Stocks for Thoughts · Nobody taxes a machine

The efficient tax code is this one, reversed.

What the American tax code charges for the two ways of getting a job done — and what three economists calculated it should charge. Not a loophole. The statute working as designed.

Effective marginal tax rate
0% 10% 20% 30% TODAY the code as written OPTIMAL Acemoglu, Manera & Restrepo they cross 25.5% 5.0% 18.2% 26.7% Hire a person labour Buy the machine equipment & software
And thirteen months ago it moved the other way

On 4 July 2025 the One Big Beautiful Bill Act made 100% bonus depreciation permanent. Write the whole cost off on day one and, on the standard Hall-Jorgenson result, the effective marginal rate on an equity-financed purchase of qualifying equipment or software goes to roughly zero. Borrow to buy it and deduct the interest, and it goes negative. The Joint Committee on Taxation scored that single provision at −$363 billion over ten years. So the blue dot on the left is, if anything, generous - though the true figure varies with asset life, financing, inflation and state tax, and not every AI outlay is qualifying property.

This is the part of the argument that needs no forecast at all. Move ten per cent of the wage bill into the capital column — same output, same dollars, nothing invented and nothing destroyed, income simply reclassified — and the Treasury loses about $274 billion a year on the identical dollar of income. It crossed a line in the tax code worth twenty points.
Method: effective marginal tax rates on the two inputs, from Acemoglu, Manera & Restrepo, Does the US Tax Code Favor Automation? (Brookings Papers on Economic Activity, Spring 2020). Labour 25.5% blends payroll and income tax on employee compensation; equipment and software ~5% reflects accelerated depreciation and the deductibility of interest, measured before the 2025 change. The "optimal" pair is the authors' own computed second-best rates, not a policy proposal by anyone in office. OBBBA: Public Law 119-21, §70301, restoring and making permanent §168(k) 100% bonus depreciation; JCT scores JCX-35-25. The $274bn is derived: 10% of a $13.4tn wage bill at the ~20-point gap between the two rates. Not investment advice.