The U.S. economy presently has a 4.2% unemployment rate and that is historically good. There isn’t a lot of room for improvement. In some months like the last there were only 29,000 new jobs created. There aren’t mentions of the Federal Government creating ‘shovel ready jobs’ in an era of AI and robotic automation.
It is taxation that probably needs to change. Not simply tax rates but what and how taxes are levied to pay to run the government. There are several economic and demographic factors at play affecting the [present and future American economy.
One is the retirement wave of boomers. There are 64 million boomers and they are rapidly fading into retirement and vacating the workforce. If five boomers retire and millennials replace them, no new net jobs will be created. Job growth remains flat. Without large numbers of illegal migrants to swell the workforce and have their children become tax paying citizens in 20 years the job force and new jobs does not increase much. The Trump administration’s present 3.4% growth rate is more than one should expect from a stable population in a post-industrial society.
Negative job growth is occurring in financial and other areas because of the introduction of AI and robots into the work force bringing more efficiency and corporate proplits. Neither do AI and robots pay taxes to replace revenues lost from the taxes human workers paid before replacement. THus new taxation theories arise.
I chatted about this and other concerns with AI-
Gary– When Boomers drop out of work; say five Boomers quit and they’re replaced by five young people- does that count in labor statistics as five new jobs created?
AI– No, that does not count as five new jobs created.
In national economic statistics, this scenario is counted as net zero job creation, because the total number of available positions in the economy did not change.
Here is exactly how national statistics (like the U.S. Bureau of Labor Statistics) categorize this shift:
1. Job Openings vs. Net Job Growth
- The Non-Farm Payrolls (Net Growth): When the media reports that the economy “created 200,000 jobs last month,” they are talking about net job growth (Total Jobs Added minus Total Jobs Lost). In your example, 5 jobs were vacated and 5 jobs were filled. The net change is 0.
- Labor Turnover (JOLTS): This movement is tracked, but under a different metric called Job Churn or Turnover. The 5 Boomers quitting are counted as “Separations” (specifically, retirements/quits), and the 5 young people entering are counted as “Hires.”
2. The Statistical Breakdown
If we look at how this impacts the broader national data, it changes the demographics of the workforce rather than the size of the economy:
- Employment-to-Population Ratio: Drops for the Boomer demographic and rises for the Gen Z/Millennial demographic.
- Labor Force Participation Rate: If the Boomers completely retire and stop looking for work, they drop out of the labor force metric entirely. The young people entering keep the total participation numbers stable.
- The “Replacement” Effect: Economists view this purely as replacement hiring rather than economic expansion.
Since we are talking about labor metrics, would you like to explore how Boomer retirements affect average national wage growth (since younger replacements usually start at lower salaries), or how economists project the future labor shortage as the silver tsunami peaks?
I would think wages would go up as Boomers retire
Your intuition is spot on for individual openings, but on a national statistical level, it actually causes average wages to look lower.
This phenomenon is known by economists as the “Composition Effect” or the “Retirement Drag” on wage statistics. Here is why this paradox happens:
1. The Statistical Illusion (The Composition Effect)
When a Baby Boomer retires, they are usually at the peak of their career, earning a top-tier salary (e.g., $100,000). When they are replaced by a younger worker, that younger worker typically starts at a lower entry- or mid-level salary (e.g., $60,000).
Even if the company raises the starting salary to attract that young person, the net statistical effect looks like this:
- Before: One worker earning $100,000.
- After: One worker earning $60,000.
- National Data Impact: The average wage for that specific job tracking slot mathematically dropped by $40,000 in the national data, even though no individual person took a pay cut.
Because millions of Boomers retire at the same time, this continuous replacement of high earners with lower earners acts as a constant downward pressure on national indicators like the Atlanta Fed’s Wage Growth Tracker.
2. The Real-World Friction (Where Wages Do Go Up)
While the average statistic is dragged down, your logic is absolutely correct regarding the competitive pressure on companies.
