI is likely to continue.
Problems with a robot tax
As mentioned above, a robot tax may not actually be needed. Some believe that automation won't have the transformative effect on employment that Gates predicted, or that robots will never replace humans and therefore employment will remain virtually the same. With the level of productivity currently quite weak, tax policies may disincentive businesses further. There are also several other issues with actually implementing a tax:
It is hard to define “robot”
The definition of robot is so broad it could encompass almost all technology, as autonomous elements are present in most commonplace technology, such as a vending machine. As venture capitalist Mark Hershberg says: "should we tax every tractor?" The wide definition brings with it the challenge of defining when a job is actually replaced by a robot.
With countries introducing automation on different timescales, there will also be a consideration as to what level to introduce legislation and definitions at (e.g. at country level, EU, US wide or state etc.) Unless all countries adopted a robot tax with the same definition of robot, there is a risk of robotics companies moving their operations from countries with a robot tax to ones without, or where the jurisdiction has a definition that suits their purpose.
Robot tax would reduce productivity
Robots can do repetitive jobs faster and quicker, leading to less waste, cheaper products and greater profits. A robot tax could be seen as actively discouraging something through taxes when it is a benefit to society. Ryan Avent argues that taxing a specific kind of capital that improves productivity makes no sense, and it would be better to have a general wealth tax or a tax on land instead. However, if a comparison is made between a robot’s productivity to a human’s, we already have a “human tax” in the form of employer’s NICs where wages are deduced at source; a robot tax would simply be a direct replacement for this.
Robot tax could prolong low pay
Low pay could be prolonged by making it more expensive to automate the low paid, manual and repetitive work, so as a result, the opportunity to move away from “bad work” to “good work” slows. Good work, the focus of a recent review by Matthew Taylor, is work that is of such a quality that maintains people’s health and well-being; that benefits them and serves the wider public interest. The International Bar Association’s September 2019 report highlighted that the UK has had a very slow rate of economic growth for the past 10 years, and has just 33 robot units for every 10,000 employees. Many consider that if the UK doesn’t invest in robotics and improve productivity, or if a tax is placed on firms who invest in robots, it could discourage investment restrict wage growth.
Robot tax could damage innovation
If companies are less willing to invest in new tech because they fear extortionate robot tax, those in the tech sector will be less willing or able to develop it. A recent government report argued that to improve innovation in the UK “we need more robots and not fewer” and it recommended that the government introduce tax incentives designed to encourage investment in new technology, including automation and robotics. Interestingly, the report mentions that in Japan there has been a tax credit scheme introduced that directly rewards investment into robotics. Growth in rich countries has stagnated over the past 100 years, indicating that it’s getting harder and harder to find new ways of doing things. This, combined with falling business investment, suggests that any tax on robot technology should be set at a level that does not dissuade businesses from investing.
Alternatives to robot tax
If automation causes job losses, business will benefit from a higher capital gain and profits. Instead of taxing specific robots, countries may find ways of increasing revenue from corporations through higher corporation and capital gains tax, or levy higher VAT rates on buying robot systems. One suggestion, from Bloomberg writer Noah Smith, is to develop a sovereign wealth fund, or the government could buy up shares in companies and receive dividends that can be redistributed to the wider society, or it could replace the entire corporate tax structure with the requirement that all companies give the government a percentage of shares.
Robot tax and employment law
Robots are generally considered as work tools, and the idea that we would re-class automatons as employees seems far-fetched. However, to Victorians, the idea of a society without child labour and with restrictions on working time would have appeared improbable. In fact, debate is starting to ignite about whether or not robots should acquire some sort of legal personality, and how vicarious liability might apply to apportion legal responsibility for their actions (for example, in situations such as workplace accidents or even workplace harassment).
Deloitte predicted in 2018 that humans and machines will work together “seamlessly” in a “loop of productivity”. For HR, this opens up questions as to the future collaboration of work and management: how should new “talent” be introduced to the workplace? How can work performance be properly evaluated where tasks are assigned to humans or machines, or where technology augments human performance? It is likely that the design of governance software and metrics will be needed, and these new techniques will likely disrupt some traditional areas HR.
There is likely to be continued drive to improve diversity and equality in the workplace, particularly in light of findings that introducing robots in the workforce will increase gender and pay inequality as women and some minority groups are more likely to work in low-skilled “automatable” occupations. The framework for pay gap reporting may need to be adapted to take into account of the impact of technological developments, with perhaps new and separate obligations to publish data on the impact of the introduction of new technologies on job roles and dismissals.
The issue of where responsibility lies for retraining, reskilling and developing transferable skills for those individuals whose work is impacted by technology is a complex challenge. In most countries, there is no legal requirement on employers to retrain employees. The exception to this is in Finland, where it is required in the case of collective redundancies, and, to an extent, in Singapore, where the government provides grants to promote the training of employees. According to the TUC, 51% of UK workers are worried that the benefits of new technology will only apply to managers and its widespread introduction will threaten their jobs. The TUC has called for a revival of collective bargaining to ensure that employers include employees in discussions and retrain them if necessary, and the government has recently launched national retraining scheme which proposes to enable people to work with, rather than be replaced by, machines. Policy-makers, business and employees will need to tackle this challenge as a priority.
Comment on robot tax
John Maynard Keynes said in 1930:
“We are afflicted with a new disease of which some readers may not have heard the name, but of which they will hear a great deal in the years to come – namely, technological unemployment”
Each generation considers its technological advances to be to the detriment of human workers. However, history has shown that technology causes a surge in demand; causing a boom in employment – many argue that lessons from the industrial revolution can help put any fear of mass unemployment to rest.
Robot tax is certainly one option of capitalising on automation, but the difficulties of defining a robot and ensuring that innovation is encouraged will be difficult to overcome. A tax to stagger the introduction of disruptive technology could be a route to addressing inequality, but what form that will take will no doubt be increasingly debated by policymakers.