Federal Revenue When AI Replaces Labor

An Examination of Economic Scenarios with Highly Capable Artificial Intelligence

Carter C. Price, Akshaya Suresh

Published Nov 7, 2025

This working paper presents how labor-replacing artificial intelligence (AI) affects federal revenue depending on whether workers find new jobs and AI is priced monopolistically. Because 84 percent of revenue is from labor, automation could disrupt the tax base, particularly if the labor force shrinks. Additionally, AI priced at-cost could induce deflation making federal debt repayment challenging. This paper also describes policy responses.

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Price, Carter C. and Akshaya Suresh, Federal Revenue When AI Replaces Labor: An Examination of Economic Scenarios with Highly Capable Artificial Intelligence. Santa Monica, CA: RAND Corporation, 2025. https://www.rand.org/pubs/working_papers/WRA4443-1.html.
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Funding for this research was provided by the contributions of the RAND Social and Economic Policy Advisory Board; generous gifts by Frank M. Clark, Michael J. Critelli, William A. Downe, Jihee Kim Huh and Peter Yun Huh, and the Donald M. James Family Foundation; and income from the operation of RAND Health.

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