Tag: Tax Base

  • The Data Center Casino: Why America Needs Elected Technology Leaders Now

    By the Founders, Department of Technology | San Diego, California | November 13, 2026

    America needs more data centers. That part is not in dispute. What is in dispute is who decides where they go, who pays for them, and whether anyone is looking at the whole board.

    If the United States wants to remain the world leader in artificial intelligence, it has to build the computing capacity, and the power to run it. We start from that premise. But for several years, officials in both major parties, in red states and blue, have treated new data centers less like public infrastructure and more like a slot machine: pull the lever, hope for a jackpot of investment, tax revenue and ribbon-cuttings, and worry later about who covers the losses.

    The question that has been asked is “how much money can be made?” The question that should be asked is “what is the best outcome for the community that has to live next to this?”

    Three risks pull in three different directions. Build too fast, and we strain an aging grid and inflate a financial bubble. Build too slow, and other countries may make our lead obsolete. Ignore what AI could do to employment, and we erode the tax base a modern society runs on. No one in government is currently accountable for all three at once.

    The casino logic

    Thirty-eight states offer tax incentives to data centers, and at least 28 of them considered scaling those incentives back this year, according to the National Conference of State Legislatures. At least ten states forgo more than $100 million a year in these breaks, with Texas and Virginia each losing as much as $1 billion annually, according to Good Jobs First, as reported by Broadband Breakfast.

    In Ohio, Policy Matters Ohio reports the break cost state and local governments about $2 billion last year, far more than the state had forecast, which led Republican Governor Mike DeWine, who had previously vetoed a repeal, to order a temporary pause.

    The backpedaling is bipartisan, which is exactly the point. In Virginia, 21 Democrats and seven Republicans in the state Senate voted to curtail a 5.3% tax break. Kentucky’s Democratic governor, Andy Beshear, has called for ending his state’s incentives, and Ohio, Arizona, Nebraska and Illinois have paused theirs.

    When lawmakers of both parties are reversing course, the original approach was not a partisan mistake. It was a structural one: the deals were made one project at a time, often in secret (as we noted in our open letter, 25 of 31 Virginia local governments involved in data center development had signed NDAs), and no one owned the cumulative consequences.

    Build too fast: the grid and the bubble

    Our electrical grid is where the cost of speed shows up first. In PJM, the nation’s largest grid market, wholesale power prices jumped almost 76% in the first quarter of 2026 compared with a year earlier, and the market monitor said the price effects on customers were very large and not reversible, according to E&E News.

    Capacity auction prices rose roughly tenfold in two years, from about $29 to $329 per megawatt-day, and the December 2025 auction fell short of its reliability target for the first time, per one analysis of PJM’s results. Ordinary ratepayers are paying for capacity built to serve some of the wealthiest companies in the world.

    Then there is the money behind the buildout. Hyperscalers will spend about $750 billion this year, and they are borrowing heavily to do it, while economy-wide statistics still show little or no productivity growth from AI. Jefferies warns that AI investment was the main driver of U.S. economic growth last year after consumer spending, so a sudden collapse would leave the economy exposed. And The Economist notes that more than half the spending has gone to servers and specialized chips that become obsolete within a few years. A technology can be transformative and still be overbuilt. If that happens, the stranded assets and the unpaid debts will not stay on Wall Street.

    Build too slow: the electron gap

    The opposite risk is just as real. The United States leads in advanced chips but is short on power, while China has the power and is short on chips. BloombergNEF estimates China will add more than six times as much generating capacity as the U.S. over the next five years. Morgan Stanley has forecast a 44-gigawatt shortfall for U.S. data centers within three years, roughly the summertime capacity of New York State. According to calculations reported by The Washington Post, Chinese data centers pay about a third of what American ones do for electricity.

    We cannot answer that gap with moratoriums and lawsuits alone, and we cannot answer it with secrecy and subsidies either. Speed that costs public trust is not speed. As voters showed on November 3, when they favored limits in 40 of 41 local data center measures, communities will stop projects they feel were done to them rather than with them.

