AI companies compete with the US Treasury for capital, driving up interest rates the government can't afford. Simultaneously, AI aims to eliminate white-collar jobs that form the core of the federal tax base. This creates a "snake-eating-its-own-tail" dynamic that pushes the US closer to a fiscal crisis.

As companies replace human workers with AI 'robots,' they eliminate a crucial source of government funding: payroll taxes. This trend threatens the solvency of programs like Social Security, which rely on a large base of human workers to support a growing retiree population.

Governments rely heavily on taxing workers. As AI displaces jobs or suppresses wages, this primary revenue stream shrinks. AI creates value in areas like capital and corporate profits, which are taxed less heavily, leading to a potential government funding crisis even as the economy grows.

Major government action on AI is unlikely to be driven by political shifts like midterm elections. Historical precedent suggests a high-salience incident will be the necessary trigger for significant, bipartisan regulatory intervention, regardless of which party controls the government.

The AI industry and the US government both require trillions in funding. This creates a paradox: the more successful AI becomes, the more it erodes the white-collar tax base by automating jobs, forcing the Treasury to borrow even more and intensifying the competition for scarce capital.

The ability of Western governments to manage their enormous public debt levels is now implicitly dependent on the hope that AI will generate a massive, sustained productivity boom. If AI fails to deliver this unprecedented growth, a widespread fiscal crisis becomes a serious risk.

Following Amazon's model, AI-native companies will reinvest all available cash into acquiring more compute power for a competitive edge. They will operate in a perpetual land-grab mode and never need to show a profit, making them impossible to tax effectively and rendering corporate taxation an obsolete funding mechanism for the state.

Economist Ben Harris warns that AI-driven growth may disproportionately benefit owners of capital rather than labor. Because capital income is taxed at a much lower marginal rate than labor income, this shift in the composition of national income would lead to lower-than-expected tax revenues, even amidst strong overall economic growth.

The US can grow its way out of its mounting fiscal problems through AI-driven productivity. This creates real growth without wage inflation, expands the corporate tax base, and offsets a poor demographic outlook. This is the most viable path for the US to avoid a fiscal cliff.