If robots and A.I. are replacing human jobs outright, should we tax them when they do?

No less than ex-Microsoft head Bill Gates opened up the argument about whether we should introduce a robot tax in 2017. He made the argument succinctly here

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.

And what the world wants is to take this opportunity to make all the goods and services we have today, and free up labor, let us do a better job of reaching out to the elderly, having smaller class sizes, helping kids with special needs. You know, all of those are things where human empathy and understanding are still very, very unique. And we still deal with an immense shortage of people to help out there.

So if you can take the labor that used to do the thing automation replaces, and financially and training-wise and fulfillment-wise have that person go off and do these other things, then you’re net ahead. But you can’t just give up that income tax, because that’s part of how you’ve been funding that level of human workers.

The need to think about human welfare and development, in the face of swingeing automation, evidently isn't a party political position. Last week we heard that Canada's Liberals are actively considering such a robot tax. South Korea has also announced a form of robot tax, which limited tax incentives for businesses investing in automation. 

Will this result in companies being forced to think about employing humans again? A piece in the Conversation suggests this might be an outcome:

In an article forthcoming in the Harvard Law and Policy Review, we argue that existing tax policies encourage automation, even when a person would be more efficient than a machine. That’s because automation allows firms to avoid wage taxes, which fund social benefit programmes such as Medicare, Medicaid, and Social Security in the US, or National Insurance contributions in the UK. Firms are mostly responsible for just paying wage taxes for human workers to their governments.

In the US at least, there is a further incentive to automate because firms can claim accelerated tax deductions for automation equipment, but not human wages. Wage taxes are generally only deductible as paid. This structure allows firms to generate a significant financial benefit from claiming significant tax deductions sooner for robots. 

...When firms replace people with machines (or elect to automate initially), the government loses the ability to tax workers. This is not compensated for in the form of higher taxes on corporate earnings. In the aggregate, this could amount to hundreds of billions of dollars a year in lost tax revenues if robots replace workers to the extent predicted by many experts.

This all stems from the fact that tax policies are designed to tax labour rather than capital. It creates unintended consequences when the labour is itself capital in the form of machines.

So we probably need a whole new philosophy of taxation, for these new automated circumstances. The European Parliament recently voted against a robot tax, citing concerns over stifling innovation. And this is a worrying argument. Will we never reap the social and human benefits of technological efficiency properly, because we fear it won't be adopted under competitive market conditions?

We can't seem to find a way to regulate our markets and businesses, or otherwise shape our organisations, such that a shorter working week or a higher level of social security (in the form of basic income) is the consequence of these radical innovations.

The Greek leftist Yanis Varoufakis argues against a robot tax. He believes that it's incredibly difficult to tax these machines, based on the human wages they replace. What if the robot ends up doing a radically different job? How embroiled in the law courts will assessment of the value of replaced human labour get? 

However, Varoufakis thinks there is a much more elegant solution as to how we collectively reap the benefits of automation:

There is an alternative to a robot tax that is easy to implement and simple to justify: a universal basic dividend (UBD), financed from the returns on all capital.

Imagine that a fixed portion of new equity issues (IPOs) goes into a public trust that, in turn, generates an income stream from which a UBD is paid. Effectively, society becomes a shareholder in every corporation, and the dividends are distributed evenly to all citizens.

To the extent that automation improves productivity and corporate profitability, the whole of society would begin to share the benefits. No new tax, no complications in the tax code, and no effect on the existing funding of the welfare state. Indeed, as higher profits and their automatic redistribution via the UBD boosted incomes, more funds would become available for the welfare state. Coupled with stronger labour rights and a decent living wage, the ideal of shared prosperity would receive a new lease on life.

Such a big-scale solution implies a state-level regulation - and before that happens (or as likely, not), we are interested in how localities and regions could begin to argue for sovereignties and even fiscal powers that might implement a UBD.

Might we first need LBDs - local basic dividends - enabled by powerful software (for example Circles, which promises to mix blockchain and basic income at a community level), to push things forward?