01/24/2013 Conclusion -- and a proposal for both parties

A recent article about the Automate 2013 trade show addressed the question of whether robots are taking our jobs.

The answer was “yes and no.”  That’s been the answer since the dawn of time.  First animals and watermills took our jobs, then automation, and now robotics.  And each time we found better jobs that were easier to do and more rewarding.

But still – the ultimate what-if scenario would be if artificial intelligence ever took over ALL industrial capacity.  How much should we tax corporations that used robots instead of people?

The answer is in my original post on capital gains rates: 35%.

That post assumed no change in investor behavior between 0% and 100% taxation.  Since a robot “behaves” as it’s programmed to behave, the behavior-neutral model applies.  Government revenue peaks at 35%.

The robots don’t produce an end product from nothing, but from raw materials that have to be supplied to the manufacturer.  If the robot has no raw material, the robot itself becomes “unemployed.”  Taxation beyond 35% reduces the amount of raw material purchasing power to the point that the government loses revenue.

So much for robots.  What about humans?

The original form of the “Laffer curve” shows 0% revenues at 0% tax rates, and 0% revenues at 100% tax rates.  The Conservative argument is that people will lose incentive at 100% taxation and stop working.

The Conservatives are wrong.  People work even at 100% tax rates, as we see in Israeli communal Kibbutzim and the old Soviet Union.  In the Israeli Kibbutzim there is peer pressure and the threat of expulsion.  In the old Soviet Union a person who didn’t work didn’t eat – and the gulag was an added incentive.

Here’s the difference: Capitalism rewards work, while Communism punishes idleness.

So, Communism does not have welfare, but Capitalism won’t execute you for being lazy.

Capitalism is the carrot.

Communism is the stick.

Either one will motivate you to work.  The lazy will work harder in Communism and the greedy will work harder in Capitalism… giving Capitalism the edge in total productivity.

But having an edge and cornering the entire market are two different things.  The true Laffer curve does NOT fall to zero.

There’s another reason for the Laffer curve to stall above zero: the bleed from the official market to the black market goes BOTH ways.  A person might make something for his own consumption or for the black market, and that product can relieve the need for something in the open market – but leave the opportunity to buy something else on the open market instead.

In numerical terms, the original Laffer curve would require a behavior drag that would shift the maximum “robotic” (i.e. behavior neutral) curve peak from 35% to 24%.

Turns out humans worked just as hard at 94% tax rates as they did at 35% rates.  They lost productive capacity, but they did not intentionally avoid work.

Taxes become the backdrop against which we work.  We don’t work for the government’s benefit: we work for our own benefit and will try to make the best life we can no matter how ridiculous the government becomes.

In terms of taxes, there is NO DIFFERENCE between humans and robots.  Therefore, NEITHER should ever be taxed more than 35%.

That goes for “entities” like corporations, too.  The total effect of Federal, State, and Local taxes should NEVER exceed 35% in the American economy.

Now, the “Affordable Care Act” does throw a monkey wrench into the equation, though.  Is it a tax or not?  Regardless of the rhetoric, what is it really?

Truth is, I have no idea.  It’s a mandate to buy health insurance, but not an effective one.  It will certainly create a bureaucratic drag, but no one knows by how much.  Everything outside of that bureaucratic drag SHOULD be a wash in the tax equation.

So, I’ll conclude with this:

A PROPOSAL

 

1) Freeze all Federal taxes but one – the income tax

2) Freeze all State taxes but one – (let each state pick what they want)

3) Allow the unfrozen tax to float based on actual revenue data (see below)

Here’s how you float that last tax – MEASURE the inflation adjusted per capita revenues as I’ve done in this series of posts.  Set the rate at the historical peak.  If 35% begins to underperform, the graph will AUTOMATICALLY shift to either 34% or 36%.  If one of those underperforms it will continue to shift.

The shift will be slow, but based on empirical evidence.  There will be no sudden shocks, and everyone will know that the government is trying to maximize revenues (at least until we pay off the 16 trillion debt).

The rate will simply and automatically gravitate to WHATEVER WORKS BEST.  And if some other bogus tax / non-tax like Obamacare is thrown in, the measures will self-adjust in a short period of time.

Liberals think they’ll get more money at higher rates.

Conservatives think they’ll get more money at lower rates.

Let them BOTH put their money where their mouth is and agree to this automated optimizing proposal and get to the real world task they really need to do next: find a way to SPEND LESS than they take in.

Tim