Should taxpayers love or loathe data centers? This question seems a loaded one in the first place. To ask it is to present a binary choice when, in reality, public opinion on the matter is more complex. Initially, a handful of fiscal conservatives branded the facilities that provide the infrastructure of the next Information Age as little better than taxpayer-funded sports stadiums or convention centers, which are proven economic and fiscal losers for the communities in which they abide compared to the various government subsidies they receive. Yet, aside from the fact that data centers, sports stadiums, and convention centers are physical structures, they have little to nothing in common.
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Sports stadiums and convention centers have always been flashy monuments to “team spirit” or “civic pride,” which only some thousands of fans or attendees may occupy. Data centers are houses to the internet-based economy and society that serve hundreds of millions of Americans, as well as billions of others worldwide. The few local jobs that are created from sporting events and conventions, primarily low-paying service-sector positions, often come at the expense of established small businesses that are displaced by the new construction. Although measurements for data center jobs vary, and are often debated among reasonable economists, the trend is robust and positive.
Data centers entail not only well-paying construction jobs, but support in-person and remote positions all over the country and throughout the supply chain. Stadiums and convention centers entail massive road building, sewer connections, land giveaways, and other concessions that cost taxpayers dearly, while, for the most part, data centers demand less from local governments. The net government revenue share from stadiums and convention centers is generally offset by these outlays, whereas many data centers can boast of lifting the tax bases where they are located to healthy levels. And, as this paper will show, states with large electricity load-growth in recent years have actually seen a reduction in total all-sector electricity prices.
Why then, does public suspicion of data centers persist? One answer is that the “persistence” is not all that deep. The more people understand data centers, the less they tend to reflexively oppose them. When data centers are demystified and put in the context of their role in the overall economy as well as their potential for the local economy, large majorities feel more comfortable with these centers near their own neighborhoods.3 But polling is just one aspect of how the public reacts to data centers. Some states have begun reevaluating tax laws toward data centers as if public officials’ initial policies were somehow “giveaways.” In many cases, however, their original instincts were correct, and they were merely extending commonsense provisions that already apply to a wide range of businesses. Within a given state’s boundaries, the reaction of communities can be as different as night and day. In Missouri, for example, various communities have either slowed the development of data centers or encouraged them through local policies.
But the debate over data center development has escalated all the way up to the federal level as well. In his State of the Union address, President Trump stated that his Administration had been seeking commitments from technology companies to “pay their own way” in data center development. Whether the implication—that somehow such companies weren’t doing so prior to his speech—is true or not, subsequent events have shown the tech sector’s willingness to have a much more substantive fiscal policy conversation over data centers than sports team owners or convention promoters ever demonstrated over their respective projects. Companies such as Google, Amazon, and Meta have committed to the Administration’s five-part “Ratepayer Protection Pledge” that stresses building, connecting, or purchasing new power, underwriting infrastructure improvements, negotiating no-strings-attached electricity agreements with governments, investing in workforces, and making resilient grids for everyone a priority.
A future series of NTU papers will discuss in-depth the tax policies that can support the AI revolution and the data centers underlying it, without resorting to narrowly-crafted deductions, exemptions, and outright subsidies that have characterized public officials’ responses to previous economic trends. Clearly, however, some principles are worth emulating from the outset:
- States should conform their corporate and small business tax treatment of investments to the federal model. The July 2025 federal tax law, which made full and immediate expensing as well as R&D cost write-offs permanent, along with new expensing provisions for structures, should be mirrored at the state level. The 20-plus states that don’t provide for this same treatment in their laws should make this easy change, which treats all business activity, including data centers, the same.
- Existing, sensible state and local tax exemptions for business-to-business transactions and inputs can and should be expanded to data center development, which has often been described as analogous to putting up an office complex, warehouse, or industrial park.
- As data centers dramatically increase the business sector’s contributions to local property tax bases, care should be taken to ensure that local governments steward, rather than squander, the revenue windfalls they receive. NTU-backed taxpayer protections, such as revenue growth caps that can only be exceeded with voter approval, and transparency reforms such as Truth in Taxation laws, are essential elements of this new environment.
This paper, however, focuses more on the energy and water policy aspects surrounding data centers, which, by themselves, require a great deal of thoughtful deliberation on the part of federal, state, and local officials. Responses have already arisen from voices on the Left and the Right, calling for various restrictions on data centers. Motivated by lack of understanding about how the future Internet will work for all of us, or false narratives about data centers and energy prices, or hidden wealth-redistribution agendas, or even simple suspicion of anything “new,” the proposals proffered from politicians across the spectrum to take America out of the AI race are not only dangerous, they could be deadly. Losing our technological edge to foreign competitors could mean everything from missing out on lifesaving health care innovations to falling behind in cost-effective national defense systems.
The biggest, and most concerning, among these competitors is the People’s Republic of China. Although the U.S. and the rest of the free world continues to outpace China in terms of investment in AI, China is surging dramatically in the everyday use of AI and development of applications based on AI. National and economic security deserves federal leadership and guidance, but also needs the uniquely American “bottom-up” approach that has always characterized our private-sector-driven economy. Those qualities are already manifesting themselves in freedom-based policy solutions outlined here that will allow all of us—community by community, idea by idea, innovator by innovator—to be winners in the next human age of discovery.
As the following sections of this paper suggest, there are better responses to how data centers evolve than backward-looking bans or “crackdowns.” As I write this, permitting reform, consumer-regulated electricity, privately-financed electricity generation, advanced transmission technologies, and new approaches to water rights are all constructive answers to legitimate questions about how the data center-driven AI revolution will fit in our economy going forward.
With this paper, a host of experts gathered here aim to provide public officials and the taxpayers they serve with the beginnings of a toolkit that can construct, maintain, and occasionally repair data center policy for the here and now as well as the future. The ability of Americans, imbued with an entrepreneurial spirit in a tax, budgetary, and regulatory climate that allows them to thrive, has always been our greatest national asset. Let us invest in this asset, and allow the dividends to grow for this generation and those to come!
Pete Sepp is the President of the National Taxpayers Union.
The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.