Amid competitiveness concerns and fundamental questions about tax structure, one expert said congressional Republicans have been largely quiet about a new AI tax.
Democrats have forwarded a number of proposals to tax AI in the last several months — from ending tax incentives for data centers to a “token tax” to a tax on data center electricity usage. Senator Bernie Sanders (I-VT) has gone as far as calling for government acquisition of a 50% equity interest in AI companies and the creation of a sovereign wealth fund.
However, when it comes to AI tax proposals, PwC’s Rohit Kumar told Checkpoint he’s “not hearing anything” from the Republican side. And given President Donald Trump’s August 31 social media post, Kumar suspects congressional Republicans will “think twice about wandering onto the tax AI playing field.”
Trump characterized recent data center backlash as anticompetitive, stating: “The only reason that communities throughout the U.S.A. should not want Data Centers is if they want to end up being backwards and poor.” Meanwhile, allowing data centers to proliferate would lead to “far lower taxes and jobs all over the place,” in the president’s view.
“China could not be happier with this anti Data Center movement,” he added.
Kumar stressed that the president is clearly taking the position that “we should embrace” data centers and AI, because not doing so “creates a real competitiveness issue.”
Identifying the goal of an AI tax
Setting aside the question of whether to tax AI, Kumar said there are “some first-order questions” that have not yet been answered. Namely, would the tax be intended to discourage AI, like a tobacco or alcohol tax? Or would it instead aim to assist displaced workers? And some proposals, said Kumar, go back to the “age-old debate about taxing capital versus taxing labor.”
“There are some big picture questions that I don’t think have been fully answered that you would at least want to know the answer to if you were going to try to design a sensible policy response in this space,” Kumar said.
If the ultimate goal is to assist displaced workers, the challenge is designing a program that can actually achieve that goal, Kumar explained. He reflected on past efforts to retrain displaced workers as factories moved to lower-cost jurisdictions. “The federal government has a lot of history — none of it very good — about running worker retraining programs at scale,” Kumar said. “They’ve just been fraught with challenge because the individual communities are so different.”
The American Action Forum analyzed federal training programs, with a focus on federal apprenticeship programs and two general programs — the Workforce Innovation and Opportunity Act (WIOA) Adult and Dislocated Worker programs. The analysis found that while the programs “effectively place participants into employment” in the short term, they are “not aligned with the future demands for skills that the economy will place on workers.”
The Center for American Progress’ Veronica Goodman also recommends “modernizing WIOA and looking outside of the federal workforce system at other complementary policy options and levers to increase opportunity and outcomes.” However, Goodman notes that WIOA program success has also been impacted by funding levels shortfalls, as compared to the size of the U.S. economy, inflation, and population growth.
“Overall, the United States has underinvested in workforce development for decades,” says Goodman. “It spends just one-fifth of the average that other advanced economies spend on workforce and labor market programs.”
But beyond a reimagined workforce training program design and better funding, Kumar said there’s “a lot of friction” in retraining workers for new jobs. “In a perfect world, people would be totally fluid and they can move from West Virginia to Texas because that’s where the jobs are,” he said. But that’s not the reality.
Taxing AI or capital more generally
As for calls to tax capital associated with the AI boom, Kumar said proposals for wealth taxes, higher corporate income taxes, and higher capital gains taxes are “certainly not new.” Sanders and Senator Elizabeth Warren (D-MA) “have been talking about wealth taxes since before the current AI boom,” he stressed.
Kumar questioned how much a proposal like Sanders’ is “a response to this discrete technological disruption” versus “just another argument to do a thing that I always wanted to do.”
The Bipartisan Policy Center unpacked the arguments for and against taxing AI equity in a recent analysis. Proponents view a direct AI equity tax as “a straightforward way to redistribute the profits of the AI boom,” the BPC explains. Meanwhile, opponents contend any targeted AI tax “stifles innovation,” the group explains. And an equity tax goes even further by “taxing AI firms on income that they do not have.”
The BPC also analyzed “broader reforms” to the Tax Code that do not directly target, but nonetheless impact, AI. “The code treats labor and capital differently: Employers owe payroll taxes on wages, while investments in equipment and software receive more favorable treatment,” the group notes. The result, it adds, is that the relative cost of automating a task is lower than hiring a human worker.
The BPC identifies a number of policy changes that could address this “asymmetry,” such as increasing the corporate rate, reducing or restricting certain tax incentives, or “curbing preferences for capital income.” The group says these broader reforms are simpler, more durable, and have more revenue-raising potential than a targeted AI tax.
How realistic it is to see such proposals pass into law? While interest in increasing the corporate rate and other such tax reforms has “historically” come from Democrats, Kumar said he’s seeing “some shifting terrain.” He noted that “more populist Republicans” like Senators Josh Hawley (R-MO) and Bernie Moreno (R-OH) are “more open to the idea of raising corporate taxes as well.”
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