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Tax Bill Favors Adding Robots Over Workers, Critics Say

Dec 8, 2017
Originally published on December 13, 2017 8:14 am

Republicans call their tax bill the Tax Cut and Jobs Act. But critics say maybe it should have been named the Tax Cut and Robots Act.

That's because it doesn't create new tax incentives that specifically encourage companies to hire workers and create jobs, some employers and economists say. But it does expand incentives for companies to buy robots and machines that replace workers.

Republicans say that lowering taxes will boost the economy and spur job creation. But critics say that the tax legislation would create an imbalance favoring machines over workers.

"I think they really need to re-look at the name [of the bill] and add the missing component of the worker," says Carl Pasciuto, president of Custom Group, a high tech manufacturing company in Woburn, Mass.

His factory floor is full of machines that look kind of like enclosed ski gondolas. Inside them, oil is being sprayed on blocks of metal as automated robotic cutting tools zip around shaping the aluminum or steel into precision parts for nuclear submarines, jet planes, and a range of other applications.

There are many more machines here than actual workers. And under the emerging tax bill (there are two versions — one in the House, one in the Senate), companies would have incentives to buy more.

For one thing, they could write the full value of the equipment off their taxes right away.

Pasciuto says he's definitely OK with that. "Absolutely. We're always happy to get any break we can get," he says.

But Pasciuto says he needs well-trained workers more than he needs equipment. "The equipment is readily available. The workforce isn't," he says.

Pasciuto says he has positions that he can't fill because he can't find skilled workers. So he's sometimes forced to buy machines to do the work.

But he says he already has a training facility at his factory. Pasciuto says he and other employers would definitely take advantage of a tax incentive to train workers and it would create more jobs.

"I think that the federal government really needs to look at what they put in the bill and even it out from an equipment side to a training side as well," Pasciuto says.

And some labor economists agree. Daron Acemoglu is an economist at MIT who researches automation and robots and their impact on the labor market. He says automation is often a good thing. It can increase productivity and be an important part of keeping the U.S. economy competitive.

But, he says, "the problem is when you subsidize heavily the adoption of machines instead of people."

Then you're putting your thumb on the scale against workers, Acemoglu says.

He says the Republican tax bills would do that. And here's how. Suppose a business could buy a machine to replace three workers, but there's no great cost savings. "That means that machine is not a great machine," Acemoglu says. "It's fine, but it's marginal."

So if the tax policy was neutral, the business probably wouldn't buy the machine and it would keep the workers employed. But Acemoglu says even the current law favors machines, and the Republican tax bills tip the scales even more. So if you buy the machine, you'll get "a huge handout from the government," he says.

Like Pasciuto, Acemoglu would like to see incentives for hiring and training.

"To balance the scales it would be good to encourage firms to invest in their workers," Acemoglu says. Germany "has invested much more in robots than we have," he says. But it's done it in a way "that still has kept employment growing in the manufacturing sector."

Acemoglu says building hiring and training incentives into the tax bill could have helped push the U.S. more in that direction.

Gavin Ekins, a research economist with the conservative leaning Tax Foundation, says it's OK that the scales are tipped toward machines. "In the long run it's better for the economy," he says.

Ekins says some machines kill jobs, but others create jobs. If you buy a backhoe, for example, people have to build it and someone has to drive it. And he says incentives for training programs would be great to have down the road if Congress would design effective ones and pass them into law.

But he says there wasn't time to devise good incentives for training workers in this legislation.

Ekins does agree with Acemoglu on one thing. The House version of the bill would drastically raise taxes on many graduate students and workers who get free tuition.

And he says in an economy that needs a better-skilled workforce, "taxing the benefit of getting a free education — this is something that really shouldn't be taxed."

Ekins hopes the Senate version wins out on that point.

NPR researcher Susie Cummings contributed to this report.

Copyright 2017 NPR. To see more, visit http://www.npr.org/.

KELLY MCEVERS, HOST:

The tax bill that's now being crafted in Congress is huge. It's more than 400 pages. And we're going to look at two parts of it. First, Republicans call the bill the Tax Cut and Jobs Act. Critics say maybe it should be called the Tax Cut and Robots Act. That's because it doesn't create any new tax incentives that encourage companies specifically to hire workers and create jobs, but it does expand incentives for companies to buy robots and machines that replace workers. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: Republicans say that lowering taxes will boost the economy and create jobs. But critics say there's this really basic imbalance. The tax bill favors buying machines over hiring workers. That doesn't seem right to Carl Pasciuto. He's the president of a high-tech manufacturing company in Woburn, Mass.

CARL PASCIUTO: I think they really need to relook at the name and add the missing component of the worker.

ARNOLD: Pasciuto's company is called the Custom Group. The factory floor here is full of machines that look kind of like enclosed ski gondolas. Inside them, oil is being sprayed on blocks of metal as automated cutting tools zip around, shaping them into precision parts for nuclear submarines, jet planes, all kinds of stuff.

PASCIUTO: There's servos that drag the table to the position that it needs to be in. There's a robotic tool change mechanism.

ARNOLD: There are many more machines here than actual workers, and under the emerging tax bill companies would have incentives to buy more. For one thing, they could write the full value of the equipment off their taxes right away. Pasciuto says he's definitely OK with that.

PASCIUTO: Absolutely. We're always happy to get any break we can get.

ARNOLD: But he says he actually needs well-trained workers more than he needs equipment.

PASCIUTO: We do. The equipment is readily available. The workforce isn't.

ARNOLD: Pasciuto says he has open positions that he can't fill because he can't find the skilled workers, so he says he sometimes has to buy machines to do the work. But he says if there were a tax incentive for training workers, he and other companies would definitely take advantage of it. And he says that would create more jobs.

PASCIUTO: I think that the federal government really needs to look at what they've put in the bill and even it out from an equipment side to a training side as well.

ARNOLD: And some labor economists agree with Pasciuto. Daron Acemoglu is an economist at MIT who researches automation and robots. He says first, automation is not a bad thing. It can increase productivity and be an important part of keeping the U.S. economy competitive. But...

DARON ACEMOGLU: The problem is when you subsidize heavily the adoption of machines instead of people.

ARNOLD: Then, he says, you're putting your thumb on the scale against workers. And he says these tax bills do that. He says, let's say that a business could buy a machine to replace three workers, but there's no great cost savings.

ACEMOGLU: That means that machine is not a great machine. It's fine. But it's marginal.

ARNOLD: So if tax policy was neutral, the business probably wouldn't buy it. But he says even the current law favors machines, and the Republican tax bills tip the scales even more. So if you buy the machine...

ACEMOGLU: You're going to get a huge handout from the government.

ARNOLD: And he says these subsidies kill jobs when there's no good economic reason to replace workers with machines. So like Carl Pasciuto, Acemoglu would like to see incentives for hiring and training.

ACEMOGLU: To balance the scales it would be good to encourage firms to invest in their workers.

ARNOLD: Gavin Ekins is with the conservative-leaning Tax Foundation. He says it's OK that the scales are tipped towards machines.

GAVIN EKINS: In the long run, it's better for the economy.

ARNOLD: Ekins says, look. Some machines kill jobs, but some create jobs. If you buy a backhoe, for instance, people have to build it and someone has to drive it. Also, he says, there wasn't time to devise good incentives for training workers in this legislation. But he does agree with Acemoglu on one thing. The House version of the tax bill would drastically raise taxes on many graduate students and workers who get free tuition. And in an economy that needs a better skilled workforce...

EKINS: Taxing the benefit of getting a free education, this is something that really shouldn't be taxed.

ARNOLD: Ekins hopes the Senate version wins out on that point. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.