Thanks very much for sharing this. It is nice to see some innovative thinking around AI governance.
I have a bunch of different thoughts, so I’ll break them over multiple comments. This one mainly concerns the incentive effects.
> C.2. “The Windfall Clause operates like a progressive corporate income tax, and the ideal corporate income tax rate is 0%.”
> Some commentators argue that the ideal corporate tax rate is 0%. One common argument for this is that corporate income tax is not as progressive as its proponents think because corporate income is ultimately destined for shareholders, some of whom are wealthy, but many of whom are not. Better, then, to tax those wealthy shareholders more directly and let corporate profits flow less impeded to poorer ones. Additionally, current corporate taxes appear to burden both shareholders and, to a lesser extent, workers.”
I think this is a bit of a strawman. While it is true that many people don’t understand tax incidence and falsely assume the burden falls entirely on shareholders rather than workers and consumers, the main argument for the optimality of a 0% corporate tax rate is Chamley-Judd (see for example here) and related results. (There are some informal descriptions of the result here and here.) The argument is about disincentives to invest reducing long-run growth and thereby making everyone poorer, not a short-term distributional effect. (The standard counter-argument to Chamley Judd, as far as I know, is to effectively apply lots of temporal discounting, but this is not available to longtermist EAs).
This is sort of covered in B.1., but I do not think the responses are very persuasive. The main response is rather glib:
Further, by capping firm obligations at 50% of marginal profits, the Clause leaves room for innovation to be invested in even at incredibly high profit levels.231
There are a lot desirable investments which would be rendered uneconomic. The fact that some investment will continue at a reduced level does not mean that missing out on the other forgone projects is not a great cost! For example, a 20% pre-tax return on investment for a moderately risky project is highly attractive—but after ~25% corporate taxes and ~50% windfall clause, this is a mere 5% return* - almost definitely below their cost of capital, and hence society will probably miss out on the benefits. Citation 231, which seems like it should be doing most of the work here, instead references a passing comment in a pop-sci book about individual taxes:
There’s also an argument that a big part of the very high earnings of many ‘superstars’ are also rents. These questions turn on whether most professional athletes, CEOs, media personalities, or rock stars are genuinely motivated by the absolute level of their compensation verses the relative compensation, their fame, or their intrinsic love of their work.
But corporations are much less motivated by fame and love of their work than individuals, so this does not seem very relevant, and furthermore it does not address the inter-temporal issue which is the main objection to corporation taxes.
I also think the sub-responses are unsatisfying. You mention that the clause will be voluntary:
> Firstly, we expect firms to agree to the Clause only if it is largely in their self-interest
But this does not mean it won’t reduce incentives to innovate. Firms can rationally take actions that reduce their future innovation (e.g. selling off an innovative but risky division for a good price). A firm might voluntarily sign up now, when the expected cost is low, but then see their incentives dramatically curtailed later, when the cost is large. Furthermore, firms can voluntarily but irrationally reduce their incentives to innovate—for example a CEO might sign up for the clause because he personally got a lot of positive press for doing so, even at the cost of the firm.
Additionally, by publicising this idea you are changing the landscape—a firm which might have seen no reason to sign up might now feel pressured to do so after a public campaign, even though their submission is ‘voluntary’.
The report then goes on to discuss externalities:
> Secondly, unbridled incentives to innovate are not necessarily always good, particularly when many of the potential downsides of that innovation are externalized in the form of public harms. The Windfall Clause attempts to internalize some of these externalities to the signatory, which hopefully contributes to steering innovation incentives in ways that minimize these negative externalities and compensate their bearers.
Here you approvingly cite Seb’s paper, but I do not think it supports your point at all. Firms have both positive and negative externalities, and causing them to internalise them requires tailored solutions—e.g. a carbon tax. ‘Being very profitable’ is not a negative externality, so a tax on profits is not an effective way of minimising negative externalities. Similarly, the Malicious Use paper is mainly about specific bad use cases, rather than size qua size being undesirable. Moreover, size has little to do with Seb’s argument, which is about estimating the costs of specific research proposals when applying for grants.
Finally, one must consider that under windfall scenarios the gains from innovation are already substantial, suggesting that globally it is more important to focus on distribution of gains than incentivizing additional innovation.
