Taxing artificial intelligence: What’s on the table, and what’s at stake

Brookings (institute research) · 27 Oct 2026

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Artificial intelligence (AI) could raise productivity across a wide range of occupations and tasks. But it could also replace workers who currently perform some of those tasks. How many workers AI might replace, and how quickly, remains an open question. These questions matter for the federal budget because the U.S. tax system relies heavily on income earned by workers. Individual income and payroll taxes generate roughly 85% of federal tax receipts . The individual income tax draws heavily from wages, salaries, and tips and is the single largest source of federal revenue. The payroll tax that funds Social Security and Medicare applies only to wage and self-employment income. If AI shifts income from workers to business profits and other capital income, some of that income could face lower effective tax rates. A sustained shift could erode federal revenues amid growing demands for public spending to assist displaced workers. In response, lawmakers are proposing AI-specific taxes with a range of stated goals: maintaining tax revenues given the changing economy; raising additional revenues to support displaced workers ; addressing the power and water infrastructure investment AI facilities require, and slowing down the pace of AI activity and growth. Several distinct tax designs have been proposed or discussed, each aimed at a different point in the AI production process, from the computing power used to train AI models to the profits they will eventually generate. The proposals differ substantially, however, in timing and scope, potential revenue and economic costs, and ease of administration. An AI-specific tax is targeted and easy to explain to the public. That is a fair political consideration, but it is not an economic one. Achieving the above goals does not strictly require a tax specific to AI. Reforming how capital income is taxed, introducing a broad-based consumption tax such as a value-added tax ( VAT ), a carbon tax , or a corporate cash-flow tax could add

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Published: 2026 (recently)
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Taxing artificial intelligence: What’s on the table, and what’s at stake

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