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Making the Best of 2019 Corporate Tax Rates: Invest in People or Robots?
April 16, 2018      

As Tax Day 2018 approaches, senior executives across the U.S. are already looking ahead to their business plans for 2019. How should corporate allocations be made for money made available by the Tax Cuts and Jobs Act of 2017? Should these funds be invested in robotics infrastructure, or should they be spent on hiring new employees and boosting compensation for existing staff? In short, where should you invest dollars from the lower corporate tax rates — in people or equipment?

The new law affects companies in 2019, when they will be reporting on 2018 income. There will be lower tax rates for C corporations, and the corporate tax rate will fall from 35% to 21% in a flat-tax system. The new corporate tax rate is intended to free up capital for manufacturers to purchase new gear or hire new employees.

Let’s look at an example of how companies can benefit from the new corporate tax rate.

Abatement leads to automation

U.S. Ordnance, a Nevada-based company that provides mil-grade weapons systems, had “more than $500 million in contracts to fulfill within the next 2½ years,” reported The Las Vegas Review-Journal early this year. Curtis Debord, U.S. Ordnance CEO and president, estimated that his company would manufacture about 4,000 military-grade weapons systems in 2018.

According to the Review-Journal, U.S. Ordnance was the recipient of $190,873 in tax abatements that had been approved by the Governor’s Office of Economic Development. The company was looking at investing $2.8 million in new equipment and hiring another 10 employees at an average hourly wage of $18.70 over the next 24 months to accommodate new business.

Debate over corporate tax rates and robotics continue as tech adoption continues worldwide.

Robot density by nation; data provided by Axium via the International Federation of Robotics. (Click here to enlarge.)

The tax abatements were intended to assist U.S. Ordnance in this regard. As to the key question whether that investment would primarily fund personnel or equipment? “That investment will go mainly into robotics, Debord said.” In this case, equipment is the winner.

According to a Bank of America Merrill Lynch survey conducted in July 2017, 35% of executive respondents said they would spend extra cash resulting from the new federal corporate tax rate on capital expenditures as opposed to employees.

“These aren’t luxury technologies anymore; they’re necessities for a company to stay relevant,” said Bill Studebaker, president and CIO of the ROBO Global Robotics & Automation Index. “The trend is happening regardless, but the tax bill is the sauce on top. Things will accelerate more. We’re in the middle of a robotics arms race, and we’re on the cusp of it being ubiquitous, both in the U.S. and globally.”

Corporate tax doesn’t extend to robots — yet

In the U.K., Labour Party and opposition leader Jeremy Corbyn has made an interesting point: It would be extremely difficult to isolate profits stemming solely from automation and robotics. Assuming that were possible and that a fairer redistribution of benefits to employees would be implemented, Corbyn has said that re-training of employees would have to become a governmental priority.

“The tide of automation and technological change means re-training and management of the workforce must be center stage in the coming years,” Corbyn said.

Although Microsoft Corp. co-founder Bill Gates and Nobel Prize-winning economist Robert Shiller have called for some kind of robot taxation, the EU has rejected taxation of robots, reported The Telegraph. The International Federation of Robotics claims that adding automation to corporate tax rates would have a “very negative impact on competitiveness and employment.”

But not everyone is so opposed to robot taxes. “We’re exploring continuing the payroll tax and extending it to robots that perform jobs humans currently do,” Jane Kim, a member of the San Francisco Board of Supervisors, told CNBC.

“I think automation is a good thing,” she noted. “But there will be a downside to this technological progress and workers will be left behind.”

Kim advocates taxes on robots that would fund training for young people to prepare them for the jobs of the future.

A column in Wired has suggested that ride-sharing services should also be taxed as a means of regulating increased traffic.

Robots may lead to more jobs

Although there is a widespread concern that robots and artificial intelligence will hurt human employment over the next decade, a contrarian viewpoint sees a job-rich future.

Jeff Burnstein, president of the Association for Advancing Automation, has stated that the U.S. corporate tax rate should not pose burden for automation that is helping to create jobs.

“We don’t have a problem with robots causing unemployment,” he said. The challenge, Burnstein added, is that unemployed and underemployed workers are not trained to take the unfilled jobs.

A tax on robots “is one of the worst ideas I’ve ever heard,” said Colin Angle, CEO of iRobot Corp., at last week’s Robo Madness 2018: Homecoming event. Microsoft’s Gates is among the people who have proposed taxing automation as part of production, but if his company’s software had been taxed in a similar way, that would have hurt business, Angle said.