Monday, March 13, 2017

late night musings

We are in the heat of tax season, and while I should be focusing on the Piles o’ Files on my desk and office floor, I’m done for the day and need a distraction. Enter Bill Gates.

Bill Gates (of Microsoft fame) recently sparked a discussion when he suggested that robots soon will be replacing many more workers, and as a result those unemployed workers would no longer be tax paying members of society. His suggestion is to tax robots to replace the revenue loss to the government.

Albert Einstein once quipped to his Accountant that the hardest thing in the world to understand is the Income Tax. Let’s take as a granted that Mr. Gates is a very intelligent man. However, I suspect he may fall into the same category as Albert Einstein in this matter.

If I as a business buy a robot to replace a worker, the two desired outcomes are 1) I pay some company to sell me the robot, and 2) I lay off workers that will be displaced and my business will save money. In the first action, I have bought a product that was built by another business and sold to me at a profit (for them). That business employs robot builders and makes a profit, paying taxes on their profits and paying wages to the robot builders. No different than any other manufacturing job.

In the second action, I lay off workers and reap savings to the company in the amount of wages I no longer have to pay. However, those savings become profit to my company. That profit is taxed to the company, so where is the loss in tax revenue? There is none. Granted it has shifted from the worker to the company, but if tax rates were equal there would be no net change. This is an argument for equal tax rates between businesses and individuals.

There is some leakage due to payroll taxes that are assessed on employers and employees based on wages paid, but these taxes could be abolished and provide incentive for employers to hire more workers as the cost declines.

The social implications are more visible. What do you tell the unemployed worker? File for unemployment? Perhaps he/she could become a robot builder. This is the real question and it isn’t just theory. What happens to cab drivers when Uber and Lyft take over? And then to those drivers when we have driverless cars and trams? What happens to UPS drivers and their trucks when drones start dropping boxes on your porch?

These kinds of change are not new. “Creative Destruction” wherein some new technology develops that makes life better, but destroys older methods and industries in the process is the reason we no longer ride horses to work, or have to bury ice in the ground during winter to use in the summer. It should be embraced, not impeded.