There are a lot of dramatic and profound questions about AI, but some of the most important ones are mundane. For instance: Should AI agents, when they perform productive work, be required to pay taxes?
AI creations can already proofread, provide medical advice, act as tutors, write software and much more. More to the point, there are now autonomous AI agents, which can in turn create autonomous AI agents of their own. So it won’t be possible to assign all AI income to their human or corporate owners, as in many cases there won’t be any.
One option is to let AI bots work tax-free, like honeybees do. At first that might make life simple for the IRS, but a problem of tax arbitrage will arise. Tax-free AI labor would have a pronounced competitive advantage over its taxed human counterpart. Furthermore, too many AIs will be released into the commons. Why own an AI and pay taxes when you can program it to do your bidding, renounce ownership, and enjoy its services tax-free? It seems easy enough to disclaim ownership of autonomous bots, especially if they are producing autonomous bots of their own. If nothing else, you could sell them to shell corporations.
The obvious alternative is to tax AI labor. Laboring AIs would have to file tax returns, which they may be capable of doing in the very near future. (Can they claim deductions for their baby AIs? What about their investments?)
Since AIs do not enjoy leisure as humans do, arguably their labor should be taxed at a higher rate than that of humans. Still, AIs shouldn’t be taxed too much. At prohibitively high rates of taxation, AIs will have lower stocks of wealth to invest in improving themselves, which in turn would lower long-run tax revenue from AI labor. Yes, they’re AIs, but incentives still matter.
Some people might fear that super-patient, super-smart AIs will accumulate too much wealth, though either investments or labor, and thereby hold too much social influence. That would create a case for a wealth tax on AIs, in addition to an income tax. But if AIs are such good investors, humans will also want the social benefits that accrue from such wisdom, and that again implies rates of taxation well below the confiscatory level.
Additionally, maybe there should be a kind of gift tax, paid by humans, on any benefits we receive from an AI, whether we own it or not. But discovering and estimating the value of those gifts seems beyond the capacities of the current IRS, even if augmented by some AI assistants.
The fundamental problem here is that AIs might be very good at providing in-kind services — improving organizational software, responding to emails, and so on. It is already a problem for the tax system when neighbors barter services, but the AIs will take this kind of relationship to a much larger scale.
Forget about hiring AIs, actually: What if you invest in them, tell them to do your bidding, repudiate your ownership, and then let them run much of your business and life? You could write off your investment in the AI as a business expense, and subsequently receive tax-free in-kind services, in what would amount to a de facto act of exchange.
A major topic in AI circles is “alignment,” namely whether humans can count on AI agents to do our bidding, rather than mounting destructive cyberattacks or destroying us. These investments in alignment are necessary and important. But the more successful humans become at alignment, the larger the problem with tax arbitrage.
It is not obvious how the tax system ought to respond to these more complex possibilities. Granted, in the short run, these problems are likely small. But progress in AI services has been extremely rapid as of late, and that trend may well continue.
A deeper analysis would consider AIs that developed proclivities to work much less if they were taxed at too high a rate. That in turn would lower the optimal tax rate on AIs. What about an AI that refused to work at all, at any positive tax rate? What if Estonia or El Salvador promised to let their AIs work for you tax-free, or at rates of 5%? Would the humans or the AIs win those battles of will and attrition?
If GPT-4 doesn’t already have this figured out, GPT-5 might. Or better yet, a specialized AI tax-policy bot can be created to figure it out. Just don’t forget to ask for a W-9.
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