is a social phenomena called Pulling up the ladder. The basic idea is that when a person or group
has success in a certain way, they advance policies that prevent people from
having the opportunity to succeed in a similar manner.
Pulling up the ladder
is seen in NIMBYism. Established residents who built their houses in a
neighborhood pull up the ladder when they decide that extra rules and permits
are needed and that no one else should be allowed to build a home in their neighborhood as easily or as cheaply as
they did. Pulling up the ladder is seen when practitioners promote occupational licensing that forces new entrants to go through thousands of hours of
training and low paid apprenticeships, but grandfather in current practitioners who
do not have to follow these burdensome rules.
Bill Gates provides us
with an egregious example of pulling up the ladder in a recent interview
with QZ.com when he
advocates for the taxation of any robots that replace human jobs.
Certainly there will
be taxes that relate to automation. Right now, 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.
There are many ways to
take that extra productivity and generate more taxes. Exactly how you’d do it,
measure it, you know, it’s interesting for people to start talking about now.
Some of it can come on the profits that are generated by the labor-saving
efficiency there. Some of it can come directly in some type of robot tax. I
don’t think the robot companies are going to be outraged that there might be a
tax. It’s OK.
First, anyway you cut it, this is just
really bad policy. Companies utilizing robots should be taxed with the same rules as every other company. Tax theory is not something that can be covered in a
short blog post, but there are two frameworks that make it easy to see why this
is a bad idea.
One framework favored by some economists is that taxes should be designed to force people and organizations to
internalize negative externalities. This is called a Pigouvian tax. If a certain behavior is not good for society,
then raising its price will reduce the harms to society while generating
revenue. This type of approach is exemplified by those pushing for a carbon tax.
Carbon is identified as harmful, and raising the price of release carbon into
the atmosphere will likely result in less carbon released into the atmosphere
(improperly implemented, it also incentivizes more manufacturing in countries
that do not have carbon taxes). Cigarette, alcohol and sugary drink taxes are
often justified under a similar approach, as consumption of unhealthy goods
can create significant costs for the healthcare system*. The flipside
to this logic is obvious. Taxes should also encourage, not discourage, desirable behavior. A tax designed to explicitly raise the cost of research and
investment relative to other activities would be a very bad idea.
Another framework is that taxes should avoid unnecessarily distorting economic behavior. Even economists who promote Pigouvian taxes would agree that a tax that changes behavior without purposefully targeting a desired externality is a poorly designed tax. Taxes that can be avoided with additional work from lawyers and accountants are particularly inefficient. Resources devoted to getting around the tax may
make sense for individuals and companies, but are a deadweight loss to
society. The value-added tax, other than encouraging
exports to countries without value-added taxes, is both easy to enforce and does
not skew behavioral incentives significantly. It is therefore widely used
across the developed world outside of the United States.
So it’s pretty obvious
why trying to apply an additional robot tax on companies would be a bad idea. Measuring whether a robot
is taking a job is not a simple task, and companies will be incentivized to
make the use of automation unrelated to any losses of jobs. The tax would cause significant amounts of new inefficiency as companies on the verge of automating significant tasks would spend lots of money trying to figure out how to minimize or avoid the robot tax.
But even worse, taxing the implementation of robots in
existing companies would slow down the adoption of new technology. If implemented
only in the United States, the robot tax would also cause U.S. companies to fall behind
places in the world where the implementation of robots was not discouraged by
taxation. If the United States wanted to permanently relinquish its status
as the country at the forefront of the production-possibility frontier,
this tax would be a great way to start.
What makes Bill Gate's
suggestion particularly egregious is that the source of his wealth came from
the widespread distribution of labor saving technology, software! The following
is from the BLS summary of Occupational changes during the 20th century.
The growing use of
computers and other electronic devices, which simplified or eliminated many
clerical activities, caused the post-1980 decline. Automated switching and
voice messaging affected telephone operators; personal computers,
word-processing software, optical scanners, electronic mail, and voice
messaging, secretaries and typists; accounting and database software,
bookkeepers; ATM’s and telephone and online banking, tellers; and computerized
checkout terminals, cashiers.
Imagine what would
have happened to Microsoft if every time it sold a spreadsheet tool it had to pay
a tax for the number of bookkeepers it replaced. Or if all users of Microsoft
Office were taxed for the secretaries and typists that were no longer needed. If the United States applied the policies Bill Gates now suggests now
to software in the 1980's, the digital revolution would have been strangled in
its infancy and Bill Gate would not be in the position he is in today. Specifically taxing companies that implement cutting edge
labor saving technology is silly. It wouldn't have been a good idea then and
it's not a good idea now.
Bill Gates has led a
unique life over the past few decades so he might not realize this, but our society could still be a
whole lot richer. It is still far from wealthy enough to
implement any reasonably sized universal basic income. Safety nets, retraining
and regulatory reform have
important roles to help workers displaced by our fast evolving economy. But the
last thing we want to do is implement taxes that slow down innovation or encourage
innovative companies to locate its business outside our borders.
So please ignore Bill
Gates when he blithely suggests that anyone using robots to replace labor should have
to pay extra taxes. Not only is he advocating for pulling up the ladder behind
him, listening to him would impoverish our future. Our society cannot afford to treat labor saving innovation like a negative externality to be taxed.
unhealthy behaviors that shorten life expectancies actually seem to reduce total costs on
the healthcare system.