Progressive U.S. Senator from Massachusetts, Elizabeth Warren, has demanded an overhaul of the U.S. tax code to tax artificial intelligence and the wealth its creators have accumulated. Her justification for taxing AI: allowing families to recoup rising energy costs and pay for universal health care for those who experience AI-triggered layoffs. However, both of these reasons are based on poor data and outdated policy.
Taxing Energy Used by Data Centers to Recoup AI Gains
In a recent op-ed, Elizabeth Warren stated the United States must tax AI so that families suffering from data centers driving up electricity costs can recoup some of the gains of AI. She was unclear about how the tax revenue would reach American families, but claimed this revenue would be needed to fund universal health care and invest in “free” education and new jobs, as well as bolstering unemployment insurance while families recover from layoffs due to AI.
Warren asserted that data centers drive up electricity prices. However, a study from the Institute for Energy Research found that the ten states with the most data centers do not have higher energy prices. In fact, these states are nearly identical to the average price across all other states.
Instead, higher electricity demand is associated with smaller price increases. The five states with the largest declines in electricity sales from 2015 to 2025 saw an average price increase of 58%. Meanwhile, the states with the biggest gains in electricity sales saw only an average price increase of 13%.
Because of high fixed costs, growing demand on electricity grids allows these costs to be spread across more kilowatt hours, while per-unit rates can be kept lower. If there are fewer customers, then more costs get passed on to a smaller paying base.
So, data centers are not driving up electricity prices, and further taxing data centers could harm communities. Because data centers require large amounts of land, one county found that property taxes decreased for residents. Loudoun County found that for each dollar in tax-funded services, data centers generate more than $26 in tax revenue. If federal taxes were imposed on these data centers, there would be an incentive for data centers to move to lower tax locations or otherwise find a way to recoup losses through pricing structures.
Artificial intelligence already benefits Americans. It is largely easily accessible and enables small businesses to compete better with larger corporations. Imposing burdensome taxes on artificial intelligence could change this structure and leave rapidly advancing technology out of reach for many Americans.
Universal Health care for people losing jobs to AI
Another reason Warren gave for taxing AI was to fund universal health care. Her logic is that if AI is taking over jobs, and health care is often tied to a job, tax revenue from data centers and AI should pay for universal health care. However, the structure that ties healthcare benefits to a traditional job needs to change, and the answer is not universal health care.
Access to health care is not only an issue for those workers losing their jobs to AI, but for independent contractors as well. Many benefits are tied to traditional jobs—healthcare, retirement, paid family leave, and disability—but one solution is gaining traction across the United States. Portable benefits are workplace benefits that are attached to an individual rather than an employer.
This policy solution allows individuals to access vital benefits without being tied to an employer or stuck in a job. Instead of taxing AI and allowing further government funding of health care, the U.S. can unbundle health care and traditional employment. Several states have already passed legislation to make this possible, and further efforts are being made to align federal policy with state legislation.
Warren seems set on ensuring the federal government can pay for everything and taxing wealth and AI, rather than empowering the American worker to create value for themselves.
Bottom Line
A tax on AI and data centers will not evenly redistribute AI winnings to Americans. Instead, it will incentivize changes in innovation to maximize profits from American consumers to offset high tax costs. Instead, policymakers should pay close attention to labor policies that enable workers to earn more and innovate in their own businesses, as well as unreliable energy policies that drive up prices.