The rise of Artificial Intelligence (AI) technology in business is a promising development. Notable applications like ChatGPT, a large language model, are transforming the way people perform a range of tasks from brainstorming to generating ideas, and even in assisting with academic exams. These emerging AI technologies are capable of not only enhancing human work but also replacing some human roles.
There are impending implications of AI’s advancement in business, especially its potential impact on the solvency of Social Security due to its effect on payroll taxes. When workers who contribute to payroll taxes are gradually replaced by AI systems, there is a risk that the tax base which supports essential safety programs like Social Security and Medicare could shrink, putting these programs’ solvency at risk.
The tax treatment of human employees contrasts sharply with that of machinery utilizing AI. While both employer and employee share the responsibility of paying a payroll tax based on income, AI technology is exempt from such obligations because it is not recognized as an employee. The purchasing business typically can take a tax deduction for the investment in AI through a Section 179 deduction or over a longer period through depreciation.
Machines utilizing AI offer certain advantages to businesses. They do not demand a living wage, do not petition for remote work, nor will they trigger employment-related lawsuits. Moreover, AI’s ability is increasing, with instances of AI performing creative tasks such as writing essays and scripts and being a contentious point in the 2023 Writers Strike, with a significantly debated demand that AI should not replace human writers.
There are multiple proposals on how to sustain the tax base if AI significantly affects human roles and insufficient payroll taxes are derived from the workforce. Proposals include imposing excise or supplemental taxes on AI manufacturers, withdrawing business tax deductions for the purchase of AI technology (a strategy implemented by South Korea in 2018), and obligating taxpayers to pay more by raising the eligibility age for social security benefits or increasing payroll and self-employment tax rates.
Given the potentially far-reaching implications of AI-driven job displacement on social security funding, and therefore on society’s future, it’s clear we need strategies to address these issues. The irony is that the kind of help we might need could come from the very technology we are grappling with: AI.