A prominent Silicon Valley investor says the rise of AI could force a fundamental rethink of how capitalism taxes labor and capital.
In a new post on X, billionaire venture capitalist Vinod Khosla says AI will sharply reduce labor’s share of the economy and increase the dominance of capital, raising questions about whether current tax structures remain fair or sustainable.
“AI will transform economies and will need a rethink of capitalism & equity. The labor portion of the economy (vs capital) will decline sharply. Should we eliminate preferential treatment of capital gains tax and equalize to ordinary income? 40% of capital gains taxes are paid by those with income >$10m/year!”
He says a new structure could remove tens of millions of Americans from the tax rolls.
“Could easily eliminate bottom 125 million taxpayers from the tax rolls and be revenue neutral at the same time with a capital gains tax equal to ordinary income and a few other tweaks.”
Khosla adds that removing what he describes as distortive tax advantages could raise additional revenue while shifting concessions toward workers.
“Eliminating tax breaks (like tax loss carryover, MLPs, tax-free borrowing to invest against unrealized gains, a true abuse, etc etc may actually allow for even more revenue increase… and more concessions to labor)… These tax breaks are special interest goodies inserted by lobbyists and campaign contributions, not true capitalism.”
The proposal centers on equalizing capital gains taxes with ordinary income tax rates and stripping out preferential treatments that primarily benefit high earners and investors.
Khosla’s comments come as investors and policymakers debate how AI-driven productivity gains will reshape wages, profits and government revenue in the years ahead, with questions mounting over whether existing tax systems are built for an economy increasingly powered by algorithms rather than labor.
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