AI and the Future of Taxes: A Reckoning for Politicians

Fortunately, I’m not an alarmist.

I’m just exceedingly confident pointing out that as we sift through the daily torrents of AI speculation, none of us need a crystal ball to see and understand one of the few disruptions AI is actually guaranteed to deliver on: AI induced job layoffs will cause a collapse of the income tax revenue for the federal government and necessitate an overhaul of the American tax system.

The only question is whether or not our politicians are willing to move fast enough and can craft the right overhaul to prevent the collapse. Here I just introduce that collapse, starting with a historical reminder because if we don’t know where we came from we’re not likely to understand where we’re going.

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Industrial tycoons of yesteryear

The industrial tycoons of yesteryear (mid-1800s to early 1900s), those familiar names that modern voices too often abuse when paying homage to current business disrupters, were tycoons who created industries and therein created jobs and therein created communities and therein created a country. No, I haven’t overused the word created. We can’t lose sight of the reality that, despite their individual faults, these tycoons created.

First, railways that crossed our country were provided by names like Gould, Hill, Stanford and Vanderbilt. Then steel that built our country was provided by names like Carnegie and Schwab. Then electricity that illuminated our country was provided by names like Edison and Westinghouse. Then oil that powered our country was provided by names like Rockefeller, followed by banking that financed our country provided by names like JP Morgan and Mellon. And then there was the automobile, provided by names like Ford and Sloan, which rewired our DNA. These leaders, and all others cut of similar cloth in businesses of all sizes, created opportunities for others to engage in activities and generate income.

Although I speak here with an oversimplification for the sake of brevity, the industries these tycoons created made possible wage earners who could be taxed as a means to dependably support the expenses of the country that likewise provided so much opportunity. Eventually, with the ratifying of the 16th Amendment (1913) and later passage of the Individual Income Tax Act (1944), the United States created a tax base largely dependent on the individual wage earner.

85% of annual U.S. federal revenue

“Most of the revenue the U.S. government collects comes from contributions from individual taxpayers, small businesses, and corporations through taxes. Additional sources of tax revenue consist of excise tax, estate tax, and other taxes and fees. So far in FY2026, individual income taxes have accounted for 50% of total revenue while Social Security and Medicare taxes made up another 35%.” See, FiscalData.Treasure.gov for an interactive visual.

Here’s how those sources of revenue for FYTD 2026 break out by category and percentage, as of March 31, 2026:

50.16% - Individual Income Taxes

35.23% - Social Security and Medicare Taxes

6.71% - Customs Duties

4.67% - Corporate Income Taxes

1.82% - Excise Taxes

0.80% - Estate & Gift Taxes

0.61% - Miscellaneous Income

Easy enough to see that under our current tax system the U.S. Federal Government budget is substantially dependent on the individual tax payer (at least 85% worth).

So, what happens if we continue to gut that 85%, for example, through continued layoffs using AI as an excuse? Right! The tax system will collapse, and we’ll have to overhaul it. Better before it collapses than waiting until after, right?

AI tycoons of today

Dario Amodei (Anthropic), Sam Altman (OpenAI), Demis Hassabis (Google/Gemini), Elon Musk (xAI) and Mark Zuckerberg (Meta) are emerging as the AI tycoons of today. From any of these extraordinary wealthy men might emerge a modern-day Henry Ford. Or not.

We can’t lose sight of the fact that in 1931, ten years after it was founded, Ford Motor Company earned an annual profit of almost $1B in today’s dollars. AI isn’t creating industries, jobs, communities or a country like Henry Ford or his contemporaries. OpenAi for example, now also ten years old, has yet to make a profit and doesn’t appear it will for many years to come.

My short and simple point is that these AI tycoons are not creators like our industrial tycoons. Rather, in their push for their AI passions they display all the characteristics of the literal opposite; gutting industries, gutting jobs, gutting communities and, ultimately, gutting our country. No, I haven’t overused the word gutting.

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The result of gutting

Indeed, the AI driven job gutting is well underway as corporations slash jobs to cut payroll cost in order to increase profits. Whether or not AI can satisfactorily perform the jobs being eliminated and employees being terminated is an entirely different and still open question, but corporations are being rewarded by Wall Street because of the anticipation that AI will satisfactorily perform. In my view, this is like playing Russian Roulette using an automatic – no one survives that game. Too harsh of an analogy? Give that further thought.

Meanwhile, remember that individual tax base the federal government relies on for 85% of its budget? What happens to the federal revenue and budget when all those previous taxpayers aren’t employed and don’t have income to tax? Right. Our tax base collapses.

OpenAi on overhauling tax policy

OpenAi recently published its paper, Industrial Policy for the Intelligence Age: Ideas to Keep People First. You can access it here. Let’s avoid any speculation whether the intent of our AI tycoons is truly to “keep people first” and, with appreciation, turn to the paper’s signaling of the coming tax base collapse.

“As AI reshapes work and production, the composition of economic activity may shift—expanding corporate profits and capital gains while potentially reducing reliance on labor income and payroll taxes. This could erode the tax base that funds core programs like Social Security, Medicaid, SNAP, and housing assistance—putting them at risk. Tax policy should adapt to ensure these systems remain durable. Policymakers could rebalance the tax base by increasing reliance on capital-based revenues—such as higher taxes on capital gains at the top, corporate income, or targeted measures on sustained AI-driven returns—and by exploring new approaches such as taxes related to automated labor. These reforms should be paired with wage-linked incentives that encourage firms to retain, retrain, and invest in workers, similar to existing R&D-style credits. Together, these changes would help stabilize funding for essential programs while supporting workforce transitions in an AI-driven economy.” (Emphasis added.)

The eventual collapse

Our current politicians are unlikely to steel themselves with the will to meaningfully increase corporate profits and capital gains to compensate for the individual tax base erosion as it unfolds, even if that means saving themselves and their budgets. I would love to be wrong on that point, but it’s unlikely.

The warning signs for this particular collapse are increasingly flashing. If our politicians continue to ignore the guaranteed AI disruption to the nation’s tax base and fail to work to preempt this collapse, they fail themselves, their duty to their office, and the nation.

As I reflect on what we see unfolding and I write about here, my inclination is to lament “God Save the United States of America!” But, even for a person of faith, that rings as hollow as “offering our thoughts and prayers” to the parents of school shooting victims when it’s clearly our responsibility to fix the problems we create for ourselves.

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