What if the AI boom never turns a profit?

Technology does not always take us to a better place. Ask the members of the new wave band Devo, out of Akron, Ohio, in the 1970s. The band’s name stands for "de-evolution," a wry jab at the idea of humans becoming mechanical men.

"What looks like progress — technological progress, economic progress — might not be human progress," said David Giffels, an English professor and co-author of "Wheels of Fortune: The Story of Rubber in Akron."

Bridgestone, Firestone, Goodyear, Goodrich, and General Tire all used to be in Akron, producing dreadful air quality but good, union jobs, until new technology intervened.

"In our book … there's a Firestone executive who just says flatly, 'The radial tire is the reason that rubber left Akron,'" Giffels said.

The radial tire, out of Europe, won over consumers. "[This] first wave of [radials] lasted 40,000 miles," Giffels said.

An Akron factory nearby was set up to make the more balloon-like bias-ply tires, which lasted only half as long and got fewer miles per gallon.

"That single innovation had a triggering effect that devastated an entire town's industry — its industrial identity, its economic might," Giffels said.

Right next to Akron proper is the small town of Barberton. A collection of smaller businesses now occupy what's left of the big tire factory, which closed in 1980. Back then, the local paper conveyed the news of a city forced to freeze hiring to cut costs in the wake of the closing of the Seiberling Tire and Rubber Company plant. "The plant's closing has led to a loss of about $300,000 in income tax revenues," the Akron Beacon Journal reported in March 1980.

These days, could a different technology — artificial intelligence — do to America what radial tires did to Akron? Experts say our tax system, so heavily dependent on taxing human labor, could crack under the coming pressure.

"Less taxes on ... reduced income and, as one can imagine, big reductions in one's income can have all kinds of knock-on effects, with people cutting back on their spending, and then the whole economy can go through a kind of recessionary crunch," said Lee Lockwood, a University of Virginia economist who co-authored a piece for Brookings arguing that even though we don't know how much disruption will occur or for how long, now's the time to start planning.

"Most rich country governments, including the U.S., rely very heavily on labor taxation for much of their revenue," Lockwood said.

Think about it: an AI agent doesn't pay income tax, or Social Security, or Medicare. So where's the money going to come from? The list of ideas is long and interesting. Maybe tax units of AI the way you tax gallons of gas — that’s also known as a token tax. But that idea may already be outdated, according to Bruce Schneier, a technology expert at Harvard's Kennedy School and author of "Rewiring Democracy: How AI Will Transform Our Politics, Government, and Citizenship."

"Six months ago, I was in favor of a token tax. It was a great idea," Schneier said. "Now I think … it's not going to work, because tokens in the cloud aren't going to be a thing anymore. Apple's working on a model that's going to live on your phone. How do you tax that?"

Recognizing the disruption and tax problem ahead, some AI companies like the idea of the government taking a bunch of AI stock and starting a big public investment fund that might generate riches to pay for social programs. Saudi Arabia and Norway have their own funds tied to their fossil fuel riches. But what if AI companies don't end up actually making much money? Given the pace and costs of AI development, profits are not a given.

"I think those who say the current AI companies have no business model are right," Schneier said. "AI is right now a commodity. The Chinese are giving away their best models. If you are OpenAI or Anthropic, you have like four months to recover those hundreds of millions of dollars before your model is not the best model anymore, so nothing sustains."

Nobel laureate and Columbia University economist Joseph Stiglitz has a much simpler solution to the problem of robots eating taxes. His message: don't overthink it.

"If we can close these big loopholes and force the corporations to pay their fair share, that will necessitate increasing the taxes on profits, and all of that will more than make up for the losses you described," Stiglitz said.

In other words, if there's less labor to tax, collect more from companies.

Additional reporting by Daniel Shin and Sophie Bellwoar.