I strongly disagree with this non-sequitur. The fact that we have achieved some level of material success now doesn’t mean that the future opportunity isn’t very large. Again, Chamley-Judd is the classic result in the space, suggesting that it is never appropriate to tax investment for distributional purposes—if the latter must be done, it should be done with individual-level consumption/income taxation. This should be especially clear to EAs who are aware of the astronomical waste of potentially forgoing or delaying growth.
Elsewhere in the document you do hint at another response—namely that by adopting the clause, companies will help avoid future taxation (though I am sceptical):
> A Windfall Clause could build goodwill among the public, dampening harmful public antagonism for a small (expected) cost. Governments may be less likely to excessively tax or expropriate firms committed to providing a public good through the Windfall Clause.
and
> However, from a public and employee relations perspective, the Clause may be more appealing than taxation because the Clause is a cooperative, proactive, and supererogatory action. So, to the extent that the Windfall Clause merely replaces taxation, the Windfall Clause confers reputational benefits onto the signatory at no additional cos
However, it seems that the document equivocates on whether or not the clause is to reduce taxes, as elsewhere in the document you deny this:
> the Windfall Clause is not intended to be a substitute for taxation schemes. We also note that, as a private contract, the Windfall Clause cannot supersede taxation. Thus, if a state wants to tax the windfall, the Clause is not intended to stop it. Indeed, taxation efforts that broadly align with the goals and design principles of the Windfall Clause are highly desirable
\* for clarity of exposition I am assuming the donation is not tax deductible, but the point is not dramatically altered if it is.
As a blanket note about your next few points, I agree that the WC would disincentivize innovation to some extent. It was not my intention to claim—nor do I think I actually claimed (IIRC)—that it would have no socially undesirable incentive effects on innovation. Rather, the points I was making were more aimed at illuminating possible reasons why this might not be so bad. In general, my position is that the other upsides probably outweigh the (real!) downsides of disincentivizing innovation. Perhaps I should have been more clear about that.
But corporations are much less motivated by fame and love of their work than individuals, so this does not seem very relevant, and furthermore it does not address the inter-temporal issue which is the main objection to corporation taxes.
I strongly disagree with this non-sequitur. The fact that we have achieved some level of material success now doesn’t mean that the future opportunity isn’t very large. Again, Chamley-Judd is the classic result in the space, suggesting that it is never appropriate to tax investment for distributional purposes—if the latter must be done, it should be done with individual-level consumption/income taxation. This should be especially clear to EAs who are aware of the astronomical waste of potentially forgoing or delaying growth.
However, it’s very hard to get individuals to sign a WC for a huge number of reasons. See
The pool of potentially windfall-generating firms is much smaller and more stable than the number of potential windfall-generating individuals, meaning that securing commitments from firms would probably capture more of the potential windfall than securing commitments from individuals. Thus, targeting firms as such seems reasonable.
Elsewhere in the document you do hint at another response—namely that by adopting the clause, companies will help avoid future taxation (though I am sceptical):
…
However, it seems that the document equivocates on whether or not the clause is to reduce taxes, as elsewhere in the document you deny this:
I think both outcomes are possible. The second point is simply to point out that the WC does not and cannot (as a legal matter) prevent a state from levying taxes on firms. The first two points, by contrast, are a prediction that the WC will make such taxation less likely.
Secondly, unbridled incentives to innovate are not necessarily always good, particularly when many of the potential downsides of that innovation are externalized in the form of public harms. The Windfall Clause attempts to internalize some of these externalities to the signatory, which hopefully contributes to steering innovation incentives in ways that minimize these negative externalities and compensate their bearers.
Here you approvingly cite Seb’s paper, but I do not think it supports your point at all. Firms have both positive and negative externalities, and causing them to internalise them requires tailored solutions—e.g. a carbon tax.
I agree that the WC does not target the externalities of AI development maximally efficiently. However, I think that the externalities of such development are probably significantly correlated with windfall-generation. Windfall-generation seems to me to be very likely to accompany a risk of a huge number of negative externalities—such as those cited in the Malicious Use report and classic X-risks.
A good analogy might therefore be to a gas tax for funding road construction/maintenance, which imperfectly targets the thing we actually care about (wear and tear on roads), but is correlated with it so it’s a decent policy.
