Ever wonder why companies spend so much money on machinery and software that kills jobs? One reason is that the U.S. tax code practically forces their hands. The tax on capital has fallen to around 5% in recent years while the tax on labor has remained around 25%, according to a new white paper (PDF) for the Massachusetts Institute of Technology’s Task Force on the Work of the Future.
“Favorable taxation of capital leads to excessive automation,” MIT economist Daron Acemoglu, the lead author of the paper, said in an Oct. 1 interview. Acemoglu testified about excessive automation before the House Budget Committee on Sept. 10 (PDF) and expanded on the tax aspects in the new paper.
The standard economic argument in favor of lightly taxing capital (equipment, software, buildings) is that the supply of capital is highly sensitive to tax rates. High taxes will discourage investment in