This short note by Xavier Oberson suggests how we might tax robots; I think it raises a number of difficult issues about the idea. You can see him expound the same ideas in a video interview here.

It’s not made altogether clear here why we should apply special taxes to robots at all. Broadly I’d say there are two distinct reasons why governments tax things. The first is the Money reason; tax is simply about revenue. If that were really all, then we should design our taxes to be simple, easy to collect, hard to avoid, and neutral in effect. We wouldn’t single out particular goods or activities for special treatment. However, there is a second and very different reason for taxing things, namely to discourage them; we could call it the ‘Moral’ reason. There are things we don’t want to criminalise or forbid, but whose excessive use we should like to discourage – alcohol and tobacco, for example, which most countries apply special excise duties to.

Usually both reasons apply to some degree. Income tax is mainly about raising money, for example (we don’t think there should be less income about); but generally tax regimes are bit harder on income which is considered unearned or undeserved.

Which is the main reason for taxing robots? I don’t think they’re going to be an easy way of raising money. If they make companies more profitable, then there should be a bit more money to target, so there’s that; but as I’ll explain below, I think there are big difficulties over definitions and avoidance. It seems clear that the main motivation is moral, to discourage too much use of robots. Oberson’s heading suggests robot tax might offset revenue shortfall, a Money matter, but in his piece he sets the proposal squarely in the context of robots taking jobs from humans. I don’t know whether that is something we should really worry about – some say not – but he’s surely right that that Moral fear is where the impetus for tax is mainly coming from.

In fact, it seems to me that Oberson is thinking mainly in terms of mechanical men. He sees robots replacing humans on more or less a like-for-like basis. Initially the business might be charged tax on the basis of the wages it would have had to pay humans to get the same production; in the long run, as robots gain full agency, this arrangement could segue into the robots themselves gaining legal personhood and responsibility for paying a sort of robot income tax

Alas, we are nowhere near robots having that level of agency, and in fact I’d say progress towards it is negligible to date. Oberson is right when he says that if robots did gain personhood such arrangements could be quite straightforward. After all, when robots do achieve human levels of agency you’ll presumably have to pay them to work instead of just switching them on and issuing commands, so at that point, their liability to conventional taxes should be uncontroversial! But that is too distant a prospect to require new tax arrangements just yet. If we did persist in trying to apply a regime based on robots themselves paying, it could only become an elaborate way of making the robot owner pay. It would be unnecessarily complicated and the pretence that the robots were like us might tend to devalue the genuine agency of human beings, something we should do well to steer clear of.

In general I think Oberson is pretty optimistic about robot capacity. He says

Today robots become lawyers, doctors, bankers, social workers, nurses and even entertainers.

To which one can only say, no they don’t. What is he thinking of? I can only suppose he has in mind expert systems or similar programs that can perhaps offer some legal advice, help with medical diagnosis, and provide online banking. These things may indeed have some impact on employment – most clearly in the case of counter staff in banks (though it’s debatable how far robots are involved with that – banks were moving towards call centres even before they got into online stuff). But it’s a massive overstatement to say robots right now become lawyers, etc. On social work and entertainment I can’t really come up with any good examples of robots replacing humans – any ideas?

So, what if we just want to tax human businesses for the ownership or use of robots? One thing Oberson suggests is a value added tax on robots. This is strange because the purchase of robots or the supply of robot services is surely subject to VAT already in those countries that have VAT, like most things. In principle we could apply a higher rate to robots, and that would indeed be one of the most practical approaches, though in Europe we would run up against the EU’s strong preference that the system should move towards having a single rate applied to everything (the people who designed VAT for the EU were strong believers in the Money reason for taxation rather than the Moral one).

What’s a robot, though?  It’s pretty unlikely in fact that we are going to be dealing with mechanical men very much. Most factory robots at present are very unhumanoid machines. Is each automatic painting/assembly arm a single robot? What if they are all run from a single central computer? Does that mean the whole factory is a single robot, so I pay much less than the fellow down the road who put separate processors in hundreds of his machines? What if my robots are controlled by software run off the Internet? Is the Internet itself one big robot – and if so, who pays its taxes?

Surely, also, to qualify as a robot my machines must have a certain level of complexity? Now perhaps the fellow up the road wins after all. He split his processes into very small elements. Nearly every machine in his factory has a chip in it, but individually they only carry out very simple operations, far too simple for any of them to be considered robots. Why, the chips in his machines are far less complex than the ones in your dishwasher! Yet together they mean no humans are needed.

What if we take up the idea, floated by Oberson, that the tax can be based on the salaries I would have had to pay if I had continued to use humans? Let’s suppose I lay off ten humans and install ten robots; I achieve a productivity gain of 20% and pay tax equal to say, 10% of ten salaries. A year later the tax inspector notices that a hundred further humans have gone and productivity is now up 500%. He notices that the robots all have a dial which used to be set to ‘snail’ and is now turned to ‘leopard’.

Oh, I say, but the productivity gains were due to other factors. We re-engineered our processes and bought new non-robot tools which enabled the speed improvements. We would have got the same gains with humans. The human lay-offs are due to a reduction in activity in an area that happened not to be automated. Anyway, come on, am I expected to pay tax on notional salaries that don’t relate in any way to my current business? Forever?

These are just examples from my own limited imagination, but once you start taxing something a lot of very clever accountants are going to be working hard on devising highly sophisticated schemes.

Overall I’m inclined to accept the argument that applying special taxes to robots is just a bad idea altogether. If we succeed in discouraging the use of robots, our businesses will lose out on productivity gains and suffer from the competition of businesses in countries where robots get off scot-free. We could protect our human workers from those foreign robots with tariffs and quotas, but in the long run we would fall behind those others economically and get into a bad place. It can fairly be argued that we might use tax, not as a permanent discouragement to automation, but as a means of slowing things to a manageable transitional pace, but it seems to me that in practice there might be more of a case for subsidising research and implementation in order to get maximum productivity gains as soon as possible! In practice I wouldn’t bet against governments convincing themselves it’s a good idea to both subsidise and tax robots at the same time – but I know nothing about economics, of course, something you may feel has been made sufficiently clear already.

One Comment

  1. 1. John Davey says:

    There are no such things as robots. it’s a PR term, like artificial intelligence, which also has no use outside of a salesman’s desk. As a matter of practice, it tends to be linked to machines mimicking human movements in some way, but in reality even that’s highly tenuous. But there is no taxonomy that distinguishes a robot from a laptop computer.

    Would we tax machines ? Well, we do – we tax cars, which are “movement robots” mimicking the translation motion of people. Seems like it’s a well established practice.

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