As artificial intelligence becomes more mainstream, many people are using it to do things that they would normally hire someone else to do. AI is helping people conduct research, analyze options, and even create artistic works. While this makes certain things easier and more efficient, it means that some people will get reduced work or lose their livelihoods. For governments that have to look at the big picture, this means more unemployment which translates to less tax revenue, with an emphasis on social security funding. Could AI pose a serious threat to future social security and Medicare funding? If so, what can be done about it?
Many people are concerned AI will take over white collar jobs that humans do now. While the technology is not perfect — which some lawyers have learned the hard way — it is improving. The worry was so bad that in 2023, Hollywood writers and actors went on strike. to prevent studios from using AI for drafting stories and using actors’ likenesses.
Employees and business owners pay into social security and Medicare. Employees do so through paycheck withholdings and business owners pay self-employment taxes on their net business profit. While this tax is pretty substantial — 7.65% for employees and 15.3% for self-employed business owners, there is a cap on the income that is subject to the tax. For 2026, the income cap is $184,500 so any income above that is not subject to social security taxes although it is subject to Medicare taxes.
If jobs are replaced by AI, then the government will lose these social security tax and Medicare tax payments. The solvency of the social security trust fund has been a concern in the past few decades and, based on projections, the trust fund is on track to be insolvent in 2032. If insolvency is certain, then the government will have to make tough decisions to save the social security trust fund, either by cutting benefits, raising the eligibility age, or raising taxes.
Skeptics will note that technological disruption is nothing new and despite the doomsday talk, the economy will adapt. Most will cite complex machines replacing most assembly-line workers in the 20th century. Or e-commerce disrupting the Main Street brick-and-mortar stores.
Several proposals have been made to address this potential problem. One is to impose additional taxes on AI companies and businesses that use AI to compensate for the revenue lost due to increased unemployment. Imposing this tax on small businesses will be unpopular and the tax could be passed on to the customer if economic conditions allow it. Also, detecting whether a business is using AI could be difficult.
Another idea getting a lot of attention lately is universal basic income (UBI) where everyone gets a regular cash payment whether they are working or not. It could act as a safety net which will let people cover basic living expenses even if automation wipes out their job. But UBI could disincentivize people to work and mouth off whatever nonsense is in their mind without fear of financial consequences. Considering the very large cost and the potential negative incentives, UBI is likely to be used as a last resort to prevent bigger societal problems.
Probably the easiest solution is to change the way how social security is funded. In short, enact new taxes or raise existing ones. Or impose a new tariff.
The final and possibly the most sensible solution is to wait and see. The proliferation of AI could result in jobs that were previously not available. Granted, most of the new jobs will involve servicing and maintaining the AI infrastructure. But jobs involving other disciplines and skill sets could be available. For example, philosophers, ethicists, and religious leaders could be hired to help with the AI’s moral programming.
AI is transforming work in ways we haven’t seen before, and it has the potential to strain social security systems by potentially shrinking the number of contributors. But if we get ahead of it — with things like exploring UBI, updating funding models, and sparking new kinds of jobs — we can make sure the upsides of AI benefit everyone, not just a few. The trick is to embrace the tech while protecting the people who get caught in the transition.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.
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