A growing debate around an AI tax is gaining momentum after a research note warning about artificial intelligence-driven job disruption triggered a sharp market selloff.

Alap Shah, co-author of a Citrini Research report and chief investment officer at Lotus Technology Management, has called on governments to consider an AI tax to help offset potential job losses and economic disruption caused by rapidly advancing AI systems.

AI Tax Proposal Emerges After “Scare Trade”

The discussion around an AI tax intensified following what traders dubbed an “AI scare trade.” A report from Citrini Research outlined hypothetical future scenarios in which AI significantly disrupts global employment and corporate earnings.

The note rippled through financial markets, particularly affecting delivery, payments and software stocks. The S&P 500 fell 1%, while a software-focused exchange-traded fund dropped 4.8%. According to Bloomberg, International Business Machines Corp. recorded its worst decline in 25 years during the selloff.

Shah said he was surprised by the scale of the market reaction, noting that the response was larger than anticipated.

Why Shah Is Calling for an AI Tax

In a Bloomberg TV interview, Shah argued that as artificial intelligence becomes more capable, it could replace a growing number of white-collar jobs. He estimates AI could reduce white-collar employment in the United States by 5% over the next 18 months.

If consumer spending weakens as a result of job displacement, broader economic stability could be at risk. To cushion these potential effects, Shah suggested governments explore policy tools such as taxing incremental or windfall gains from AI.

An AI tax, in this context, would not necessarily target the technology itself but rather the financial gains generated by companies benefiting most from AI-driven productivity and automation.

Shah identified chipmakers, data centers and foundation model labs as primary beneficiaries of the AI boom. Meanwhile, he sees intermediation businesses such as insurers and banks as more vulnerable to disruption.

Market Volatility and AI’s Labor Impact

The Citrini Research report comes amid ongoing uncertainty about AI’s long-term impact on employment. Some analysts warn of mass layoffs across administrative and knowledge-based roles, while others argue that new technologies historically create new industries and jobs.

Shah believes the United States will serve as a key indicator of AI’s employment effects over the next five years, citing its flexible labor market. He noted that workforce adjustments may occur more rapidly in the U.S. compared to regions with stricter labor protections.

He also warned that markets could face heightened volatility in the near term, particularly in software stocks, as investors reassess the earnings outlook in an AI-driven economy.

Broader Policy Implications

The concept of an AI tax is not entirely new. Economists and policymakers have periodically raised the idea of taxing automation gains to fund workforce retraining or social safety nets. However, the Citrini-triggered market reaction has pushed the debate into sharper focus.

As artificial intelligence continues to reshape corporate strategies and labor markets, discussions around regulation, taxation and economic safeguards are likely to intensify.

For now, the AI tax debate reflects a broader question facing governments worldwide: how to balance technological advancement with economic stability.