Assaf Harpaz (Georgia) has posted “Taxing AI,” forthcoming in the Boston University Law Review, on SSRN. Here is the abstract:

Artificial intelligence (AI) is poised to transform the distribution and sources of income, with some experts predicting widespread job displacement. Even under optimistic projections, AI is expected to exacerbate wealth inequality, given that the technology’s ownership and immense value are concentrated within a subset of Big Tech companies and AI startups. These outcomes will have far-reaching impacts on the federal tax system, which heavily relies on taxing individual labor income and payroll, rather than capital or consumption.

This Article argues that AI threatens to disrupt the tax system’s ability to fulfill its fundamental goals of raising revenue, redistributing income, and regulating taxpayer behavior. The risk is heightened by the federal government’s dependence on individual labor income, even as economic value shifts toward mobile capital and AI ownership by large firms. The Article proposes two interventions to help address these challenges. In the short term, it recommends increasing the capital gains rates on the sale of ownership interests in AI-intensive firms. This approach would primarily serve to internalize the distributive imbalances generated by wealth concentration in AI firms. In the long term, the Article suggests adopting a broad-based consumption tax if the share of labor income declines. This proposal would represent a more drastic change, aimed at rebalancing a tax system that can no longer depend on taxing individual labor income.