To be clear, I agree that it’s not the best way of addressing those externalities, and that the best possible option is to institute a Pigouvian tax (via insurance on them like Farquhar et al. suggest or otherwise).
‘Being very profitable’ is not a negative externality
It is if it leads to inequality, which it seems likely to. Equality is a psychological good, and so windfall has negative psychological externalities on the “losers.”
Furthermore, firms can voluntarily but irrationally reduce their incentives to innovate—for example a CEO might sign up for the clause because he personally got a lot of positive press for doing so, even at the cost of the firm.
This same reasoning also shows why firms might seek positional goods. E.g., executives and AI engineers might really care about being the first to develop AGI. Thus, the positional arguments for taxing windfall come back into play to the same extent that this is true.
Additionally, by publicising this idea you are changing the landscape—a firm which might have seen no reason to sign up might now feel pressured to do so after a public campaign, even though their submission is ‘voluntary’.
This is certainly true. I think we as a community should discuss (as here) what the tradeoffs are. Reduced innovation in AI is a real cost. So too are the harms identified in the WC report and more traditional X-risk harms. We should set the demands of firms such that the costs to innovation are outweighed by benefits from long-run wellbeing.
Thanks a ton for your substantial engagements with this, Larks. Like you, I might spread my replies out across a few posts to atomize my replies.
I think this is a bit of a strawman. While it is true that many people don’t understand tax incidence and falsely assume the burden falls entirely on shareholders rather than workers and consumers, the main argument for the optimality of a 0% corporate tax rate is Chamley-Judd (see for example here) and related results. (There are some informal descriptions of the result here and here.) The argument is about disincentives to invest reducing long-run growth and thereby making everyone poorer, not a short-term distributional effect. (The standard counter-argument to Chamley Judd, as far as I know, is to effectively apply lots of temporal discounting, but this is not available to longtermist EAs).
Thanks for this. TBQH, I was primarily familiar with the concerns cited as the reasons for opposition to corporate income taxation. I do wish in retrospect I had been able to get more acquainted with the anti-corporate-tax literature like you cited. Since I’m not an economist, I was not aware of and wasn’t able to find some of the sources you cited. I agree that they make good points not adequately addressed by the Report.
For some more recent discussion in favor of capital taxation, see Korinek (2019). Admittedly, it’s not clear how much this supports the WC because it does not necessarily target rents or fixed factors.
Thanks very much for sharing this. It is nice to see some innovative thinking around AI governance.
I have a bunch of different thoughts, so I’ll break them over multiple comments. This one mainly concerns the incentive effects.
I think this is a bit of a strawman. While it is true that many people don’t understand tax incidence and falsely assume the burden falls entirely on shareholders rather than workers and consumers, the main argument for the optimality of a 0% corporate tax rate is Chamley-Judd (see for example here) and related results. (There are some informal descriptions of the result here and here.) The argument is about disincentives to invest reducing long-run growth and thereby making everyone poorer, not a short-term distributional effect. (The standard counter-argument to Chamley Judd, as far as I know, is to effectively apply lots of temporal discounting, but this is not available to longtermist EAs).
This is sort of covered in B.1., but I do not think the responses are very persuasive. The main response is rather glib:
There are a lot desirable investments which would be rendered uneconomic. The fact that some investment will continue at a reduced level does not mean that missing out on the other forgone projects is not a great cost! For example, a 20% pre-tax return on investment for a moderately risky project is highly attractive—but after ~25% corporate taxes and ~50% windfall clause, this is a mere 5% return* - almost definitely below their cost of capital, and hence society will probably miss out on the benefits. Citation 231, which seems like it should be doing most of the work here, instead references a passing comment in a pop-sci book about individual taxes:
But corporations are much less motivated by fame and love of their work than individuals, so this does not seem very relevant, and furthermore it does not address the inter-temporal issue which is the main objection to corporation taxes.
I also think the sub-responses are unsatisfying. You mention that the clause will be voluntary:
But this does not mean it won’t reduce incentives to innovate. Firms can rationally take actions that reduce their future innovation (e.g. selling off an innovative but risky division for a good price). A firm might voluntarily sign up now, when the expected cost is low, but then see their incentives dramatically curtailed later, when the cost is large. Furthermore, firms can voluntarily but irrationally reduce their incentives to innovate—for example a CEO might sign up for the clause because he personally got a lot of positive press for doing so, even at the cost of the firm.
