Jurisdictions (both internationally and subnationally within the United States) initially competed to attract data centers using tax incentives, but are discovering that rapid growth has overwhelmed power grids and infrastructure capacity. These same jurisdictions now face environmental concerns and energy supply constraints. Compounding these challenges, the One Big Beautiful Bill Act (OBBBA) permits immediate full depreciation on large portions of data center capital expenditures, meaning the infrastructure investments that governments hoped would strengthen tax bases will instead generate immediate deductions that further erode corporate income tax revenues.
Tax Analysts: Data Center Boom: Economy Boost or Buyer’s Remorse?
For a time, data centers looked like a surefire economic development option. Though they create few jobs, they significantly increase local tax bases and don’t put pressure on local schools or transportation networks. It was true they used a lot of water and electricity, but those concerns from environmentalists were mostly set aside.
Bloomberg (Op-Ed): OpenAI’s Tax Subsidy Efforts Amount to Silicon Valley Socialism
OpenAI’s push to expand the CHIPS Act tax credit into a broad artificial intelligence infrastructure subsidy shows how the government, and by extension taxpayers, are already underwriting the AI boom—just as the industry’s massive energy and land use burdens begin hitting state and local budgets.
Additional Coverage:
- Wall Street Journal: What Happened When Small-Town America Became Data Center, U.S.A.
- Wall Street Journal: Musk’s xAI and Nvidia to Develop Data Center in Saudi Arabia
