Senate Finance Committee ranking member Ron Wyden (D‑OR) recently released draft legislation to raise taxes on data centers, following up on a white paper he posted in August.

The first part of the bill is a new excise tax on data center revenue. As I’ve explained, the “low single-digit rate,” which is still to be determined, could push total tax rates on data centers above 100 percent of profits in some parts of the country and near that in many others. 

The second part of the bill denies data centers four widely available tax provisions: 100 percent bonus depreciation, Opportunity Zones, private real estate investment trust (REIT) status, and the research credit. Under current law, each is available to any business that meets criteria unrelated to AI or data centers.

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This is an excerpt from an article in the forthcoming issue of Free Society, which will be published on November 13.

The debate over California’s Proposition 40, a proposal for a one-time tax of 5 percent on billionaires’ assets, highlights a revealing tension in the politics of taxing wealth. Governor Gavin Newsom opposed the measure, arguing that wealthy Californians could easily leave the state and take their taxable income with them. Instead, he proposed a national billionaire tax. To a wealth tax skeptic, Newsom’s logic may seem backward. If the concern is that a wealth tax imposes high economic costs, applying it to more taxpayers would simply amplify those costs, not eliminate them.

Newsom is implicitly acknowledging the problem that Mark Cuban put more colorfully when he warned that the new California tax would push entrepreneurs and investors to other states: “If this passes, only idiot startup founders stay in Cali.”

The Newsom two-step illustrates an important political economy insight. A California wealth tax would concentrate its consequences in California. As taxpayers and businesses leave the state, taking their economic activity and employment opportunities with them, the costs of policy failure would be unusually visible.

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The most common response I hear when discussing the historical experimentation, failure, and repeal of global wealth taxes is, “What about Switzerland… or Norway?” 

The number of countries in the Organisation for Economic Co-operation and Development (OECD) with annual wealth taxes fell from 12 in the 1990s to 4 today. Chris Edwards and I document this history in our policy analysis, “Failures of Wealth Taxation.”

But the four holdouts only strengthen the case against taxing wealth in the US. Each is briefly surveyed below. Norway, Spain, and Colombia are experiencing the same avoidance, evasion, and capital flight that led most of Europe to repeal its wealth taxes. Switzerland’s wealth tax is not immune to these pressures, but its damage is offset by the rest of its capital-friendly fiscal system. 

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Last week, the Social Security Administration announced a 3.6 percent increase in monthly Social Security and Supplemental Security Income (SSI) benefits for 2027. This cost-of-living adjustment is meant to keep recipients’ benefits in step with inflation. The problem: Congress adjusts government benefit programs with a different inflation measure from the one used for Americans’ income tax brackets.

SSI and many other benefit programs make similar adjustments using variations of the Consumer Price Index (CPI). These measures have methodological flaws that overstate inflation by failing to properly account for how consumers adjust their spending as prices change. Consequently, federal taxpayers foot the bill for automatic benefits and eligibility increases that exceed what rising prices alone would justify.

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The system of private saving and investment in the United States spans more than a dozen special-purpose accounts, which breed complexity and discourage use. A new bill introduced by Senators Ted Cruz (R‑TX) and Lisa Blunt Rochester (D‑DE) gives families expanded flexibility to use their own savings with fewer government restrictions. The 529 Retirement Enhancement Act (S. 5550) would repeal the $35,000 lifetime cap on 529-to-Roth IRA rollovers. 

This simple change would let families roll more unused education savings into their child’s Roth IRA over time, instead of leaving the money stranded in a 529 plan when a child earns a scholarship or chooses an alternative to college. It also removes one reason families hesitate to use a 529 plan in the first place.

Too Many Rules Discourage Saving 

A 529 plan with limited rollovers illustrates two problems with special-purpose accounts. Savers may underfund the account because they worry that their life goals might change, while those who do save can face penalties when their circumstances change. 

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Eliminating the Social Security payroll tax cap is often presented as a simple way to close the program’s worsening financing gap. Setting aside that this change would at best close 30 percent of the funding shortfall, who would end up paying the higher tax? Our analysis identifies where workers earning above the cap live and which occupations would be most affected.

• Affluent Democratic congressional districts would bear the largest share of the tax increase. 62.7 percent of individuals who earn more than the taxable maximum live in districts represented by Democrats. 
• The average Democratic district has 92 workers earning above the taxable maximum per 1,000 residents, compared with 53 in the average Republican district.
• The top ten congressional districts with the highest shares of workers earning above the taxable maximum are all represented by Democrats and are concentrated in New York City, Seattle, and coastal California.
• The workers most affected by the elimination of the taxable maximum are surgeons, physicians, nurse anesthetists, architectural and engineering managers, and dentists. 

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After President Trump’s endorsement, a bipartisan, bicameral group of lawmakers recently introduced the Motion Picture, Television, and Entertainment Revitalization Act. The bill would create the first direct federal subsidy for Hollywood movie studios through a tax credit covering 20 to 30 percent of what film and TV productions pay their workers. 

Dozens of states and countries have experimented with subsidies for the film industry. The overwhelming evidence is that the subsidies mostly don’t create new production, don’t meaningfully increase jobs or wages, don’t build an industry that survives without the subsidy, and are fiscally costly. 

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