'AI Jobocalypse': Raghuram Rajan proposes AI token tax to curb job losses, boost govt coffers
While acknowledging the technological risk facing IT services and back-office sectors — particularly in countries like India — Rajan emphasized that the transition will be gradual rather than an instantaneous collapse.
- Aug 20, 2026,
- Updated Aug 20, 2026 5:50 PM IST
Former Reserve Bank of India (RBI) governor Raghuram Rajan has advocated for a target-based tax on corporate artificial intelligence usage to level the fiscal playing field between human labor and automation.
Writing in a recent Project Syndicate column titled "How Corporations Can Mitigate an AI Jobocalypse," the economist argued that taxing AI "tokens" consumed by businesses could replenish government treasuries while disincentivising rapid, cost-driven workforce reductions.
According to details reported by The Economic Times, Rajan highlighted a structural financial distortion in modern employment markets: companies are mandated to pay social security and employment-related contributions for human staff, whereas replacing human labor with automated systems carries no equivalent fiscal obligation.
"A US firm contributes social-security payments for every worker, but not for AI," Rajan noted, pointing out that this disparity makes automation artificially more attractive even when considering wider economic displacement costs.
To fix the structural imbalance without stalling technological progress, Rajan proposed starting with a minimal tax rate on AI computational tokens, which could be gradually raised as authorities gain clearer data on job displacement patterns. He noted that while tracking payments to domestic AI providers remains straightforward, foreign service providers must also be integrated into the tax net, a problem he described as completely solvable.
"In a world where governments are already cash-strapped, one way to level the playing field is to levy a tax on the AI tokens a firm uses," Rajan stated in the piece.
The proposal extends beyond taxation to include affirmative labor retention policies. Rajan urged governments to pair token taxes with targeted tax credits for corporations that retrain and retain staff.
Under his proposed framework, the size of the tax benefit would directly correspond to how long a worker remains gainfully employed following skill upgrades. "Recognizing that the first round of AI displacement will not be the last, it will be even more valuable to get firms to retrain workers periodically, and to retain workers whenever possible," he wrote.
While acknowledging the technological risk facing IT services and back-office sectors — particularly in countries like India — Rajan emphasised that the transition will be gradual rather than an instantaneous collapse.
Citing a US Census Business Trends and Outlook Survey, he highlighted that only 20% of companies with over 20 employees currently utilize AI, giving businesses and labor markets time to adjust. Cautioning against sensationalism, he added: "Let's not get overly wound up in science fiction and think that is the outcome."
Rajan also noted that AI holds the potential to lower prices, boost overall demand, reduce setup costs for new enterprises, and enable moderately skilled workers to perform complex tasks — such as nurse practitioners utilizing diagnostic tools. Ultimately, he framed the challenge as managing the human transition effectively: "More important than tax incentives, however, will be firms' acknowledgement that they are fully engaged in helping their employees cope with an uncertain future."
Former Reserve Bank of India (RBI) governor Raghuram Rajan has advocated for a target-based tax on corporate artificial intelligence usage to level the fiscal playing field between human labor and automation.
Writing in a recent Project Syndicate column titled "How Corporations Can Mitigate an AI Jobocalypse," the economist argued that taxing AI "tokens" consumed by businesses could replenish government treasuries while disincentivising rapid, cost-driven workforce reductions.
According to details reported by The Economic Times, Rajan highlighted a structural financial distortion in modern employment markets: companies are mandated to pay social security and employment-related contributions for human staff, whereas replacing human labor with automated systems carries no equivalent fiscal obligation.
"A US firm contributes social-security payments for every worker, but not for AI," Rajan noted, pointing out that this disparity makes automation artificially more attractive even when considering wider economic displacement costs.
To fix the structural imbalance without stalling technological progress, Rajan proposed starting with a minimal tax rate on AI computational tokens, which could be gradually raised as authorities gain clearer data on job displacement patterns. He noted that while tracking payments to domestic AI providers remains straightforward, foreign service providers must also be integrated into the tax net, a problem he described as completely solvable.
"In a world where governments are already cash-strapped, one way to level the playing field is to levy a tax on the AI tokens a firm uses," Rajan stated in the piece.
The proposal extends beyond taxation to include affirmative labor retention policies. Rajan urged governments to pair token taxes with targeted tax credits for corporations that retrain and retain staff.
Under his proposed framework, the size of the tax benefit would directly correspond to how long a worker remains gainfully employed following skill upgrades. "Recognizing that the first round of AI displacement will not be the last, it will be even more valuable to get firms to retrain workers periodically, and to retain workers whenever possible," he wrote.
While acknowledging the technological risk facing IT services and back-office sectors — particularly in countries like India — Rajan emphasised that the transition will be gradual rather than an instantaneous collapse.
Citing a US Census Business Trends and Outlook Survey, he highlighted that only 20% of companies with over 20 employees currently utilize AI, giving businesses and labor markets time to adjust. Cautioning against sensationalism, he added: "Let's not get overly wound up in science fiction and think that is the outcome."
Rajan also noted that AI holds the potential to lower prices, boost overall demand, reduce setup costs for new enterprises, and enable moderately skilled workers to perform complex tasks — such as nurse practitioners utilizing diagnostic tools. Ultimately, he framed the challenge as managing the human transition effectively: "More important than tax incentives, however, will be firms' acknowledgement that they are fully engaged in helping their employees cope with an uncertain future."