A Reinforcement Learning Approach to Better Tax Policy

Governments have struggled to find a tax formula that promotes prosperity without creating extremes of wealth and poverty. Can machine learning show the way?

What’s new: Data scientists at Salesforce used reinforcement learning to develop a tax policy aimed at optimizing worker productivity and income equality.

How it works: The researchers developed a video game-type simulation in which four reinforcement learning agents worked to earn money while a fifth taxed their income.

None of the agents had prior knowledge of the game’s economy. The workers were instructed to build wealth by either harvesting resources or building homes.
Each virtual worker had a different skill level. The lower-skilled workers learned that acquiring and selling wood or stone was the best way for them to make money, while their higher-skilled colleagues gravitated to the more complex, higher-paying task of building houses.
Each game ran through 10 tax periods. At the end of each period, the tax bot took a portion of each worker’s earnings, then redistributed the money among all the workers. The process was repeated millions of times.
The researchers also tested the simulation under three human-created tax strategies: A free market approach, the current U.S. tax code, and an academic tax proposal favoring higher income equality.

Results: The system optimized the balance between productivity and inequality more effectively than the human-created strategies. Its policy counterintuitively set high tax rates for the highest and lowest earners and assigned the lowest rates to middle earners.

Yes, but: A model with four workers isn’t nearly complex enough to simulate a real economy, Blake LeBaron, an economist at Brandeis University told MIT Technology Review. The Salesforce team plans to scale up the system to 100 workers.

Why it matters: More than 70 percent of the world’s population live in nations where income inequality is rising, according to the United Nations. Tax policy is a powerful tool for building more prosperous, resilient economies.

We’re thinking: Using AI to discover good social policies? Great idea! Imposing high tax rates on the lowest earners? Not so much.