{"text":[[{"start":5.74,"text":"The writer is an FT contributing editor and director of economic policy studies at the American Enterprise Institute"}],[{"start":12.3,"text":"In the US, prominent politicians and economists are calling for increases in capital and corporate income taxes to support expansions of social insurance, safety net and training programmes to help workers and households that might experience AI-related disruption. Others want to apply special taxes to AI companies or to the use of AI tools. These ideas are all misguided and would reduce the prosperity of the American people. If additional tax revenue is needed, it should come from taxing consumption."}],[{"start":40.92,"text":"The goal of the tax system should be to raise the revenue needed to finance government spending. It ought to place a relatively heavier tax burden on the affluent while not unduly affecting the choices households and businesses make in markets."}],[{"start":54.24,"text":"But taxes do distort behaviour. If you tax something, you get less of it. Taxing capital gains, dividends and corporate income reduces incentives to save and invest. This in turn reduces productivity growth, wage growth and living standards. Although moving to a broad-based consumption tax would reduce consumption, it would, in contrast, increase living standards."}],[{"start":76.6,"text":"The US could adopt a European-style value added tax that exempted, say, the bottom half of households. Even better would be to cut existing taxes on capital and corporate income and to replace the lost revenue using this new VAT. But if concern about AI disruption creates political space for real tax reform, it would be better still to throw out the US income tax system entirely."}],[{"start":98.18,"text":"The system is economically broken and structurally flawed. Its base has been narrowed with myriad exclusions and deductions, requiring higher marginal rates. It discourages risk-taking and penalises households that defer consumption (by saving) relative to households that don’t save."}],[{"start":114.28,"text":"It is also politically broken. Despite the US’s massive budget deficits — totalling 5.8 per cent of GDP last year, and forecast to increase — the leaders of both political parties seem to agree that the bottom 98 per cent of households should not face income tax increases."}],[{"start":130.3,"text":"Rather than a VAT, the US could implement a broad-based consumption tax in a way that looks similar to the current income tax system by taxing household labour earnings (but not capital income) using a progressive rate structure and by taxing business cash flow — revenue minus expenses, including investment — at the highest rate facing households. For corporations, the 2025 tax law took important steps in this direction by allowing the costs of qualifying equipment and of domestic research and experimentation to be deducted in the year incurred rather than over several years. But much investment spending cannot be immediately deducted under current law."}],[{"start":167.56,"text":"A properly designed consumption tax can raise as much as or more than the current system, and can be just as, or even more, progressive. To support employment at a time of AI disruption, a consumption tax could include a generous wage subsidy similar to the current earned-income tax credit."}],[{"start":183.68,"text":"But if your goal is to slow down AI-related dynamism by increasing the tax burden on business investment, on the financial returns to households from equity investment, or on AI use, then a consumption tax isn’t for you."}],[{"start":195.82,"text":"This is a feature, not a bug. AI will quickly make most people better off, and over time the productivity increases it enables will raise wages and living standards throughout the economy. It will also lead to new and better medical treatments, higher-quality education, and new consumer goods and services. Policymakers should not erect ill-advised obstacles — AI-specific taxes, or higher capital and corporate taxes — to its development, adoption, and use. A rising tide does not lift all boats immediately or at the same pace — but it does eventually lift all boats."}],[{"start":228.86,"text":"The carts of those advocating for tax increases are careening rapidly ahead of their horses. While the adoption of generative AI tools might require large increases in federal spending, there is little compelling evidence of this to date. But swapping the income tax for a consumption tax makes sense even in the absence of AI concerns, and addressing the US’s worrying fiscal imbalance will require additional revenue."}],[{"start":251.32,"text":"The tax code should not target the sources of long-term growth. Addressing AI-related disruption should occur on the spending side of the budget, not the revenue side. And economic policy should be directed towards advancing long-term prosperity. It should not be burdened by excessive anxiety about dynamism — or the future."}],[{"start":271.12,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1785842837_5819.mp3"}