AI threatens modern states: Will governments enter a tax crisis era?

Beyond the widely discussed risks of job displacement and machine dominance, artificial intelligence presents a more profound threat to modern states: the potential erosion of income tax revenue. A growing number of economists are warning that governments, whose financial systems are built upon taxing workers and their wages, could face an unprecedented fiscal crisis if AI successfully replaces large numbers of employees in the coming years.

This scenario, discussed under Chatham House rules at a closed-door meeting hosted by the International Monetary Fund (IMF) in Washington last December, involved fifty experts from prominent institutions like Google DeepMind, the Rand Corporation, and the U.S. Federal Reserve. The central question was not whether technology would alter the labor market, but rather how governments would manage to fund themselves amidst a shrinking taxpayer base.

Modern states have historically relied on taxing wages and individual incomes since the First Industrial Revolution, as millions transitioned from agriculture to wage labor. This revenue stream became crucial for financing public services. Data from the Rand Corporation indicates that approximately 66 percent of U.S. federal revenue in 2024 came from income taxes or wage-related taxes. Similarly, individual income tax constitutes about half of Australia's government revenue, making any significant decline in employment a direct threat to national financial stability.

While AI is still in its early stages, shifts are already apparent in sectors dependent on office work. Major financial and tech firms have announced plans to leverage intelligent systems for tasks previously performed by employees. A study by Anthropic found that programming, once considered a secure profession, is now highly susceptible to AI disruption. This trend affects high-paying jobs, meaning even a limited loss of such positions could lead to a substantial decrease in government tax receipts. The report warns of a dual challenge: rising unemployment coupled with declining public revenue, while government spending on unemployment benefits, retraining programs, and social services increases, potentially leading to prolonged economic pressure and political instability.