Senate Finance panel’s top Dem proposes excise tax on new data centers

A new draft white paper from a top Senate Democrat proposes tax code updates that would shift incentives for data center construction.

The paper, released on Aug. 6 by Sen. Ron Wyden, D-Ore. — ranking member of the Senate Finance Committee — proposes changing the incentives that could spur more data center construction amid the national boom in a bid to offset consumer burdens associated with more data centers. 

Wyden’s framework hinges on two changes to existing tax code: removing the current tax incentives that apply to data center construction and applying a new excise tax on data centers whose workloads primarily handle AI compute.

With the removal of the tax incentive and the creation of an excise tax on data center operations, the new revenue would help address the myriad concerns with increased data center costs, including higher energy prices, workforce turmoil and a drain on broader resources. 

“American communities are rightfully questioning whether the rapid buildout 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 in a press release. “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.”

Wyden includes several caveats to his tax proposal. The new excise tax would function as a gross receipts tax that charges a fee the total revenue or sales of a business. 

Two types of data centers will be subject to the tax: those owned, operated or rented by massive data center operators, and those being used by major data center payors, which include major hyperscalers Amazon and Meta. The paper stipulates that the tax would target the large AI hyperscalers and other entities that are primarily “causing the data center boom and most able to pay.” 

Wyden’s proposal offers selective exemptions, which apply to data center assets constructed before 2024. It states that “for all but the largest actors,” the share of data center assets built before 2024 won’t be subject to the new tax. 

“These proposals will not end data center development or put at risk the U.S. maintaining its

status as the global leader in AI and other innovative technologies,” the paper reads. “Rather, they will ensure we have the resources to help the communities and workers most impacted as data center construction continues.”

The proposal also says that the tax would apply to data centers in space. The draft paper stipulates that if a space-based data center attempts to avoid the tax by being labeled as a non-U.S. asset, a withholding tax will apply to payments made by U.S. taxpayers to use the data center. Space-focused tech firms, including Blue Origin and SpaceX, have proposed building millions of orbital data centers. 

Wyden also solicited feedback on his proposal, calling for the public to provide the Senate Finance Committee’s minority staff with comments by Aug. 31. The paper said that discussion draft language is expected to arrive in the coming fall. 

Data center construction and the question of who bears the burden of increased electricity rates and other potential hazards has become a major political talking point. Democrats, in particular, have been looking to leverage growing opposition to further data center construction as a political issue ahead of the 2026 midterm elections. 

In March, President Donal Trump unveiled the Ratepayer Protection Pledge that brought companies Amazon, xAI, Oracle, Microsoft, Meta, Google and OpenAI to agree to absorb utility costs stemming from data centers handling their technology’s compute loads. 

Other lawmakers have also turned their attention to issues brought about by the data center boom. Sen. Bernie Sanders, I-Vt., previously called for a moratorium on new construction until more information can be garnered about both data center impacts and AI itself. 

“We cannot sit back and allow a handful of billionaire Big Tech oligarchs to make decisions that will reshape our economy, our democracy and the future of humanity,” Sanders wrote in February. “We need serious public debate and democratic oversight over this enormously consequential issue.”