Artificial intelligence will change taxes

BarcelonaArtificial intelligence (AI) will change the way we work and many other things. Among them, taxes. The tax system of countries will have to adapt. Currently, a large part of tax revenue comes from labor income (wages) through a progressive tax (the more you earn, the more you pay), which is the personal income tax (IRPF). But to the extent that AI will reduce jobs – at least during a transition period during which many jobs will disappear, be transformed, or require less personnel – public coffers will notice it.

Personal income tax accounts for about 44% of all tax revenue in Spain, and wages account for more than 80% of the total of this tax (about 120 billion). And the social security contributions that feed the public pension system, about 30 billion paid by workers and about 146 billion by companies.

It is not surprising that there are already studies warning about this, in relation to the United States, for example. One of them by Anton Korinek, from the AI firm Anthropic, and Lee M. Lockwood, from the University of Virginia, in the analysis The Future of Fiscal Policy: A Public Finance Framework for the Age of AI. The authors state that "AI threatens traditional tax bases by reducing the demand for human labor." And they add that "the main tax burden will have to shift away from the labor factor." And they provide solutions.

One of them would consist of reducing the weight of taxes on labor, as the main source of income, in favor of those that tax consumption, such as VAT, modernizing them to take into account digital and AI-based retail services. In any case, it must be taken into account that, unlike personal income tax, as they are currently configured, taxes on consumption are regressive, that is, they are paid regardless of the taxpayer's income; therefore, they affect those with the lowest income the most.

They also recommend not disincentivizing innovation with taxes on assets to develop the infrastructure to deploy AI. Other options are for robots that replace jobs previously done by humans to pay taxes and social security contributions. Governments have work to do; anticipation and ingenuity will be needed, especially for those who want to maintain a good level of social benefits.