If AI Replaces Workers, Should It Also Pay Taxes? The Debate Around Automation and Taxation
Madrid, November 30, 2025 — The rapid advancement of artificial intelligence (AI) and the extensive investment pouring into its development by major technology companies are transforming labor markets worldwide. As leading industry giants like Amazon, Meta, and UPS announce significant layoffs citing automation, a critical question has resurfaced in public discourse: if AI replaces human workers, should it also be taxed to compensate for lost tax revenues?
The Impact of Automation on Tax Revenues
Labor taxes—income tax and social security contributions—form one of the main pillars supporting public finances in virtually every country. With automation threatening to reduce the number of employed workers, concerns have grown about a shrinking tax base. If fewer people are working, fewer individuals will be paying these vital taxes.
This issue is not entirely new. In 2019, Nobel Prize-winning economist Edmund Phelps proposed a “robot tax” to help maintain social safety nets amid rising automation. Similarly, Bill Gates—Microsoft’s founder—called for robots to be taxed at rates comparable to the human workers they replace. These suggestions raise complex questions about how tax systems should evolve in response to technological change.
Sanjay Patnaik, director of the Center for Regulation and Markets at the Brookings Institution, notes that in countries like the United States, about 85% of federal tax revenue comes from labor income. He advocates against a direct tax on AI or automation, favoring instead increased taxation on capital gains. According to him, this approach could more effectively address potential revenue losses from AI-driven job displacement while avoiding market distortions that a robot-specific tax might cause.
Uncertainty Over AI’s Economic Effects
Economists and policymakers remain uncertain about the overall impact of generative AI, the technology behind machines capable of producing content and decision-making autonomously. Prominent financial institutions project positive economic outcomes: Goldman Sachs predicts a 7% uplift in global GDP over the next decade attributable to AI, and the International Monetary Fund (IMF) estimates an added 0.8 percentage points of economic growth annually through 2030. Conversely, the International Labour Organization cautions that approximately one in four workers globally—mostly in high-income nations—face exposure to AI disruption. The organization predicts that rather than outright job losses, many roles will undergo transformation.
Luz Rodríguez, labor law professor and former Spanish Secretary of State for Employment, summarizes the dilemma: “Previous automation waves replaced jobs primarily in the production chain’s middle levels, while generative AI targets higher-skilled roles requiring critical thinking.” Nevertheless, Rodríguez sees potential positives, citing new roles created by technology such as social media content moderators and Bitcoin miners.
The Complexity of Taxing AI
Daniel Waldenström, a professor at the Stockholm Institute for Industrial Economics, rejects the notion of an AI-specific tax. He argues no significant increase in unemployment has occurred in the U.S., the foremost adopter of AI technologies. Furthermore, defining AI or robots in tax terms proves difficult, ranging from chips and humanoid machines to computer programs. “We should continue taxing existing categories: labor income, consumption, and capital gains,” he states.
Reflecting on this, the IMF recommends vigilance rather than introducing AI-specific taxes, warning that such taxes might hinder productivity and distort markets. Instead, the IMF suggests revising capital taxation, imposing supplementary levies on “excessive” corporate profits, and scrutinizing tax incentives for innovation and patents—which, while boosting productivity, could displace human labor.
Oxford University associate professor Carl Frey echoes this view. Though he opposes a direct AI tax, he highlights an imbalance within many OECD economies where labor is increasingly taxed while capital taxation declines. “This tax structure encourages companies to invest more in automation than in technologies that create jobs," Frey explains. "Rectifying this imbalance is essential to support the job-creating technologies of the future.”
Tech Giants’ Profits and Workforce Cuts
Recent corporate actions underscore the debate’s urgency. Amazon, for example, reported a 38% profit increase and substantial investments in AI even as it slashed 14,000 jobs worldwide. Meanwhile, corporate tax rates in OECD countries have fallen from 33% in 2000 to 25% today, while the tax burden on workers has only modestly decreased.
The International Federation of Robotics argues against taxing automation tools, stating that robots and digital technologies boost productivity and generate new jobs. Secretary General Susanne Bieller cautions that taxing production tools rather than business profits could undermine competitiveness and employment. She highlights the global labor shortage—estimated at 40 million jobs annually—that robots help to alleviate by performing specific tasks rather than replacing entire jobs.
Broader Concerns: Inequality and Environmental Impact
Beyond employment and taxation, AI’s rapid rise is contributing to widening inequalities, with soaring tech company stock prices fueling fears of a market bubble. Additionally, experts warn about the high energy consumption of AI infrastructure, potentially exacerbating climate change and offsetting anticipated economic gains.
The hope is that AI-created jobs will be more productive, better paid, and accessible, ultimately compensating for job and tax losses. However, there is a risk of delayed job creation, difficulties for lower-skilled workers adapting, and growing disparities between and within countries and industries.
In 2023, MIT economists Daron Acemoğlu and Simon Johnson observed that although automation increased productivity and corporate profits over the past four decades, it did not translate into shared prosperity in advanced economies. Rodríguez underscores that technological determinism is not inevitable: “We must continue this debate and shape our future deliberately.”
As artificial intelligence continues reshaping global labor markets and economies, the challenge for governments and societies is to design fair and effective taxation policies that sustain public services, foster innovation, and ensure equitable benefits from technological progress. The question of whether AI should pay taxes remains open, but the urgency to adapt fiscal frameworks to this new reality is undeniable.