    Ignore the jobs: the tax base

    The third risk is the quietest. A RAND analysis found that 84 percent of federal revenue in 2024 came from individual and payroll taxes, both collected from labor income. Because income is concentrated in high-paid white-collar jobs, replacing those roles with AI would hit revenue harder than the headcount suggests, and higher corporate profits would not make up the difference unless corporate tax rates roughly doubled.

    The same logic applies closer to home. New York City’s Comptroller built five AI scenarios for the city’s finances, put a combined 50 percent probability on the three with worse outcomes for jobs, growth or tax revenue, and recommended building a reserve fund to 16 percent of annual tax revenue. Every county and state should be asking the same question before the layoffs arrive, not after.

    Why we need elected technology leaders

    Look at who currently holds a piece of this problem. Utility commissions watch rates. Economic development offices watch ribbon-cuttings. Treasurers watch revenue. Each sees one slice, and none is answerable to voters for the combination. That is how a state can win a data center, lose a billion dollars a year, raise its residents’ power bills and weaken its future tax base, all through decisions that each looked reasonable on its own.

    We are calling for elected technology leaders at the local, county, state and federal levels, with one job: to weigh speed, grid capacity, public cost and long-term fiscal health together, in public. In practice that means:

    • Public plans before approvals. Grid, water and fiscal impact published before a project is approved, not after.
    • No secret deals. Public bodies should not sign NDAs that keep residents from learning what their own governments agreed to.
    • Large users pay for what they trigger. Grid upgrades and capacity costs assigned to the facilities that cause them, not spread across households.
    • Incentives with accountability. Tax breaks tied to measurable jobs and revenue, with clawbacks if the promises are not met.
    • Fiscal readiness for AI displacement. Scenario planning and reserves at every level of government.

    They should be elected, not appointed, because the tradeoffs here are value judgments about whose power bills, whose land and whose jobs, and those belong to voters. And they are needed now because the contracts are being signed now.

    The case against our case

    A fair reading includes the strongest objections.

    • Incentives may be what brings projects at all. The Data Center Coalition’s Dan Diorio argues that revenue estimates overlook the chance a project would never have been built without exemptions, and notes that states with the most growth, including Virginia, Texas and Pennsylvania, offer them, while Colorado, which does not, has less (S&P Global).
    • The electron gap may be overstated. The Brookings Institution cautions that no one knows how many data centers will be needed or how fast chips will become more efficient, and that worries from builders are not the same as geopolitical shocks (Brookings).
    • Job forecasts are uncertain. One UK think tank’s scenarios range from eight million jobs lost to none at all (IPPR), and New York’s Comptroller itself says it is hard to tie current trends to AI with certainty.
    • Another elected office is another layer. Critics may reasonably prefer strengthening utility regulators and legislatures over creating new positions. Our answer is that each existing body owns only a slice, but that is a debate worth having in public.

    Start the conversation

    Neither the casino nor the moratorium is a plan. The country needs people whose job it is to build enough, build in the right places, make the builders pay their share, and prepare for what comes after. That job does not exist yet. We are asking every candidate and every sitting official, of every party, to start the discussion about creating it, at department.technology/.

  • The First 100 Days: A Technology Agenda for the Next Congress

    By the Founders, Department of Technology | San Diego, California | November 13, 2026

    A new Congress has 100 days to show it can govern the technology buildout instead of reacting to it. Here is a practical agenda that members of either party can sign onto.

    In our last piece, we described five mistakes the previous Congress made on data centers and AI. This one is the to-do list. We built it from items that already have bipartisan footprints, because the fastest agenda is one that members have already voted for, sponsored or said they support. One timing note: bills that do not become law expire when a Congress ends, so even measures that passed one chamber, like the Ratepayer Protection Act, have to be introduced again.

    1. Days 1 to 30: Hold one set of hearings on the whole picture

    Today the pieces of this problem sit in different committees. Energy committees see the grid. Commerce committees see competitiveness. Finance and tax committees see revenue. Each hears from its own witnesses, and nobody hears the tradeoffs.

