Problems when automation is subsidized

See Don’t Fight the Robots. Tax Them. Many companies invest in automation because the tax code encourages it, not because robots are more productive by Eduardo Porter of The NY Times. Excerpt:

"Daron Acemoglu, an economist at the Massachusetts Institute of Technology, explains that automation often produces benefits of dubious value to the business itself. More important, he suggests that the investment in technologies designed to replace workers has come at the expense of alternative investments that might find more productive uses for human labor. This may help explain the sluggishness in overall productivity growth across the economy. 

One powerful reason that businesses deploy so many robots, despite their sometimes questionable contribution to the bottom line, is that automation is subsidized. “Subsidies induce firms to substitute capital for labor even when this is not socially cost-saving, though it is privately beneficial because of the subsidy,” Professor Acemoglu and his co-author, Pascual Restrepo, wrote. 

The tax subsidies to robots are varied. For starters, machines don’t incur payroll taxes, which are used to fund Social Security and Medicare. For every worker replaced by a robot, the employer saves on payroll taxes. The federal tax code and many state governments allow companies to use “accelerated depreciation” for capital investments, which allows them to deduct the cost of their robots faster than they could deduct the wage of the payroll of the workers they replace.

This means that eliminating the tax break for robots would not hurt economic growth. It would, in fact, improve economic efficiency. By subsidizing capital investment, the government is encouraging businesses to use capital when they otherwise would not, to replace workers with machines. That might be rational for the individual business reaping the tax benefits. But as Professor Acemoglu put it, across the economy, this kind of spending on automation “shows up as a productivity loss.”"