A proposal by Sen. Ron Wyden, D-Ore., to end tax incentives for data centers and impose a new tax on them is facing significant backlash, with critics contending it could ultimately lead to higher costs for nearly every American internet user.
Wyden, the top Democrat on the Senate Finance Committee, outlined the proposal in a white paper, suggesting a "low single-digit" annual tax on the gross receipts of data centers. While Wyden cited concerns over land use, local power prices, and water consumption as motivations for the proposal, opponents argue the financial burden would be passed on to consumers.
"This tax will be paid by anyone who uses the internet," James Erwin, director of innovation technology at Americans for Tax Reform, stated. "A tax on data centers is a tax on your email, family photos, small business operations, cloud storage, and your Instagram, X, TikTok and Facebook posts." Americans for Tax Reform has characterized Wyden's plan as a "national internet tax."
Wyden's white paper acknowledges the broad reach of data centers and the challenge of defining what facilities would be subject to the tax. It suggests that "carveouts would be developed to focus the tax on data centers as commonly understood," but also notes that cloud computing, a critical component of internet infrastructure, would likely not be exempted.
The proposal stands in contrast to efforts by the Trump administration to accelerate artificial intelligence development and its supporting infrastructure. White House assistant press secretary Liz Huston emphasized the administration's focus on economic growth and maintaining a technological edge over China. The administration's "Ratepayer Protection Pledge" aims to facilitate increased energy production to maintain low utility prices, a goal shared by Wyden, though through different means.
Wyden’s approach is less stringent than calls for outright moratoriums on data center construction, which have been advocated by some other lawmakers. His proposal also extends to taxing data centers that might be located in Earth's orbit.
Despite the criticism, Wyden's proposal comes amid a surge in data center development across the U.S., with regions like North Texas emerging as leading global markets for the industry.