Published in Manufacturing
Manufacturers bristle at concept of taxing robots Courtesy Photo

Manufacturers bristle at concept of taxing robots

BY Sunday, March 18, 2018 11:09am

The shift to a more automated future in which manufacturers need fewer workers to churn out products has the potential to upend how industrialized countries operate. 

In bracing for the potential loss of jobs and income tax revenues, some worker advocates and philanthropists have started to float the idea that machines should be taxed as a way to ensure governments can continue to function and provide a social safety net for their citizens, including those displaced by automation equipment. 

A January 2018 study from researchers at Northwestern University found that taxing automation equipment would result in some loss of efficiency for companies, but they argued it was needed to fund a lump-sum rebate that the government would provide to workers to ensure they maintain a minimum income after robots take over more of the routine jobs. 

The researchers determined that a dip in the cost of automation equipment could exacerbate income and wealth inequality in the U.S. without changes to the federal tax code. 

“Even though routine workers keep their jobs, their wages fall to make them competitive with the possibility of automating production. Income inequality can be reduced by raising the marginal tax rates paid by high-income individuals and by taxing robots to raise the wages of routine workers,” according to the report, which determined a tax on robotics made sense only when industry is in a state of less-than-full automation. 

While most manufacturers have been quick to dismiss the notion of taxing robots, policy experts say the idea appears to have legs.

“There has to be a revenue source for (the governments),” said Jim Robey, director of regional economic planning services at the Kalamazoo-based W.E. Upjohn Institute for Employment Research. “As we evolve to more workers with higher levels of skills and more productive machines … we’re going to see higher output per worker, but not necessarily more workers.”

The discussion about a new tax scheme has only picked up after billionaire technology entrepreneur and Microsoft co-founder Bill Gates argued in support of a tax on robotic equipment during an interview with the online publication Quartz early last year.

“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,” Gates said in the interview. “If a robot comes in to do the same thing, you’d think that we’d tax the robot at a similar level.”

According to a recent survey by FreeAgent, a cloud accounting software provider, 57 percent of U.K. workers endorsed imposing a robot tax if humans are replaced in the workforce, while 42 percent of workers are OK with taking orders from a robot.

However, executives in the automation industry argue the discussion about taxing machines oversimplifies a highly complex reality for manufacturers who are turning to robotics to make workplaces safer and more efficient. 

“If you look back in history and you look back at the first assembly line at Ford, the workers had to be thinking, ‘This assembly line is going to make cars so much faster than we could ever do it,’” said Mark Ermatinger, vice president of sales at Zeeland-based Industrial Control Service Inc., a provider of automation equipment.

“The reality is (the assembly line) was good for business,” he said. “I think that’s the same scenario you are going to find with robots.”

Ermatinger remains unsure if history will look on automation equipment as a revolutionizing force in industry with the same level of praise it gave to the assembly line. Instead, he warns that “without it, you’re probably not going to prosper any new business. With it, it’s the only way to grow and compete on a global platform.” 

Every advance in manufacturing brings about some criticism, especially when it changes people’s roles on shop floors around the country, according to Ermatinger. But that hasn’t slowed the U.S. manufacturing sector’s march ahead with new production strategy innovations. 

“If you look back at the assembly line, we would never say, ‘Let’s build these things by hand again.’ That’s backwards progress and you’ll probably go out of business,” he said. 

For a manufacturer that invests $1 million in creating a new assembly line, the “robots are going to sustain their business and let them compete at a global level and then grow the economy because their expansion is so great,” Ermatinger said. “I think it’s the opposite of what (the detractors) are saying.”

If one day a law is passed to tax robots, “it will be our demise,” he added. “It would be a terrible thing.”

‘TAX PRODUCTIVITY’

When economists like Robey at the Upjohn Institute observe a trend toward fewer people working in manufacturing at a time of greater industrial output, it gives them pause. 

The reason: As fewer people are responsible for more manufacturing output, it causes the tax base to shrink, yet people still need to access government services. If states like Michigan want to keep funding public infrastructure like roads and bridges and social services and health care programs, they will need to act now on revenues, including possibly instituting a tax on machines, he said. 

“We are going to have to find a way to tax productivity,” Robey said. “If you want to have services, you’ve got to find a way to pay for it.”

Robey cited a University of Michigan economic forecast that projects continued growth in the economy but a dip in manufacturing employment, all of which makes him think a tax on robots “may be coming sooner rather than later.”

As an alternative option, Robey cited Ohio’s strategy behind its Commercial Activities Tax (CAT). Instead of levying a corporate income tax or a tax on machines, Ohio’s CAT functions as a tiered, 0.26-percent annual “privilege tax” on gross receipts greater than $1 million for business activities in the state, including from retailers, services, manufacturing and other types of business. Businesses with gross receipts less than $1 million and more than $150,000 pay a flat $150 tax.

Robey called Ohio’s CAT “a successful role model” other states like Michigan could consider because they “don’t necessarily tax machines or individuals” but rather overall business activity. Whether more states institute taxes on machines or model their schemes off Ohio remains to be seen, Robey said, adding that states will need to find ways to adapt to industry changes fueled by automation and artificial intelligence that have affected worker output. 

“I don’t know if it’s a question about a robot tax as much as it is how do you capture the value of an economy when you have fewer workers with increased output,” he said. “Somewhere you have to be able to capture the value.” 

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