AI Tax Increases Are Like The Tractor Tax Proposals Of Old

Authored by Bruce Thompson via RealClearMarkets,

President Ronald Reagan famously described Washington politicians' solutions to every problem as "if it moves, tax it." That is exactly what many in Washington today want to do with artificial intelligence.

As Wall Street Journal chief economic commentator Greg IP wrote recently, a growing number of experts believe there is "a simple answer to AI job losses." Tax it. His column described a petition signed by 1,000 economists, including 17 Nobel laureates, pleading for higher taxes on AI to prevent "large scale" job losses.

Reagan knew what he was talking about. He grew up in the Midwest in a small town surrounded by farms, and he surely remembered a time when politicians wanted to tax tractors, a new technology driving change. In the early 1900s, the tractor was revolutionizing farming, and politicians were pushing proposals to tax the tractor and prevent the loss of farm jobs. Rep. Willian Connery, a Massachusetts Democrat and Chairman of the House Labor Committee, was a leading advocate of taxing tractors and other labor-saving machines to stop mass unemployment.

The introduction of tractors was the most revolutionary change in our history, affecting millions of jobs and driving millions off the farm. Between 1910 and 1960, nearly 10 million farm workers lost their jobs and 25 million people left their farms for the city. The benefits of the tractor were enormous. Farm production soared, food prices dropped, and the U.S. provided enough food to feed people around the world.

The farm revolution transformed the American economy, creating growth, and increasing prosperity. Millions of farm workers were freed from back-breaking labor and found better jobs in the city. An NBER study called tractors the "engine of growth" and estimated they doubled per-capita GDP and created millions of jobs.

AI promises a bright future of technological and scientific progress, increased productivity, and a more prosperous economy. Like many changes in the past, there are concerns about the impact on jobs. But taxing AI would be just like taxing tractors, a futile knee jerk reaction to change.

Not surprisingly, there is no shortage of terrible tax ideas floating around Washington. Senator Bernie Sanders has proposed a 50% tax on the equity of AI companies. Senators Elizabeth Warren and Ron Wyden have proposed new taxes on data centers. House Democrats have proposed a new tax on AI computing powers, and others have proposed a tax on robots. If it moves, they want to tax it.

None of these tax increases are a good idea. Raising taxes on AI would slow investment, curb innovation, and only help our foreign competitors. Just like a tractor tax, a new AI tax would only slow new technological advances that will benefit everyone.

Rather than taxing AI, Washington should focus on assisting those jobs which have been most affected by automation, such as entry-level jobs. Congress should consider targeted tax incentives for entry-level employment, including payroll tax relief and job training for junior workers. Helping young workers get started is a much better response to the AI revolution than trying to stop it with a tax increase.

Bruce Thompson was a U.S. Senate aide, assistant secretary of Treasury for legislative affairs, and the director of government relations for Merrill Lynch for 22 years.