Democrats looking for an alternative to progressive lawmakers’ proposed moratorium on data centers will now have yet another policy idea to consider.
Sen. Ron Wyden of Oregon, the highest-ranking Democrat on the Senate’s tax-writing body, on Thursday will propose a new excise tax and elimination of tax breaks for a data center construction boom expected to run into the trillions of dollars.
His proposal joins roughly a half-dozen competing Democratic approaches to addressing Americans’ unrest around AI, reflecting the soaring political salience of AI policy — an area Democrats are eager to win voters’ trust on.
“American communities are rightfully questioning whether the rapid build-out of data centers across the nation will benefit them, as local disruptions rise and Americans grow concerned about the long-term career prospects of millions of workers,” Wyden said. “These proposals are a first step towards safeguarding taxpayer dollars and ensuring there are resources to support American workers displaced by the coming disruptions to the economy.”
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Wyden’s plan would prohibit data centers from benefiting from tax-advantaged “opportunity zones,” a tax deduction Republicans extended last year, and a tax incentive for real estate trusts. It would also level a new “low single-digit’” tax on company revenues. Data centers built in space would also be taxed if they provide services to U.S. customers.
Wyden doesn’t intend for the tax to stop the construction of data centers in the U.S. His office hasn’t determined where it would direct the new revenue from the tax. The surging stock market, driven largely by gains from AI, have minted many new billionaires and made Elon Musk the world’s first trillionaire.
Wyden’s proposal stands in stark contrast to that of Sen. Bernie Sanders (I-Vermont) and Rep. Alexandria Ocasio-Cortez (D-New York), who want to stop data center construction until guardrails can be put in place on artificial intelligence.
The party’s many differing policy proposals indicate AI could be an area of division within the party in the run-up to 2028.
Rep. Greg Casar (D-Texas), chair of the Congressional Progressive Caucus, has pitched a tax on “tokens” that would charge AI companies per computing power used, rather than the revenue generated by data center operators. His idea would allow the federal revenue gained from the tax to scale with the rise in usage from AI. At least in theory, that would help ensure that the government has the funds to respond to potential layoffs, though some skeptics warn the costs could be passed on to consumers and businesses.
Sen. Elizabeth Warren (D-Massachusetts) also teased her own plan in May in an op-ed in Time: a tax on the energy consumed by data centers that would also fall on the AI companies as well. Warren’s plan has been light on specifics but would likely raise substantial funds without shutting down the data centers. The proposal faces criticism from some who worry it would discourage the growth of the energy grid.
Meanwhile, Rep. Ro Khanna (D-California), who has said he is looking at running for president, has floated a “Data Center Bill of Rights” aimed at giving localities the legal authority to block data center projects if local investments aren’t made. Sen. Ruben Gallego (D-Arizona), another possible presidential candidate, has proposed stripping tax breaks for data centers and for paying for upgrades they precipitate for local power grids.
While Wyden’s plan could raise billions from the AI companies, it’s a sharp departure from Sanders’ proposal to implement a 50 percent tax on the AI giants’ equity to bring them under government control. Sanders and Ocasio-Cortez have echoed warnings from AI safety experts that the technology poses existential threats to the U.S. economy and even humanity in calling for a complete moratorium on data center construction.
“AI and data centers are going to be a flash point for the next presidential election, and it’s good to see the chief tax writer in the Democratic Party take on this issue,” said Alex Jacquez, senior vice president at the Groundwork Collaborative, a left-leaning think tank, and a former Biden administration economic official. “It can’t be a substitute for all the other things we need to do. But the data centers need to be paying their fair share: These guys are getting fabulously wealthy, and it’s very clear the public is against them.”
So far, little has slowed the rapid advances in the technology powered by an estimated $130 billion increase in data center construction costs in the last year alone. Still, more than a dozen states have considered data center moratoriums of some kind, according to the Brookings Institution, a centrist think tank. Mitch Jones, deputy director of the advocacy group Food & Water Action, said new taxes alone would be “completely inadequate” to address the environmental and energy concerns primarily driving opposition to new data centers.
On the other hand, conservatives and industry groups have pushed back against the proposed restrictions and taxes. The data centers are essential to supporting the development of AI, and Republicans in particular have warned that slowing their growth could give China an enormous advantage in the race to develop the most powerful technology in world history.
But Democrats are looking at polling data that suggests the public is clamoring for federal action. Gallup polling in May found 7 in 10 Americans opposed construction of data centers near them. And the percentage of Americans who believe AI does “more harm than good” jumped from 31 percent last year to 39 percent this year, Gallup found in a separate poll.
“Democrats need a vision here. The technology is going to advance at a rapid scale, and we will be hit pretty quickly by a two-by-four and we have to do something,” said Rob Flaherty, a Democratic strategist who worked in the Biden White House. “On this issue, we have to figure out what we are for fast — capture this moment, or Republicans will do it for you.”
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