A working paper by economists Anton Korinek and Benjamin Lockwood, published through The Brookings Institution, finds that approximately three-quarters of US federal tax revenue derives from labour taxation — income tax and payroll contributions combined 1. The paper argues that sufficient AI-driven displacement of labour income would force a structural shift in how the federal government funds itself, likely toward consumption-based taxation.
The finding sharpens a vulnerability that earlier research had sketched in broader terms. A RAND working paper had already warned that AI priced at cost could induce deflation, making federal debt repayment harder, while Brookings' own prior analysis noted that payroll taxes as a fraction of GDP would decline as displacement accelerated . Korinek and Lockwood put a concrete ratio on that exposure: not a marginal risk, but the foundation of federal fiscal capacity. The Dallas Fed's finding that employment has already fallen roughly 1% in the most AI-exposed industries — concentrated among workers under 25 whose compressed job-finding rates reduce their lifetime tax contributions — suggests the erosion has started at the entry point of the labour pipeline.
The paper lands in a policy environment where competing responses are already forming. Senator Sanders' proposed robot tax would attempt to recoup lost payroll revenue directly from firms that replace workers with AI. The Warner-Rounds Economy of the Future Commission Act tasks its expert body with delivering recommendations on taxation and unemployment insurance within 13 months. Andrew Yang has renewed his call to shift taxation from labour to AI-generated wealth, citing Anthropic CEO Dario Amodei's support . Each proposal implicitly accepts Korinek and Lockwood's premise — that the current tax base cannot survive large-scale labour displacement intact — but offers a different mechanism for adaptation.
The fiscal pressure compounds from both sides simultaneously. The IRS has lost 31% of its revenue agents and 27% of its IT staff, with the Yale Budget Lab projecting $159 billion in foregone collections over the coming decade . A tax system built on labour income is losing both the income it taxes and the enforcement capacity to collect what remains. The AEI's rebuttal to the Sanders report — that current AI tools function as skill equalisers rather than job eliminators — does not address this structural dependency. Even if AI raises productivity without net job losses, a shift from wages to capital returns concentrates income in forms that the current tax code captures less efficiently. The question Korinek and Lockwood pose is not whether AI destroys jobs, but whether the fiscal architecture built for a wage-earning economy can fund a government serving one where wages constitute a shrinking share of national income 2.
