Tax the Taxers

by Don Boudreaux on November 28, 2017

in Seen and Unseen, Taxes, Work

Here’s a letter to the Wall Street Journal:

Michael Saltsman reports that San Francisco City Supervisor Jane Kim worries that automation, by eliminating large numbers of particular jobs in coming decades, will lead to chronic unemployment.  And so Ms. Kim wants to tax employers each time they replace workers with robots or algorithms (“San Francisco’s Problem Isn’t Robots; It’s the $15 Wage Floor,” Nov. 25).

Never mind that labor-saving innovations have been destroying particular jobs since the invention of the lever and the wheel without yet causing chronic unemployment.  Quite the opposite, in fact: the number of paid jobs is today at an all-time high (as are global living standards).  The number of people with paid jobs is now 3.3 billion, a figure more than three times larger than the total population of the world at the dawn of the industrial revolution – a revolution that greatly accelerated the invention and use of labor-saving technologies.

Instead, note the irony of Ms. Kim’s proposal: her tax taxes job creation.  First, taxing employers for replacing workers with technology will dissuade employers from creating jobs to begin with.  Entrepreneurs who know that they’ll be penalized whenever they use technology to improve the efficiency of their operations are less likely to launch firms to begin with or, if their firms are already launched, to expand.  Second, with such a tax, when firms do launch or expand they’ll do so using more technology (and less labor) than they would use absent such a tax.  This tax will create, among firms that launch or expand, an artificial bias in favor of capital-intensive operations – a result opposite the one that Ms. Kim presumably intends.

If Ms. Kim really wants to tax activities that destroy jobs, she should tax the counterproductive schemes that she and her fellow city officials embrace – schemes such as minimum-wage legislation and this hare-brained tax.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030


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