Bill Gates on Taxes

The story about Bill Gate’s comment on taxing robots was featured on several news sites.  USA Today has a short audio clip and CNBC carried the full story under the headline:  “Bill Gates: Job-stealing robots should pay income taxes.”

His reasoning, which he recently shared with the editor of Quartz, is as follows:  “If a robot comes in to do the same [job as a worker], you'd think we'd tax the robot at a similar level.”  He is actually enthusiastic about robots replacing humans in some areas so the people can be deployed into the types of roles where empathy and understanding are more important, like eldercare and teaching.  But more taxes are needed for retraining and creating the new jobs.  So, the robots should be taxed at the same level as the now redeployed humans.

The first question that comes to mind is: What exactly is a robot for tax purposes? Must it have arms and legs, like the traditional idea of a robot from science fiction, or have arms only or perhaps have a single arm like some seen in the automotive assembly plants?  He seems to mean any automated tool that can do a job (or part of a job) that a human does today – any machine that puts people out of work.  Besides the obvious ones in heavy manufacturing, this could include many other machines:  self-service checkouts at the supermarket or the library, ATM machines, conveyor belts and forklifts, automated switchboards that replaced telephone operators, elevators that haven’t required a human operator for about 40 years.  Some estimate that drones could replace $127 billion worth of labor – that’s a lot of taxes.

Ironically, the most impactful labor saving device ever has been the computer.  Computers made people more efficient, reducing the overall numbers needed to accomplish the same amount or work.  And both standard computers and all the robots mentioned above require software, which is how Bill Gates became rich enough to sit around and think up these ideas.  Should Microsoft pay taxes for all the secretarial, filing, and presentation design jobs that no longer exist?  Is he proposing this out of guilt for destroying all those jobs?

When unions bargain for higher wages should the robots be taxed at a higher rate?  When workers receive cost of living increases, do the robots pay more taxes?

Everyone should know that when an entire industry faces the same cost increase, all the companies in that industry can raise prices without fear of competition.  Back in the middle of the twentieth century when the UAW bargained a new contract with the American automakers, the prices of all their cars went up to pay for the labor cost increase across the industry.  This was announced on the news.  It was only after they faced serious competition from overseas that they were no longer able to continue this practice so openly.  Surely a robot tax would drive industry-wide price increases wherever they were levied.

In this case as in so many others, the poorest among us are the ones who would endure the brunt of this ill-advised policy.  As Forbes points out at the end of a long article explaining the faulty economics of this idea, “All taxes come out of the pocketbook of some live human being.”  It’s OK for those with deep pockets like Bill Gates, but the rest struggle with each price increase.

Basic economic understanding reminds us – as it should remind Bill Gates and all those news agencies that reported on this idea implying it should be seriously considered – economies don’t grow and increase our standards of living by shifting money around.  They grow by increasing productivity.  Taxing those mechanisms that actually contribute to those productivity increases is bad for everyone.  At least Forbes had the sense to refer to the robot tax as Gates’s “latest odd idea.”

Fox included in their report that “European Union lawmakers considered a proposal to tax robots in the past. The law was rejected.”  Sounds like a smart move.  After all, robots don't pay taxes; people pay taxes either directly from their income or indirectly in the increased prices caused by ideas like this.