Depletion Allowance On Human Labor To Spur Job Growth

October 4, 2015 | By: Robert A. Green, CPA

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Hopefully, a presidential candidate or Congress will consider my tax idea to spur jobs with a new depletion allowance on human labor. Similar in concept to the depletion allowance on oil and gas, it would be an annual tax deduction for a portion of the value of the underlying energy resource. Per Mineral Web, it’s “the using up of a natural resource.” I’m sure many human workers feel used up after a lifetime of hard work, too.

Rise of Robots
In his breathtaking new book on modern economics, “Rise of the Robots: Technology and the Threat of a Jobless Future,” author Martin Ford explains how robots and IT replace human white-collar and blue-collar jobs. This trend is a major contributor to the “new normal,” a frightening low labor participation rate (62%), and a higher U.S. (broad U6) unemployment rate (10%).

Ford points out that robots work faster and longer and more intelligently with fewer errors and with fewer collateral issues than humans. Robots — with artificial intelligence (AI), algorithms and access to big data — are replacing white-collar jobs in law (data mining), finance (high-frequency trading), health care (Dr. Watson IBM), education, science and business. While you may not yet shake hands with a robot that looks like a human, robot systems are working broadly behind the scenes in almost everything we do today.

Ford points out it’s no longer a competitive playing field with robots either winning new jobs or making it possible for virtual immigration of foreign workers, both of which replace U.S.-based jobs.

While the rise of robots is generally a good thing, Ford points out that as a society we should value sustainable jobs for the middle-class, not to slow down advances and adoption of robotics, but to incentivize businesses to hire humans to work side-by-side with robots. Ford argues that income inequality is accelerating with robots since productivity-induced profits go to business owners and investors. Robots don’t buy cars; they are self-driving cars. Robots don’t consume food, medicine and consumer products, and they don’t sustain a consumption-driven economy.

Tax policy favors robots over people
U.S. tax policy favors capital spending on robots, technology and energy over human resources. Businesses benefit from generous Section 179 (100%) depreciation (cash expensing) and bonus depreciation on purchases of technology and tax credits on R&D (research and development) in biotech, software development and more. These tax breaks are among the largest “tax extenders” expected to be renewed again by Congress later this year.

Current fiscal policy for U.S.-based human resources is unattractive. Employers must contribute to Social Security, Medicare, federal and state unemployment insurance, state workers’ compensation, Obamacare health insurance, retirement plans and other employee benefit plans.

In 2011, many people called for a payroll tax holiday and Congress enacted a partial reduction on the employee portion of Social Security contributions. I suggested a full payroll tax holiday on the employer portion, too. But Social Security and Medicare are facing insolvency and a tax holiday accelerates the problem. Consider my idea for a human depletion allowance, instead.

Depletion allowance on human resources
Jobs for Americans are worth more than energy, which is currently in abundance. American workers feel used up just like oil resources. Big oil and gas won and continues to defend its depletion allowance; it’s time to spur American jobs by leveling the fiscal policy playing field back in favor of the American worker.

Energy companies acquire resources and depletion is a mechanism to write off those resources in production. In technology spending, a company writes off the purchase with depreciation. With human resources, companies also write off salaries, payroll taxes and employee benefits. Therefore, depletion on human resources could be construed as double dipping. I argue there is a human resource value above the salary amount and that human resource can have a depletion allowance similar to oil and gas depletion allowances.

The mechanics: Figure the added value of a human resource job over a reasonable period of time and allow the employer to take an annual tax depletion deduction for the annual reduction of that human resource value. I am not suggesting that employers capitalize that value on balance sheets even though intellectual capital becomes structural capital (human capital), which does help businesses win. Google and Facebook have very few human jobs per revenues due to this added human resource value.

Further details can be worked out after Congress accepts the concept.

Robots can also contribute to Social Security and Medicare
Also, consider robots having to pay Social Security, Medicare, workers’ compensation and unemployment insurance. Consider this policy for virtual jobs, too. When a worker in India replaces a U.S.-based white-collar job for a U.S. employer, it would be helpful for the employer to continue paying payroll taxes.

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