The US corporate tax is over 100 years old, and many academic observers have doubted its value. The standard explanation for why we tax corporations is that it is an indirect tax on shareholders, but that is not a valid reason to have a corporate tax because (a) shareholders can be taxed directly and (b) many shareholders are tax-exempt and should not be taxed at all. However, there is another reason to tax corporations, which was in fact the original rationale why we adopted the corporate tax in 1909: to limit the power of large monopolistic corporations and regulate their activities. If that is the reason for the corporate tax, the US should have a different tax structure than the current 21 percent flat tax. The corporate tax should be set at zero for normal returns and at a sharply progressive rate for supernormal returns (rents).

The tax system incentivizes automation, even in cases where it is not otherwise efficient. This is because the vast majority of tax revenue is derived from labor income. When an AI replaces a person, the government loses a substantial amount of tax revenue - potentially hundreds of billions of dollars a year in the aggregate. All of this is the unintended result of a system designed to tax labor rather than capital. Such a system no longer works once labor is capital. Robots are not good taxpayers. The solution is to change the tax system to be more neutral between AI and human workers and to limit automation’s impact on tax revenue. This would be best achieved by reducing taxes on human workers and increasing corporate and capital taxes.