Taxing the Robots



By: Alex Franch, BS EA

robotThese days, we are constantly bombarded with economic data. I ask myself, what does all the labor market data have in common? It is clear that the robots are taking over our jobs.

While automation has entered into every field, let us focus our discussion around the auto industry as the poster child for the displacement of workers in favor of robots. Tony the mechanic used to tighten the alternator mounting bolts at his station on the assembly line. He made $50,000 per year and paid $3,825 in Social Security & Medicare taxes plus $5,000 in Federal Income Tax. His employer ponied up an additional $3,825 Social Security and Medicare match. He cost the company $7,500 in employee benefits (mostly health insurance). All in, Tony costs his employer $61,325 per year to tighten those bolts.

Robot? What the HAL?

Along comes the new ‘Hands-free Alternator Linker’ or HAL. HAL cost the company $100,000 up front to do the same job as Tony. HAL is also under warranty for ten years so we can ignore maintenance costs for now. Over the next ten years, HAL cost the company an average of $10,000 per year. Where does the other $51,000 go?  Some of it will result in cheaper cars for all of us and make the auto manufacturer more competitive. Some will trickle up to the CEO. Some will trickle out to the shareholders.

Robots? How does it compute?

The consumers save money on the cars. The additional income to the CEO & shareholders will be taxed in various ways. Let’s split the $51,000 savings three ways between these 3 groups:

  1. $17,000 vanishes into the ether of macroeconomics in the form of lower car prices.
  2. $17,000 goes to the salaries of the CEO and the management team.
  3. $17,000 goes to the shareholders in the form of dividends.

The CEO pay and dividends (due to the double taxation of dividends) will be taxed at about 40% to 45% or $15,000 total. HAL’s $15k sounds better than the $12,650 Tony’s job generated in tax revenues. However, Tony is now out of a job, and the $15,000 in tax revenues generated by HAL, are now paid to support Tony (through the ether of the vast government safety net).

Should HAL help pay to retrain Tony through taxation?  After all, robots are why he lost his job in the first place. That is the question of the day. How can we tax robots you ask? Corporations, Trusts, and Estates all pay taxes and they only exist on paper. HAL is a red eyed bundle of circuits and metal. There are countless categories of products used for computing sales taxes when you consider all fifty states. Essentially, we have mechanisms for creating a new legal category and tax framework. Just be nice to HAL, he had some workplace troubles back in 2001.

Perhaps Tony can one day get a new job as a bureaucrat who oversees the taxation of robots. His new job would be to create more red tape and volumes of bylaws, policies, and procedures, thus making himself a productive member of society once again.

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For more information, call Alex Franch at 781.789.7200. WorthTax has locations in Norwell, Dedham, and Weymouth, Massachussetts.
Alex Franch

Mr. Franch is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Mr. Franch is an Enrolled Agent and has eight years of tax preparation experience. He has been serving individuals, families, and businesses for several years with tax and financial planning strategies and is a junior partner with the firm. Mr. Franch is licensed by the Financial Industry Regulatory Authority (FINRA) with a Series 6, 63, 65, and 7, and by the Commonwealth of Massachusetts Division of Insurance.