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Bill Gates has warned that artificial intelligence could fundamentally change employment and public finances, leaving governments struggling to support displaced workers even as automation increases economic prosperity.
“The incentive structure in business is wrong: It’s ‘hire the robot, fire the human and don’t look back’,” the Microsoft (NASDAQ: MSFT) co-founder told The Observer in an interview.
- Bill Gates warns that artificial intelligence could replace nearly all human work skills, reducing employment and government tax revenues even as economic prosperity increases.
- The Microsoft co-founder proposes taxing AI usage through a “token tax” and raising taxes on billionaires to help finance social support and worker retraining.
- IMF research suggests AI could increase income and wealth inequality, while Gates warns that managing the transition will test governments already facing fiscal pressures.
Gates described the emergence of advanced AI as an “evolutionary event” in which humans are no longer the most intelligent entities on the planet.
He expects AI to eventually replace almost all categories of human work skills, including “skills of invention, skills of white-collar work and then with humanoids, the skills of physical human labor.”
AI-driven job losses could weaken government tax revenues
Gates warned that widespread automation could create a fiscal problem for governments that depend on employment and income taxes to fund public services and social protection.
As companies replace human workers with AI systems, employment-related tax revenues could decline, limiting governments’ ability to finance assistance for people losing their jobs or seeking new skills.
“The revenue for the safety net to help us through this transition will actually be reduced, even though overall prosperity gets better,” Gates said.
The concern is that productivity gains from AI could increase overall economic output without generating a corresponding increase in tax revenues needed to support workers affected by automation.
Bill Gates proposes AI token tax and higher taxes on billionaires
Gates has proposed taxing the use of artificial intelligence, including through a “token tax” linked to the volume of text and other content processed by AI models.
He outlined the proposal in an August essay discussing the economic and social consequences of advanced AI.
Gates also supports higher taxation of wealthy individuals. He told The Observer that he had paid approximately $14 bn in taxes during his lifetime but would have been willing to pay $40 bn.
“Governments [need to] figure out how to tax very wealthy people in a way that feels fair,” he said. He acknowledged, however, that higher taxes on billionaires would not be sufficient to resolve existing fiscal pressures.
Government spending has increasingly exceeded tax revenues in several developed economies, including the US, leaving policymakers with difficult decisions over taxation and public expenditure.
“So at some point, more taxes will have to be raised, and some spending will have to be curbed,” Gates said.
IMF research warns AI could increase income and wealth inequality
Research published by the International Monetary Fund in 2024 supports concerns that the economic benefits of generative AI may be distributed unevenly.
The IMF found that substantial productivity improvements could increase incomes for most workers. The distribution of those gains, however, would depend on how AI changes the demand for different types of labor.
If the technology primarily complements higher-paid employees, labor income inequality could increase. Greater returns to capital could also widen wealth inequality, benefiting asset owners more than workers.
For advanced economies, the IMF identified policies supporting employment transitions and protecting workers adversely affected by AI as priorities.
These concerns are consistent with Gates’ warning that the financial benefits of automation could accrue disproportionately to companies and owners of capital, while displaced employees face difficulties adapting to changes in the labor market.
AI transition will test governments already facing fiscal pressures
Gates also acknowledged the potential economic and scientific benefits of artificial intelligence, particularly its ability to improve drug discovery. He nevertheless warned that managing the employment, taxation and social consequences of the technology would represent a “real test of quality of government”.
The challenge comes as developed economies contend with existing budgetary pressures and heightened geopolitical tensions, potentially limiting their ability to finance an extensive transition in the labor market.
“You could say this isn’t the best time to say, hey, rich countries, let’s do the hardest thing you’ve ever done,” Gates said.
