AI tax breaks draw Warren probe of Meta, Google, Amazon, Microsoft

Senate Democrats want four of the largest U.S. technology companies to spell out how much the 2025 Republican tax law has cut their bills on artificial intelligence and data center spending, reviving a debate over AI tax breaks that stands to reverberate into advisors' client portfolios.

Sen. Elizabeth Warren, D-Mass., led letters sent Sunday night to the chief executives of Meta Platforms, Amazon, Microsoft and Google parent Alphabet, according to reports by CNBC and other outlets. Sens. Tina Smith, D-Minn., and Jeff Merkley, D-Ore., also signed.

The lawmakers asked each company to disclose the deductions it has claimed for AI and data center development under the One Big Beautiful Bill Act, or OBBBA. They also asked each company to describe its lobbying before the law passed.

The senators tied the tax breaks to public concern about AI, from higher utility bills to job losses. "Republicans in Washington have passed tax subsidies for AI development and AI data centers," they wrote.

According to new survey data released by Pew Research Center last week, American sentiment around data centers has grown more negative since the start of the year. More than half of US adults now say data centers have a net negative impact on the environment (54%, compared to 39% in January), while half see the impact on home energy costs (50%, up from 38%), and the quality of life for nearby residents (49%, up from 30%).

Read more: Data center buildout: What inning are we in, and who wins from here?

How the 2025 tax law cut tech tax bills

The letters argue that much of the companies' AI spending may have been deductible right away under the law signed by President Donald Trump in July last year. Among its business provisions, the law made 100% bonus depreciation permanent. Bonus depreciation lets companies deduct the full cost of qualifying equipment in the year it goes into service rather than spreading the write-off over many years.

Meta is the clearest example. According to CNBC, the company paid $2.8 billion in federal income tax in 2025, down from $9.6 billion in 2024, while earning roughly the same profit in both years. In their letter to Meta Chief Executive Mark Zuckerberg, the senators noted that the company's capital spending reached $72 billion last year, mostly on data centers and other AI projects, noting that much of that may have been immediately deductible.

Warren's letter also cites reporting by Politico, which quoted budget forecasters, that corporate tax payments are down 25% this year.

Read more: OpenAI calls for taxing AI use to shore up fraying safety nets

Proposals to tax AI take shape in Washington

Warren has been clear about how she would approach data centers. In a May op-ed published by Time, she called for an excise tax on the electricity data centers use, designed so that "the bigger the data center, the more they pay." She paired that with a wealth tax, higher corporate and capital gains rates, and a stronger corporate minimum tax. She also argued that the current code gives companies tax breaks for buying technology while charging them payroll taxes for hiring workers, effective incentivizing capital investments over labor.

Warren is not the only lawmaker with a plan. As noted by the Bipartisan Policy Center, a Washington think tank, several proposals have been put forward with different schemes for AI taxation.

The first group is direct levies on AI companies. Rep. Greg Casar, D-Texas, has proposed taxing large developers on the greater of the value of the tokens they sell or their product revenue, with the rate rising as unemployment rises. Sen. Bernie Sanders, I-Vt., has a bill that would impose a one-time tax, paid in stock, equal to 50% of any company with at least $200 million in annual AI-related gross receipts. Those shares would go to a new American AI Sovereign Wealth Fund.

The second group taxes AI use. Examples range from Chicago's 15% tax on cloud computing services to proposed "automation" taxes on AI-driven downsizing.

The third group taxes inputs such as data centers and electricity. Virginia has taxed the electricity data centers consume. Sen. Ron Wyden, D-Ore., has released a white paper arguing for removing data center tax incentives and adding a federal excise tax.

The fourth group needs no AI-specific tax at all. It includes higher corporate and capital gains rates, tighter limits on interest deductions, and changes to step-up in basis, the rule that resets an inherited asset's cost basis to its market value at death.

The think tank warned that every option involves tradeoffs, from defining what counts as an AI company to working out who ultimately bears the cost. "No one policy aimed at AI will score an 'A+' on all five measures," the authors wrote, citing a decision framework that includes simplicity, efficiency, fairness, durability and revenue potential.

Not everyone in the policy world favors new levies. Last month, the Tax Foundation warned that congressional proposals targeting data centers could weigh on U.S. AI investment. It said a proposal from Sen. Mark Warner, D-Va., to limit bonus depreciation for some data center spending would discourage investment at the margin without raising much long-run revenue.

"Doing so would add significant complexity to the tax code and draw arbitrary lines around the types of companies and investments that can fully recover their investment costs," the Tax Foundation said. "It may also drive AI investment overseas, denying US towns and cities the jobs, economic growth, and tax revenue that flow from investment in local communities."