Wyden was one of the architects of federal protections designed to prevent discriminatory internet taxes. In 2004, he stood at the White House as President George W. Bush signed the Internet Tax Non-Discrimination Act.
At the time, Wyden celebrated the legislation as an important safeguard for a rapidly expanding online economy.
He said the legislation would “keep the web an active and growing means of communication, business and education.”
Wyden also argued that the measure would “preserve and grow the Internet’s vital contribution to the U.S. economy.”
More than two decades later, his approach looks considerably different.
Wyden Targets the Backbone of the Digital Economy
Wyden is now proposing new federal tax policies aimed specifically at data centers — the massive facilities that provide computing power for cloud services, artificial intelligence, websites, streaming platforms and countless other online operations.
Among the ideas is an annual gross-receipts tax on data center operators at a “low single-digit” rate.
That distinction matters.
Unlike a traditional corporate income tax, a gross-receipts levy can apply to revenue before expenses are deducted, potentially leaving companies facing taxes even when profit margins are relatively thin.
Americans for Tax Reform argues the proposal would effectively become a nationwide internet tax because the cost would ultimately work its way through the digital economy.
“This tax will be paid by anyone who uses the internet,” said James Erwin of Americans for Tax Reform. “A tax on data centers is a tax on your email, family photos, small business operations, cloud storage, and your Instagram, X, TikTok and Facebook posts.”
Data centers are no longer some obscure corner of the technology industry.
They are the physical foundation underneath much of modern American life.
Banks use them. Hospitals use them. Retailers use them. Manufacturers use them. Small businesses depend on cloud computing rather than maintaining expensive computer infrastructure of their own.
Any significant increase in operating costs could therefore travel far beyond Silicon Valley.
Tax Breaks Could Also Be on the Chopping Block
The gross-receipts proposal is only one piece of Wyden’s plan.
He is also targeting tax incentives associated with building data centers, including provisions allowing companies to rapidly deduct investments in new facilities and equipment.
Wyden has acknowledged that defining exactly what qualifies as a data center presents another challenge.
Modern businesses routinely operate server rooms, computing facilities and cloud infrastructure that could potentially fall under a sweeping definition. Wyden has discussed creating “carveouts” to prevent unintended businesses from getting caught in the tax, but the precise boundaries remain unclear.
Cloud computing, however, would not simply be excluded.
That could have enormous consequences because cloud services have become essential to businesses of practically every size.
Wyden has even raised the possibility of extending the tax framework to future data centers located in space — an emerging concept technology companies are exploring as demand for AI computing capacity explodes.
Fox News Digital sought comment from Wyden’s office regarding the proposal but did not receive a response.
Trump Takes the Opposite Approach
The Trump administration, meanwhile, is attempting to accelerate America’s data center and AI expansion while addressing concerns about the strain those facilities can place on local electricity grids and water systems.
The administration has brought together utilities, developers, electric cooperatives and state officials behind its “Ratepayer Protection Pledge,” an effort intended to expand power generation while preventing ordinary customers from being saddled with infrastructure costs generated by enormous data centers.
White House assistant press secretary Liz Huston described the administration’s position this way:
“President Trump is cementing American AI dominance over China while ensuring data centers pay for their own power, water and other utilities. The President’s commonsense approach will beat China, harness this technological boom and deliver lower costs and new opportunities for working families and small businesses.”
The political divide could hardly be sharper.
One side sees America’s rapidly expanding data center network as a potential new source of federal tax revenue.
The Trump administration sees that same network as strategic infrastructure necessary to compete with China.
The AI Race Raises the Stakes
The dispute comes as American technology companies pour extraordinary amounts of capital into artificial intelligence.
Google, Microsoft, Meta and Amazon have announced massive infrastructure investments as the industry races to secure chips, electricity and computing capacity.
That makes data centers increasingly important not merely to consumer technology, but also to America’s broader economic and national-security competition with Beijing.
Trump has repeatedly argued that the country dominating artificial intelligence will possess an enormous economic and strategic advantage.
That is why critics of Wyden’s proposal see more than a routine tax-policy dispute.
They argue Washington could be preparing to penalize investment in precisely the infrastructure the United States needs to remain ahead.
The proposal also comes as progressives including Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez have pushed for much tougher restrictions on data center development, including calls for a moratorium tied to concerns about electricity, water consumption and local communities.
Wyden’s approach is different. He is not proposing an outright nationwide construction ban.
But taxation can change investment decisions almost as effectively as regulation.
When the government increases the cost of building something, businesses tend to build less of it, charge customers more for it, or move investment somewhere else.
For Americans who remember Wyden as the senator determined to shield the internet from government taxation, that creates an extraordinary reversal.
The senator once argued that Washington needed to protect the internet so it could flourish as an engine of commerce, education and communication.
Now, with artificial intelligence transforming that same internet into one of the most important economic battlegrounds of the century, Wyden is proposing a new federal tax aimed directly at the facilities keeping it running.
And critics are asking a straightforward question:
If taxing the internet was a bad idea when America was building the digital economy, why is taxing its infrastructure suddenly a good idea now?