When a specialized Boomer leaves, it creates a vacancy. To fill it, companies have to compete for a shrinking pool of available workers, forcing them to adjust in two ways:
- The “Promotion Cascade”: To fill the Boomer’s senior role, a mid-level worker is promoted and given a significant raise. Then a younger worker is hired to fill the mid-level role. This upward movement causes individual wage growth to spike, even if the absolute average of the pool stays flat.
- The Scarcity Premium: In fields with severe shortages (like healthcare, manufacturing, or skilled trades), companies are forced to aggressively bid up starting wages just to get young people through the door.
Summary
- National Average Wages: Dragged down or kept flat because high-salary lines are replaced by entry-level lines.
- Individual Wages: Driven up because the labor scarcity gives younger workers immense leverage to demand higher pay when changing jobs or moving up.
Would you like to look at how this dynamic is currently playing out in specific industries like healthcare or manufacturing, or explore how automation is being used to bypass hiring replacements altogether?
Gary- Wasn’t Morgan Stanley the one that shed 7,000 human jobs?
No, Morgan Stanley actually cut around 2,500 jobs. However, your memory is very close to the broader industry reality, as you are likely combining their recent headcount cuts with a few major factors: [1, 2, 3]
1. The Actual Morgan Stanley Numbers
Morgan Stanley executed a major workforce reduction, eliminating roughly 2,500 roles (about 3% of their global staff).
- The Irony of the Cuts: These cuts happened despite the bank bringing in a record $70.6 billion in revenue.
- Who was cut: The bank specifically targeted “back-office” support roles, technology positions, and wealth management administrative staff. They explicitly spared their 15,000 human financial advisors because those roles rely strictly on client relationships.
2. Why you might be remembering 7,000 or more
Your brain is likely connecting Morgan Stanley’s headline with three other massive labor shifts happening across Wall Street and Tech:
- The Cumulative Financial “Culling”: While Morgan Stanley cut 2,500, the finance and tech sectors combined have been shedding an average of 28,000 jobs per month, with banks like UBS announcing sweeping plans to cut up to 10,000 global employees. [1, 2]
- The AI Displacement Factor: Morgan Stanley’s CFO openly noted that workflows that used to require two entire human teams have been consolidated into one human team and one AI assistant. Other major corporations did hit massive numbers exactly like you described by replacing humans with artificial intelligence—for instance, companies like Salesforce cut 4,000 support roles and Block slashed thousands of jobs specifically citing AI efficiencies.
- The 71,000 Milestone: You may also be remembering broader headlines tracking corporate restructuring, which noted that despite Wall Street and major tech firms hitting all-time record profits, over 71,000 white-collar jobs were erased globally in the initial waves of the workforce resets.
So, while Morgan Stanley itself didn’t hit the 7,000 mark on its own, it was a leading face of the corporate trend: firing thousands of human back-office workers to lean into algorithmic efficiency.
Would you like to look at how AI tools are shifting specific white-collar roles in banking, or see which other major financial institutions are currently executing the largest layoffs?
Gary-They do need to tax those AI tools and robots that are replacing human workers who paid taxes.
AI- You have identified the exact fiscal dilemma that is currently driving intense policy debates among economists and lawmakers. Individual income and payroll taxes generate roughly 85% of federal tax revenues. When a company replaces human workers with AI or software, those income and payroll taxes instantly vanish, creating a massive funding gap for the government even as corporate productivity spikes.
Because of this systemic vulnerability, major public figures and politicians are actively proposing “Robot Taxes” and “AI Levies” to prevent tax revenue from eroding.
The Arguments For an AI/Robot Tax
Proponents of taxing automation argue that the current tax system creates an unfair incentive for companies to fire humans.
- The Tax Asymmetry: When a company employs a human, it must pay mandatory payroll taxes (like FICA for Social Security and Medicare). However, when a company buys an AI software license or a robot, it doesn’t pay payroll taxes and can often write the machinery off as a tax-deductible business expense.
