The federal tax code is bankrolling the automated looting of American middle-class paychecks.
Harvard economist Kenneth Rogoff, formerly chief economist at the International Monetary Fund, traced the surface damage in a recent Project Syndicate analysis. The architecture of the displacement is already operational. The San Francisco Bay Area and a narrow band of East Asian semiconductor hubs are capturing the entire surplus of the artificial-intelligence economy. Venture-capital carousers funnel hundreds of millions of dollars into compensation packages for mid-twenties programmers and startup founders while the broader economy stands in line for automated obsolescence. Wall Street piles into AI equities not because institutional analysts understand the underlying architecture but because staying on the sidelines has become career suicide. The spectacle plays as a frantic lottery in which the only path upward is to be among the first movers, and everyone else is being thrown over the side.
The policy rationale for this capital concentration is familiar to any reader of tax expenditure briefs or industrial strategy memoranda. Accelerated depreciation schedules are standard macroeconomic tools. They permit corporations to deduct capital equipment costs over compressed timelines, theoretically lowering the cost of investment, spurring innovation, and generating productivity gains that historically fund new categories of employment. The CHIPS and Science Act and its accompanying export-control lattice are framed as necessary geopolitical hedges, securing domestic access to advanced photolithography and semiconductor fabrication against foreign state competition. Under this framework, the federal tax regime and the industrial base are neutral substrates. The market reallocation follows. The displaced adapt. The productivity surplus eventually broadens.
The federal regime is not a neutral substrate. It intervened to accelerate the looting. The Internal Revenue Code does not sit passively as salaried engineers are replaced by server farms. The bonus-depreciation provisions function as a direct payroll-elimination subsidy. The tax code treats a massive AI data center as a capital asset eligible for immediate expensing. It treats the displaced software engineer, the paralegal, the accounting analyst, the mid-level compliance officer as ordinary income earners whose wages are devoured by the automated workflow. The federal tax regime is not facilitating a transition. It is financing the conversion of domestic payroll into automated compute.
The global exclusion Rogoff documents is equally the product of federal policy selection, not geographical accident. The consolidation of the advanced-photolithography supply chain into a triad of corporate entities—the Dutch equipment manufacturer ASML, South Korea’s Samsung and SK Hynix, and Taiwan’s fabrication networks—requires tens of billions of dollars in upfront capital. The United States, through the CHIPS Act and export controls administered by the Department of Commerce, has subsidized this monopolization while actively restricting other global regions from building parallel compute capacity. India’s outsourcing economy, facing automated obsolescence, watches its best technical minds decamp because the domestic ecosystem cannot match the H‑1B ferryman. The nations that missed the supply-chain bus—most of Africa, nearly all of Latin America—are not trailing behind. They are being shut out altogether. No electricity. No capital for data centers. No seat at the table. The mineral curse will do what it always does: enrich a handful while the wealth evaporates into Swiss accounts and the masses stay cut off from the grid.
The fiscal consequences of this regime are already visible at the municipal level. The federal government hoovers up the capital-gains taxes generated by AI startup exits and the payroll taxes drawn from the remaining high-compensation engineering cohorts. It dumps the support obligations for the displaced onto city and county budgets. Housing instability expands. Localized transit decays. The property-tax base gutters. The wave of white-collar eliminations across the technology sector, documented in recent mass layoffs at firms from Cisco to Meta that cite artificial intelligence explicitly as the driver, is not generating a policy vacuum. It is generating a municipal poverty roster while the federal Treasury captures the capital revenue that produced it.
An honest federal posture would tax the compute. The Internal Revenue Service would terminate the bonus-depreciation subsidy for capital equipment that directly displaces domestic payroll, imposing an automated-payroll tax levied against the utilization of compute hours at the same effective rate as the labor tax it replaces. Congress would direct the Federal Trade Commission to break the ASML‑Samsung‑TSMC bottleneck using the Sherman Act’s structural-separation authority rather than coddling the monopoly as a domestic security asset. The political class, captured by the sector’s campaign contributions and paralyzed by the prospect of a retraining levy or a universal basic income, refuses both.
Nobody knows exactly what a fractured economy will look like once the churn completes its work. The tech-bro gold rush is not making the American dream more attainable. It is turning it into a gated compound. The federal tax code built the fence. The permanent underclass is already here, generated by federal policy, administered by municipal poverty, and exported to the developing world.