Raise the Corporate Tax Rate to Stem AI-Related Economic Inequity - news.bloombergtax.com

Even before the rise of artificial intelligence, the case for raising the corporate tax rate was compelling. Now, itâs overwhelming.

AIâs economic impacts may include higher productivity and growth â but also possibly targeted or widespread job dislocations and more inequality. Fundamentally, the federal government doesnât raise enough revenue to support our existing commitments and unmet needs, let alone the serious challenges AI could create.

In 2025, federal revenue was 17.2% of GDP, the same as in 1963. As a result, despite a growing economy, the deficit last year exceeded $1.75 trillion, marking the sixth straight year of trillion-dollar deficits.

We also have a public investment deficit: Inadequate revenues have constrained policymakersâ willingness to address needs such as climate change, housing, child care, and child poverty. Too many families are grappling with myriad affordability challenges â housing, groceries, gasoline, and more. The massive tax and spending bill enacted last year has worsened these affordability and deficit challenges. We need more revenue, not less, and the rise of AI may increase that need.

Though evidence to date on the impact of AI on the labor market is mixed, tech experts warn that the future of AI risks large-scale job displacement or even mass elimination of jobs. The nationâs unemployment insurance system needs extensive changes, which may become especially important if AI adoption makes jobs harder to find. Policymakers should also take a fresh look at wage insurance, which has been used successfully on a small scale to help some workers facing globalization-related job losses.

Preparing for AI-driven labor market disruptions will also require ensuring people have secure access to healthcare; for far too many people, losing a job means becoming uninsured. One reason Americans are more concerned about the downsides of AI than other countries could be that here, even temporary joblessness can mean disaster. The subpar social services net means people may not have enough help buying food or healthcare when they are unemployed â especially if they donât have children. Many other countries help people through those tough times.

Increasing taxes on corporate profits would be a key starting point for raising the revenue required to meet current needs and AI-related challenges, and it wouldnât stifle innovation or growth. A more robust corporate tax could also help address the potential for widespread AI adoption to increase inequality.

A dramatic cut in the corporate rate, from 35% to 21%, was the costliest provision of the Tax Cuts and Jobs Act. Bringing the rate up to even 30% would raise around $1.4 trillion from 2030 to 2039.

Much of the tax increase would fall on corporate shareholders, who are disproportionately wealthy (and likely to benefit from a boom in AI profits), and other high-income households. One study found that all of the 2017 rate cutâs benefits went to shareholders and the highest-paid employees.

New Federal Reserve data shows that workersâ share of total national income is at its lowest level on record in data back to 1947. Many economists warn that widespread AI adoption could cause even more income to flow to capital owners instead of workers, exacerbating inequality and economic insecurity. Thoughtful tax reforms, like raising the corporate tax rate, can push in the opposite direction by taxing increasingly concentrated corporate profits and helping to finance investments that disproportionately benefit low- and middle-income households.

Because the 2017 corporate rate cut failed to generate the promised economic boom, partially reversing it wouldnât significantly harm the economy. The corporate tax would be a relatively efficient way to raise revenue because a large and growing share of the corporate tax base consists of âexcess profitsâ â profits above what a firm needs to justify an investment. That means the corporate tax could raise substantially more revenue without significantly impeding business innovation â including in the AI sector.

Excess profits are rising, in part, because of declining competition and increasing concentration among corporations, a trend that AI may reinforce. Research suggests that nearly all of the corporate tax falls on excess profits.

A higher corporate rate wouldnât rebuild our revenue base by itself, but it could anchor a broader tax-reform package. For example, international tax rules need changes to better deter overseas profit shifting. Congress should repeal the 2017 Tax Cuts and Jobs Actâs inefficient 20% deduction for pass-through businesses and consider other reforms, like requiring large pass-through businesses to be taxed as corporations to promote tax parity between similarly sized businesses.

These reforms would ensure that large, profitable businesses â and their owners, who are likely to benefit most from AI â pay more into the tax system that funds critical public investments.

Also, even key tech leaders recognize that the current tilt in tax treatment in favor of capital over paychecks makes no sense in an AI economy.

While the potential economic upsides of AI are immense, so are the potential economic downsides. Tax policy needs to help us prepare for those risks.

This article does not necessarily reflect the opinion of Bloomberg Industry Group Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Chuck Marr is vice president for federal tax policy at the Center on Budget and Policy Priorities, a Washington, DC, think tank that promotes policies to reduce poverty and inequality.

Interested in writing? Review our â author guidelines and submit pitches to Insights@bloombergindustry.com.

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