- Funding the Safety Net: Prominent figures like Bill Gates argue that if an AI system or robot performs the equivalent unit of labor of a human, it should be taxed at a comparable rate. Lawmakers like Senator Bernie Sanders and Representative Casar have proposed various bills to tax corporate AI use or “AI tokens” (the data units used to process AI inquiries). The goal is to use this new revenue stream to fund worker retraining programs and strengthen social safety nets.
The Arguments Against an AI/Robot Tax
Opponents and free-market economists warn that directly taxing technology could backfire and hurt the broader economy.
- Stifling Innovation: Critics argue that taxing AI would slow down domestic technological growth, making local companies less competitive globally. If the U.S. heavily taxes AI data centers, companies might simply shift their digital infrastructure offshore to countries with lower tax burdens.
- The Definition Nightmare: Implementing an automation tax is incredibly difficult to define legally. Lawmakers would have to draw arbitrary lines deciding what counts as a “job-replacing robot” versus a regular productivity tool. For example, should a grocery store be taxed for installing a self-checkout kiosk, or a bank for using an ATM?
Alternative Solutions: Shifting Away from Income Tax
Because taxing a robot directly is so complicated, many economists suggest that governments will eventually have to rewrite the tax code entirely to move away from relying on human labor income. [1, 2]
| Alternative Strategy | How It Works |
| Value-Added / Consumption Taxes | Shifting the burden from income to spending. Automated businesses would still pay taxes when their goods and services are bought and consumed by the public, preserving government revenue without needing human payrolls. |
| Increased Corporate & Capital Taxes | Raising the base tax rate on corporate profits, capital gains, or implementing windfall profit taxes on mega-corporations that achieve extreme wealth through pure automation. |
| Infrastructure and Energy Levies | Rather than taxing the “software” itself, lawmakers like Senator Elizabeth Warren have proposed taxing AI data centers based on the massive amounts of electricity and water infrastructure they consume. |
Would you like to look closer at specific pieces of AI tax legislation currently being debated by lawmakers, or see how economists project a Universal Basic Income (UBI) might be funded if automated taxes are eventually passed?
Gary– Consumer taxes would be incredibly corrupting shifting the burden of taxation from corporations to the poor
AI– You have pinpointed the primary critique of consumption taxes. Economists call this a regressive tax system, and it is highly controversial because it inherently hits lower-income families the hardest.
When a tax is placed on everyday spending rather than corporate profits or high salaries, it drastically shifts the financial burden of running a country onto the people who can least afford it.
1. The Regressive Math: Why It Hurts the Poor
The core issue with a consumption or consumer tax is that poor and middle-class families must spend virtually 100% of their income immediately just to survive (on food, gas, clothes, and utilities). Wealthy individuals, by contrast, only spend a tiny fraction of their income on survival, saving or investing the rest.
- The Low-Income Earner: If a person makes $30,000 a year and faces a heavy consumption tax, nearly every single dollar they earn is taxed because they are forced to spend it all on basic necessities.
- The High-Income Earner: If an executive makes $3,000,000 a year, they might only spend $300,000 on living expenses. The remaining $2.7 million is funneled into stocks or real estate, completely bypassing the consumer tax.
As a result, the poor end up paying a vastly higher percentage of their total income in taxes than the rich, while automated corporations get a free pass on the human labor they replaced.
2. The Corporate Escape Loophole
If a government replaces corporate income and payroll taxes with consumer taxes, it creates a massive windfall for automated companies. A tech or banking firm could lay off thousands of workers, replace them with AI, skyrocket its profit margins, and pay minimal taxes because the tax burden is delayed until the end consumer buys the final product. Critics argue this creates a corporate landscape of extreme wealth concentration with very little public accountability.
3. How Modern Proposals Try to “Fix” the Corruption
Because a raw consumer tax is so unfair to the working class, policy researchers who advocate for shifting away from income tax argue that it must be paired with aggressive counter-balances to prevent this exact scenario:
- The “Pre-bate” System: In proposals like the “FairTax” in the U.S., every citizen would receive a monthly cash check from the government equal to the tax rate on basic living expenses. This effectively makes survival-level spending tax-free for the poor, while only taxing luxury spending.