    Hold a joint hearing series with the same witnesses in the same room: grid operators, state utility regulators, economists, county officials and workers. The evidence on each risk is already strong enough to start. In the largest U.S. grid market, wholesale power prices rose almost 76 percent in a year and the market monitor called the effects irreversible. At the same time, BloombergNEF expects China to add more than six times as much generating capacity as the United States over five years. Members should hear both facts at once.

    2. Days 1 to 45: Reintroduce ratepayer protection and settle the real disagreement

    The Ratepayer Protection Act cleared the House Energy and Commerce Committee 52 to 0, passed the House 417 to 3, and then failed a Senate procedural vote 57 to 43 that needed 60. The two sides disagreed about one question: whether states should merely be required to consider making large data centers pay for the grid upgrades built to serve them, or whether the cost allocation should be mandatory, as in the Democratic GRID Savings Act.

    Both positions have a principled basis. Utility regulation has long been a state responsibility, and voluntary pledges have a mixed record. We suggest negotiators look for a middle design: a mandatory core for the very largest new loads, with states keeping flexibility over how to implement it. That is our suggestion, not a settled answer, and the details matter. The point is to have the argument in February rather than the weeks before an election.

    3. Days 30 to 60: Open the deals

    Secret agreements are the issue where public frustration is highest and the policy fix is simplest. Bloomberg Law found that 25 of 31 proposed data center projects in Virginia involved nondisclosure agreements, and that Microsoft says it is working to end any active NDAs governments have signed. Lawmakers in more than a dozen states have introduced bills to ban such agreements, but only Delaware has passed a transparency measure through its legislature, according to MLex. A bipartisan group in Congress has now introduced a federal bill to ban NDAs that keep officials from discussing proposed data center projects, while protecting trade secrets.

    Move that bill. And because Congress’s reach is strongest where federal assets are involved, require public disclosure of any data center deal that touches federal land, federal funds or federal permits.

    4. Days 60 to 90: Ask the revenue question before the layoffs

    We do not know how much AI will displace work, and forecasts vary widely. We do know how exposed the tax base is if it does. A RAND analysis found that 84 percent of federal revenue in 2024 came from individual and payroll taxes, and that losing high-paid white-collar jobs would hurt revenue disproportionately. New York City’s Comptroller has already modeled five AI scenarios for the city’s finances.

    Ask the Congressional Budget Office and the Government Accountability Office to publish scenario analyses of federal revenue under different displacement paths, and encourage states and counties to do the same. Planning for a range of outcomes is not predicting the worst one.

    5. Days 90 to 100: Name an owner

    Every item above would be easier to carry out, and harder to forget, if someone were accountable for them together. Begin by creating a standing joint committee with jurisdiction over the whole technology buildout. Then open the larger debate about a Department of Technology and elected technology leaders at the local, county, state and federal levels, including a Secretary of Technology.

    Two rules for all 100 days

    • No riders. Questions as large as federal preemption of state AI laws should not be decided inside a defense or budget bill. They need their own hearings and their own text.
    • Settle the hard disagreements early. The last Congress’s one bipartisan success stalled because the central dispute surfaced a few weeks before Election Day.

    The case against our case

    A fair agenda includes the strongest objections.

    • It is too much, too fast. Skeptics will say five items in 100 days is unrealistic, especially in a Senate that needs 60 votes for most bills. We would rather offer a full list and let members pick; the first two items are the most achievable.
    • Congress has limited reach over local contracts. A federal NDA ban cannot easily dictate how a city signs agreements except through federal funding, permits or land. Developers also argue that confidentiality protects competitive information, and Microsoft has said the agreements were meant to protect sensitive information. The bill’s trade-secret carve-out is where this fight will be decided.
    • Mandatory cost allocation could raise costs or slow building. Supporters of the optional approach worry that rigid federal standards could discourage investment at a moment when the country needs more capacity.
    • Revenue scenarios are speculative. The same New York report acknowledges it is hard to connect today’s hiring trends to AI with certainty. We agree, which is why we ask for a range of scenarios and not a single forecast.

    Start now

    None of this requires a party to give up its principles. It requires members to decide that the question of who is accountable for the technology buildout is theirs to answer. We will keep publishing the evidence and we will tell you plainly when we think a proposal falls short. Our proposal is at department.technology/.