Some of you are going to tell me that I got the idea for this article from Jeff Bezos. That could not be further from the truth. He did, however, provide an interesting basis from which I plan to make a point that can save our nation long-term.
Last Wednesday, he set financial media ablaze with his take on federal taxation. His rationale was that the “bottom” 50 percent of income earners in the USA should not be subject to federal income tax. His supporting data revealed that this portion of workers contributes only 3 percent of total federal taxation.
He figures that the amount saved by those employees could result in growth in government revenue through greater consumption, investment, and rents. Using the example of a nurse in New York City earning US$75,000 per year, he believes that her federal income tax of US$1,000 per month could be redirected towards rent. In his estimation, the landlord benefits and can therefore afford to pay more in taxes.
The landlord in his example benefits from scale. If they own multiple apartments rented by people with similar profiles, there is greater certainty in revenue. Imagine if this tax saving is instead spent on food and the like. Jeff Bezos clearly sees the consumer or retail investor as a better deployer of capital than the US government.
Now, he may very well be right. But be warned: this need not apply in a small open economy. Scale matters. A large economy, with a global reserve currency that allows its government to borrow beyond what other nations can, is what Barbados is not. There are risks that we simply cannot take. For most things, we have to take the price set globally. Hence, inflation is primarily imported. Imports also drive economic activity in Barbados.
About 42 percent of economic activity here is driven by imports. The United States survives on domestic activity financed primarily by consumer debt. Imports account for only about 13 percent of its GDP. That gives the US autonomy in setting tax policy to drive consumption without severely weakening the US dollar. In other words, it can print money to feed that consumption and, as long as its dollar remains a global reserve currency, inflation is likely to remain comparatively low.
Inflation here is imported, and too much of it weakens the real value of our dollar over time. Taxation policy is partly meant to mitigate that. It is not just that we want our underprivileged to have fair access to critical public and private resources; government also protects against wild swings in the cost of living. Jeff Bezos’ idea could not work in Barbados without massive disruption. Government would have to find another way to control demand for foreign currency without impeding trade. Basically, growing incomes are far more likely to result in currency outflows here than in the USA.
It is absurd to create the conditions for widespread hoarding or hiding of US dollars when control of those dollars helps keep the lights on and the economy running. People tend not to make these connections at the microeconomic level. I cannot even blame them. It is difficult to think big picture while having to cut and contrive daily.
This is where the conversation begins to move beyond Bezos. His argument assumes that money left in private hands grows and circulates through an economy in ways later taxed. Barbados has to ask a harder question. When more income is created, where does it go, and what does it demand from the foreign exchange reserves? That applies to tax cuts, but it also applies to every technological change that shifts income, employment, and profit.
Barbadians would better internalise these relationships if our public sector systems and private sector behaviour were more predictable and consistent. If entities operated as advertised, citizens could plan more efficiently. Sadly, that privilege is dwindling, as partly evidenced by the attack on the tourist by Savvy on the Bay. Therefore, even if we had the power to ignore every notion that drives our macroeconomy, our social systems lack the consistency to uphold radical change. It must be slow, steady, and then consistent in delivery.
This matters because the next great fiscal question will not only be about whether people should pay less tax. It will be about how government replaces income, social security contributions, and stability when technology begins to remove work faster than new work is created. It is the same question wearing different clothes: who captures new income, who loses old income, and how does a small open economy keep itself balanced?
The proliferation of AI into consumer products and businesses, along with the impending adoption of Artificial General Intelligence (AGI), will demand consistency in our systems. Think of AGI as technology that allows computers to think for themselves through pseudo-consciousness. A commitment to that consistency is going to be the bedrock of what protects us and allows us to adapt successfully.
My point is that, in the face of real labour displacement, how government designs, finances, and allocates Universal Basic Income (UBI) becomes salient to the survival of small open economies. It is only when government commits that being a small open state becomes less stark. At least then we have something to work with.
I treat AI and AGI, from an economic-philosophical position, in much the same way as I treat an immigrant, though not yet a cheaper one to employ per hour. Immigrants can either drive down wages in the sectors in which they compete or create noticeable unemployment. When economic development, fiscal expenditure, and gross capital formation are flat, one tends to witness both effects. Artificial intelligence can do the work of many within an hour. Using it per hour, through direct subscription to frontier model services, still costs more than replacing most junior employees wholesale. However, with DeepSeek and retail API sellers leading the way, access costs are falling. More displacement is on the way.
These situations are uncovering how nations can begin funding UBI. AI takes what Jeff Bezos’ model speaks about for the USA and globalises it. More profit is naturally going to accrue to those who implement artificial intelligence in processes. Even more will accrue to those who develop successful pipelines with AI and compete with the aforementioned companies.
Our governments in small open economies should treat AI as though it were a legal immigrant and tax its commercial use. That income can then be redirected to fund, or at least sustain, UBI. Governments should now begin to “upskill” tax officers and auditors so that they can dynamically audit the degree of displacement against future productivity gains and profitability of local and foreign firms. The more human displacement a firm causes directly at the commercial level, the more it should pay in displacement tax.
Firms should not gain from avoiding social security contributions or from creating an environment that reduces personal income tax. And do not think for a moment that this is not nearly achievable. The same Jeff Bezos is the largest shareholder in Amazon, and our government has worked with Amazon to collect the much-hated “Amazon tax” from them.