Even before the rise of artificial intelligence, the case for higher corporate tax rates was persuasive. It’s already overwhelming.
The economic impacts of AI could include increased productivity and growth, but also targeted or widespread employment disruption and increased inequality. Fundamentally, the federal government is not collecting enough revenue to support our existing efforts and unmet needs, let alone the serious challenges that AI could pose.
Federal revenues in 2025 were 17.2% of GDP, the same as in 1963. As a result, despite economic growth, last year’s budget deficit exceeded $1.75 trillion, marking the sixth consecutive year of trillion-dollar deficits.
Public investment is also in the red. Inadequate revenues are constraining policymakers’ appetite to address needs such as climate change, housing, child care, and child poverty. Too many families are grappling with a variety of affordability challenges, including housing, food, and gas. The massive tax and spending bill passed last year further exacerbated these affordability and deficit challenges. We need more revenue, not less. The rise of AI is likely to further increase the need.
While the evidence so far about the impact of AI on the labor market is mixed, technology experts have warned that its future risks causing mass turnover and even massive job cuts. The country’s unemployment insurance system requires major changes, which could be especially important if the introduction of AI makes it harder to find work. Policymakers should also revisit wage insurance, which has been successfully used on a small scale to support some workers facing globalization-related unemployment.
Preparing for AI-induced labor market disruption also requires ensuring people have safe access to healthcare. For too many people, losing a job means becoming uninsured. One reason Americans are more concerned about the downside of AI than in other countries may be that even a temporary job loss could mean disaster in the United States. Below-average social welfare networks mean that if people are unemployed, they may not have enough support to buy food and medical supplies, especially if they don’t have children. Many other countries are helping people through their difficult times.
Raising taxes on corporate profits would be an important starting point for raising the revenue needed to meet current needs and AI-related challenges, without stifling innovation and growth. Stronger corporate taxes could also help address the potential for the spread of AI to increase inequality.
The dramatic reduction in the corporate tax rate from 35% to 21% was the most costly provision of the Tax Cuts and Jobs Act. Raising this rate further to 30% would raise about $1.4 trillion between 2030 and 2039.
Much of the tax increase will fall on corporate shareholders and other high-income households who are disproportionately wealthy (and likely to benefit from the AI profit boom). One study found that all the benefits of the 2017 interest rate cuts went to shareholders and the highest-paid employees.
New data from the Federal Reserve shows that workers’ share of gross national income is at its lowest level ever, dating back to 1947. Many economists have warned that the spread of AI could lead to more income flowing to capital owners rather than workers, exacerbating inequality and economic instability. Sensible tax reform, such as raising corporate tax rates, could go in the opposite direction by taxing increasingly concentrated corporate profits and helping finance investments that disproportionately benefit low- and moderate-income households.
The 2017 cut in corporate interest rates failed to create the economic boom that was promised, so a partial rollback would not have a major negative impact on the economy. Corporate tax would be a relatively efficient way to raise revenue. That’s because a growing proportion of the corporate tax base is made up of “excess profits,” or profits in excess of what companies need to justify their investments. This means that corporate taxes can raise significantly more revenue without significantly hindering business innovation, including in the field of AI.
Excess profits are increasing due in part to less competition and increased concentration among companies, a trend that could be reinforced by AI. Research shows that almost all corporate taxes are levied on excess profits.
Raising corporate tax rates alone will not rebuild the revenue base, but it could form the backbone of a broader tax reform package. For example, changes to international tax rules are needed to more effectively discourage the shifting of profits overseas. Congress should eliminate the 20% deduction for inefficient pass-through businesses in the 2017 Tax Cuts and Jobs Act and consider other reforms, such as requiring large pass-through businesses to be taxed as corporations to promote tax equality among similarly sized businesses.
These reforms will ensure that large, profitable companies and their executives, who are likely to benefit most from AI, pay more into the tax system that funds important public investments.
And even key leaders in the technology industry recognize that current tax incentives that prioritize capital over pay don’t make sense in an AI economy.
The potential economic benefits of AI are immense, but so are the potential economic disadvantages. Tax policy must help protect against these risks.
This article does not necessarily reflect the opinion of Bloomberg Law, Bloomberg Tax, Bloomberg Government, publisher Bloomberg Industry Group, Inc., or its owners.
Author information
Chuck Ma is deputy director for federal tax policy at the Center on Budget and Policy Priorities, a Washington, D.C., think tank that promotes policies that reduce poverty and inequality.
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