What might our tax system look like in the age of AI?

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Megan McCarty-Corino (1:01)

In this world, nothing is certain except death and taxes. But that was before AI.

From American Public Media, this is Marketplace Tech. I'm Megan McCarty-Corino.

The rise of artificial intelligence could reshape huge parts of our economy, potentially upending how businesses operate, and the kind and number of jobs humans do. If AI changes the way we work, and therefore the way we make money, it could also have implications for how the government collects some of that money through taxes. Our tax system was built around an economy where humans earn wages, companies employ workers, and both contribute to the public purse. That revenue helps pay for everything from roads and schools, to social security and other government programs. So what happens if AI starts changing that equation? Marketplace's Future Effects correspondent, David Brancaccio, has been exploring just that in his series, Robots Ate My Taxes.

David Brancaccio (2:13)

If AI means a lot of people get thrown out of work, then our personal income goes down because we're out of work, right? And we pay less tax.

That is a big deal, Megan, because 66%, there's another calculation that it's three quarters of the revenue that the federal government generates for itself is by taxing human labor. So for a time, federal, state, and even some local budgets could take a hit, possibly a nasty hit.

Megan McCarty-Corino (2:40)

Yeah, so it sounds like AI may have a tax advantage over human workers for companies. Tell me more about that.

David Brancaccio (2:47)

Well, an expert on technology and the law, Ryan Abbott, he's a partner at Brown, Neri, Smith & Conn, opened my eyes to this.

Ryan Abbott (2:55)

All things being equal, if I and an AI could do exactly the same work just as well, a business would be better off firing me and hiring the AI system effectively because they'd save on taxes that way.

David Brancaccio (3:09)

Yikes. On your pay stub, Megan, you can see the Social Security and Medicare that you pay in, but the company, your employer, also pays the other half of that. Do the math, it adds up to about 7.65% for lots of people. That's the part your company pays. Now, if an AI does the work instead of a human, the company pays Social Security and Medicare at 0%.

Megan McCarty-Corino (3:33)

I'm sure a lot of workers listening are feeling like, that doesn't sound great. So why does the tax system treat human labor and technology differently?

David Brancaccio (3:42)

Well, economists don't want taxes to discourage the use of machines, tools, software, which can, right, when you use them, increase efficiency and productivity. But as it was pointed out to me, there are advantages to society of employing actual living, breathing humans.

And, you know, right as we might need the government to spend more money to help people adapt to AI, maybe paying, people talk about universal basic income or paying to retrain people in the AI world, we could have this drag on government revenue because our system is obsessed with taxing human work.

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