Priming the Automated Pump

The deep corporate tax cuts the White House is championing might do the exact opposite from what its backers claim. Instead of somehow raising most Americans’ take-home pay by $4,000 per year, as the president claims the cuts would, they could, instead, cost people their jobs.

Let me explain.

The framework for tax reform being put forward by the House GOP and the White House is complicated on the individual side. But on the corporate side, it’s very simple: huge cuts, mostly for the biggest companies. The base corporate rate would drop to 20%, nearly half of the current 35% statutory rate.

Big multinational companies could get an additional cut, since the administration is pushing for a territorial tax plan which would only tax certain profits booked offshore, and those at half the domestic rate (at most). If you have the kinds of accountants these multinational companies have, most of your profits end up booked offshore. For some corporations, it’s nearly all.

A recent report by U.S. PIRG Education Fund and ITEP, found that Fortune 500 companies are holding $2.6 trillion offshore, which should have generated some $750 billion in unpaid taxes.

Right now, large companies can “defer” taxes on profits held offshore to delay paying taxes (in the hope that Congress would do just what the administration is pitching). And, predictably, their money has piled up to this $2.6 trillion stash, mostly booked in tax havens. By eliminating taxes on this offshore income altogether or taxing it at some super-reduced rate, companies can “repatriate” the money and more freely spend it on investments in the United States.

The problem is, companies are lining up to use that money to automate. So, yeah, better profits. But more jobs? Doubtful.

Automation companies such as Cognex Corp are watching their stock rise. After Trump announced his plan to slash corporate taxes in August, investors sank $461 million into automation technology companies. The common wisdom is the influx of tax-free profits will lead to a boom in automation and as a result, those stocks are surging.

President Trump has claimed the deficit-exploding impacts of his tax plan are necessary to “prime the pump” for the economic growth. But all that he’s priming the pump for is for automation.

In a sense, the administration admits this. Speaking to reporters Sunday, Kevin Hassett, the chairman of the White House Council of Economic Advisers, tried to explain how the Trump administration imagines that a low-tax or no-tax repatriation of offshore income would mean $4,000 extra dollars for an average American.

Mr. Hassett noted that this extra cash would allow U.S. businesses to invest in a “capital asset like a machine,” and that if a company has more machines, it has more productivity. He added “when workers can produce more, businesses can afford to pay their workers more.”

What Mr. Hassett is describing is automation. Sure some people get paid more, but many others lose their job.

Let’s have some real talk about automation, people. It’s not going away.

We need real policy ideas that shape our future in a world where much more can be done by machines instead of spending our scarce public dollars to subsidize automation and pretend it’s somehow creating jobs. That’s just absurd.

A McKinsey Global Institute study from earlier this year found that 51% of all activities people are paid to perform in the United States are highly susceptible to automation with currently available technology, which will likely lead to mass job displacement. IT leaders agree that automation could impact 60% of businesses by 2022.

Within the next five years, we expect to see these changes affect much of our lives and a huge part of the economy. Surely an extra $2.6 trillion to buy those new machines will just hasten the reckoning that is coming anyway.

That doesn’t mean we should oppose innovation. Automation is unavoidable. The Luddites didn’t win last time, either.

But even if that’s the case, it doesn’t mean our tax dollars (which would certainly pass $1 trillion in lost taxes over 10 years) should subsidize the companies making all the money from automation.

No, we have other things to do with our money. We need to invest in solutions for a society where many of the jobs that we and our ancestors have done don’t exist anymore.

We need to figure out how to get people the things they need when they’re unemployed — either because of difficulty adapting to the new employment paradigm, or because there just aren’t enough jobs.

We can’t expect better answers until we start asking the right questions.

We need a new politics which can tackle these questions. Surely, we can imagine a world in which automation means more freedom for people, helps solve problems such as hunger and homelessness, and frees people to care for their families and work to make their communities stronger.

Eventually, companies will start investing more and more in automation and artificial intelligence. Whether job disruption from that investment happens in five months or five years, we’ve already waited too long to develop innovative ways of moving forward.

Let’s start that brainstorming and have forward-looking conversations now, before we throw away another trillion dollars in tax breaks that don’t solve what is going on with American jobs — or even exacerbate the problems facing our children and grandchildren.