WHEN MACHINES PAY NO INCOME TAX
If AI does more of the work, who will finance the state?
For more than a century, modern governments have built an extraordinary fiscal machine around one remarkably convenient economic event:
a human being going to work.
A worker earns a salary.
The government taxes the income.
Social-security contributions are collected.
The worker spends what remains.
Consumption is taxed again.
The employer pays payroll contributions.
And an enormous part of the modern welfare state is financed.
Now imagine something different.
A company employs 10,000 people.
Over the next decade, artificial intelligence allows it to produce the same output — perhaps substantially more — with 7,000 employees.
Later, perhaps 5,000.
Productivity rises.
Profits may rise.
Consumers may receive cheaper or better products.
The economy may become more efficient.
But something else has happened.
Three thousand — and eventually perhaps five thousand — taxable salaries have disappeared.
The machines replacing them do not pay income tax.
They do not make social-security contributions.
They do not pay payroll taxes.
They do not finance pensions.
They do not contribute to unemployment insurance.
And they do not consume their salaries in the economy.
This leads to one of the most important fiscal questions of the AI century:
If machines increasingly create the value, should governments continue taxing the economy as though humans still created almost all of it?
THE TAX SYSTEM WAS BUILT FOR AN ECONOMY OF WORKERS
The numbers reveal the vulnerability particularly clearly in Europe.
In 2024, taxes on labour, including social contributions, represented 51.5% of total EU-27 tax revenues.
Consumption generated 26.8%.
Capital generated 21.6%.