Additionally, by publicising this idea you are changing the landscape—a firm which might have seen no reason to sign up might now feel pressured to do so after a public campaign, even though their submission is ‘voluntary’.
The report then goes on to discuss externalities:
Here you approvingly cite Seb’s paper, but I do not think it supports your point at all. Firms have both positive and negative externalities, and causing them to internalise them requires tailored solutions—e.g. a carbon tax. ‘Being very profitable’ is not a negative externality, so a tax on profits is not an effective way of minimising negative externalities. Similarly, the Malicious Use paper is mainly about specific bad use cases, rather than size qua size being undesirable. Moreover, size has little to do with Seb’s argument, which is about estimating the costs of specific research proposals when applying for grants.
I strongly disagree with this non-sequitur. The fact that we have achieved some level of material success now doesn’t mean that the future opportunity isn’t very large. Again, Chamley-Judd is the classic result in the space, suggesting that it is never appropriate to tax investment for distributional purposes—if the latter must be done, it should be done with individual-level consumption/income taxation. This should be especially clear to EAs who are aware of the astronomical waste of potentially forgoing or delaying growth.
Elsewhere in the document you do hint at another response—namely that by adopting the clause, companies will help avoid future taxation (though I am sceptical):
and
However, it seems that the document equivocates on whether or not the clause is to reduce taxes, as elsewhere in the document you deny this:
\* for clarity of exposition I am assuming the donation is not tax deductible, but the point is not dramatically altered if it is.
As a blanket note about your next few points, I agree that the WC would disincentivize innovation to some extent. It was not my intention to claim—nor do I think I actually claimed (IIRC)—that it would have no socially undesirable incentive effects on innovation. Rather, the points I was making were more aimed at illuminating possible reasons why this might not be so bad. In general, my position is that the other upsides probably outweigh the (real!) downsides of disincentivizing innovation. Perhaps I should have been more clear about that.
Yep, that seems right.
However, it’s very hard to get individuals to sign a WC for a huge number of reasons. See
I think both outcomes are possible. The second point is simply to point out that the WC does not and cannot (as a legal matter) prevent a state from levying taxes on firms. The first two points, by contrast, are a prediction that the WC will make such taxation less likely.
The report then goes on to discuss externalities:
I agree that the WC does not target the externalities of AI development maximally efficiently. However, I think that the externalities of such development are probably significantly correlated with windfall-generation. Windfall-generation seems to me to be very likely to accompany a risk of a huge number of negative externalities—such as those cited in the Malicious Use report and classic X-risks.
A good analogy might therefore be to a gas tax for funding road construction/maintenance, which imperfectly targets the thing we actually care about (wear and tear on roads), but is correlated with it so it’s a decent policy.
To be clear, I agree that it’s not the best way of addressing those externalities, and that the best possible option is to institute a Pigouvian tax (via insurance on them like Farquhar et al. suggest or otherwise).
This same reasoning also shows why firms might seek positional goods. E.g., executives and AI engineers might really care about being the first to develop AGI. Thus, the positional arguments for taxing windfall come back into play to the same extent that this is true.
This is certainly true. I think we as a community should discuss (as here) what the tradeoffs are. Reduced innovation in AI is a real cost. So too are the harms identified in the WC report and more traditional X-risk harms. We should set the demands of firms such that the costs to innovation are outweighed by benefits from long-run wellbeing.
Thanks a ton for your substantial engagements with this, Larks. Like you, I might spread my replies out across a few posts to atomize my replies.
Thanks for this. TBQH, I was primarily familiar with the concerns cited as the reasons for opposition to corporate income taxation. I do wish in retrospect I had been able to get more acquainted with the anti-corporate-tax literature like you cited. Since I’m not an economist, I was not aware of and wasn’t able to find some of the sources you cited. I agree that they make good points not adequately addressed by the Report.
For some more recent discussion in favor of capital taxation, see Korinek (2019). Admittedly, it’s not clear how much this supports the WC because it does not necessarily target rents or fixed factors.