Companies that own and operate data centers across the United States of America are stealing public funds from the rest of us. Tax rebates from different state and local governments are piling up in the hundreds of millions to billions. Our state governments are handing these companies unnecessary handouts with to remain competitive against other states, which is only producing a race to the bottom for all of us.
Effects of Data Centers
Before 2021, the energy consumption of the United States was increasing, however, our emissions remained relatively steady. This was due to increasing efficiency standards like Energy Star. This changed in 2021 when OpenAI released GPT-3, and corporate energy demand has been spiking ever since. When it came to my attention that the massive amounts of energy that modern data centers need, I began researching the impact that it will have on my home state of Oregon. Rolling blackouts, higher costs, and community destruction by pollution are just a few of the impacts that are currently being reported. The main driver for this is the development of generative artificial intelligence on the one hand and the desire to produce jobs on the other hand. The problem is that both sides of this argument are fraught. On one hand, we aren’t seeing the profits that would explain the amount we’re investing in these tools. On the other hand, the taxes states receive from these projects are not supportive of the handouts we’re providing.
Tax Reality
Good Jobs First released a report that extensively chronicles the disadvantages that states are putting themselves into. Whilst the municipalities that host these properties might be benefitting, the states themselves are suffering from massive deficits due to the sales tax exemptions and rebates. States are entering into a devil’s bargain: give massive corporations sales tax exemptions or tax refunds in exchange for property tax revenue, construction jobs, and a few longer-term jobs like data center maintainers. The issue is that sales tax can make up more than 20% of a state’s total tax revenue and property taxes are generally received by local municipalities. This produces a reality where state governments are hamstrung by benefits given to certain communities within that state. One can imagine how this might cause unintended inequalities in various ways: environmental degradation, education degradation, roadway degradation, something handled at a state level becomes degraded because of the incentives provided by the state that are reaped in a concentrated locality.
What Must be Done
Good Jobs First recommends states immediately revoke sales tax incentives for data centers. This argument is compelling because data center tax incentives aren’t the primary driver for location choice. Generally, the cost of electricity, proximity to fiber cables, and the overall infrastructure of the location is the driving factor for these projects. Tax incentives are a cherry on top. Furthermore, the corporations creating or using these facilities are some of the most profitable in the world. States must stop giving handouts to these corporations and ensure the citizens are getting the proper returns on the investment as well as destruction of their localities. If this doesn’t happen, states will continue to see their tax base and services eroded for minimal benefit.