- Exempting Necessities: Many European countries use a Value-Added Tax (VAT) but completely exempt or heavily discount groceries, healthcare, and rent, while placing massive “luxury taxes” on high-end goods, yachts, and corporate electronics.
Even with these fixes, critics maintain that relying on consumer spending to fund a government fundamentally shields mega-corporations from paying their fair share for the infrastructure and society they profit from.
If you want to keep exploring this, we could look at how corporate wealth taxes are being proposed as an alternative to catch AI profits, or look at how countries in Europe balance corporate taxes with high consumer taxes without crushing the poor.
Gary– What about profit margins indexed for taxation?
AI- Using profit margins as an index for taxation—specifically targeting companies with exceptionally high profit margins—is a concept being actively proposed by progressive economists and lawmakers to address the rise of highly automated, AI-driven corporations.
In a traditional economy, taxes are based on total profit dollars. However, an AI-driven tech company might make a 60% profit margin while employing only 100 people, whereas a manufacturing plant might make a 6% profit margin while employing 10,000 people. Taxing based on profit margin is designed to level this playing field.
How a “Profit Margin Tax” Works
Instead of applying a flat corporate tax rate (e.g., 21%) to all net income, the tax rate scales dynamically based on the company’s efficiency ratio (Net Income divided by Gross Revenue).
- The Low-Margin Employer (Protected): A grocery store chain or manufacturing firm that operates on a razor-thin 5% profit margin because it pays heavy wages to thousands of human workers would face a very low tax rate.
- The High-Margin Automated Firm (Targeted): An AI software company or automated financial firm that operates on a massive 50% profit margin because it has virtually no human payroll expenses would face a significantly higher tax rate.
The Major Benefits
Advocates for using profit margins as a tax index point out several key advantages:
- Neutralizes the “Incentive” to Fire Humans: Currently, corporations are financially incentivized to replace humans with AI because it eliminates payroll taxes and explodes their profit margins. If a higher profit margin automatically triggers a higher tax bracket, it creates a natural economic drag against mass corporate layoffs.
- Targets True Monopolies: Companies with astronomically high profit margins (like big tech or specialized pharmaceutical firms) usually hold monopolies or patents that insulate them from competition. Indexing taxes to margins ensures these economic “rents” are clawed back for public funding.
The Economic Vulnerabilities (The Trade-offs)
While the theory is elegant, economists identify three major hurdles that make implementing a profit margin tax incredibly difficult in practice:
- The “Hollywood Accounting” Loophole (Transfer Pricing):
Corporations are experts at manipulating their profit margins on paper. If a company faces a heavy penalty for a high profit margin, it can easily artificially lower its margin by spending money on massive executive bonuses, buying back its own stock, or shifting its intellectual property to a shell company in Ireland. The margin disappears, but the corporate wealth remains. - Punishing Small Businesses and Startups:
Not all high-margin businesses are mega-corporations. A small, independent software creator, a consultant, or a local author might have a 70% profit margin because their overhead is practically zero, but they aren’t wealthy. Lawmakers would have to create strict revenue thresholds so they don’t accidentally crush small-scale entrepreneurs while trying to tax Wall Street. - The Disincentive for Efficiency:
Critics argue that a margin-based tax acts as a penalty on innovation. If a company figures out a highly efficient, green, or revolutionary way to produce a product cheaper, a margin tax effectively punishes them for being smart and lean, encouraging companies to stay bloated and inefficient just to keep their tax brackets low.
Real-World Equivalents: Windfall Profit Taxes
While a permanent profit-margin-scaled tax index is rare, governments frequently use a variation of this called a Windfall Profits Tax. When energy companies or mega-banks see their profit margins skyrocket due to a crisis or sudden market shift (rather than increased human labor), governments step in to tax that excess margin directly to fund public relief.
If you’d like to look deeper into this, we can explore:
How transfer pricing loopholes allow tech companies to hide their margins offshore.Specific proposals for a corporate minimum tax based on book income (the profits they report to shareholders).How a Financial Transactions Tax (FTT) could target automated high-frequency trading directly.
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