Congressional Democrats introduced a bill this week to bar AI companies from claiming certain tax breaks – provided under Trump’s 2025 tax law – for building data centers. Even if you count yourself as one of the very few Americans who agree with President Trump that the nation needs more AI data centers, there is no evidence whatsoever that tax breaks are necessary to encourage their construction. AI leaders have acknowledged that the demand from other companies for data centers is “insatiable,” suggesting that the tax breaks are a windfall rewarding big tech companies for building what they would build anyway.
Among other changes, Trump’s 2025 law (the so-called “One Big Beautiful Bill Act,” or OBBBA) provides “expensing,” which is the most extreme version of accelerated depreciation, allowing companies to write off the costs of equipment far more quickly than makes sense based on its useful life and how long it can generate revenue. OBBBA’s expensing provision applies to all kinds of investments, but it seems to be especially lucrative for the companies building out AI infrastructure right now.
For example, a recent ITEP analysis found that Microsoft paid an effective federal income tax rate of just 2.4 percent on $100 billion of U.S. profits last year, reaping an astonishing $18 billion in federal tax breaks (compared to what it would have paid at the full 21 percent federal tax rate). Two-thirds of these tax breaks for Microsoft were depreciation tax breaks that reward the company’s capital spending.
Microsoft may be the most extreme case, but it is certainly not alone. Five of the largest tech companies (Amazon, Alphabet, Meta, Microsoft, and Oracle) reported collectively raking in $422 billion in profits last year and paying an effective federal income tax of just 4.5 percent. This group enjoyed a total of $70 billion tax breaks last year (compared to what they would pay at the full 21 percent corporate income tax rate). Of that $70 billion in tax breaks, a huge portion, $27 billion, were for accelerated depreciation.
This is unsurprising in a sense. One recent paper estimated that these five technology companies spent $380 billion on capital investments in 2025 and were on track to double that to $755 billion in 2026.
The Democrats’ bill would deny expensing (as well as tax breaks associated with so-called Opportunity Zones) for data center construction.
The data in the table above suggest that the bill could be productively modified to bar these companies from benefiting from tax breaks that are supposed to encourage research, which also feature prominently among the provisions that lower their tax bills. Last year’s tax law restores a pre-2022 tax break that allowed companies to immediately deduct domestic research expenses in the year they are incurred, even though those expenses likely yield income over a far longer time period.
Ultimately, Congress will need to confront whether these subsidies makes sense at all, for any companies.
Few investments in the American economy look less in need of encouragement right now than the hundreds of billions of dollars the world’s largest technology companies are already racing to spend on AI. And it’s hard to think of an investment that American taxpayers value less: polling shows that Americans dislike data centers, distrust AI and are concerned about the economic and environmental effects it may bring.
So why are we being forced to pay for it through lavish corporate tax breaks?
