Corporate tax payments are plunging even as profits soar, and budget forecasters say payments are down 25%, or $96 billion, after falling 15% last year. The money is disappearing into the same corporate machinery that keeps getting rewarded for building more chips, more data centers, more power supplies, and more of the artificial intelligence infrastructure that lawmakers dressed up as growth.
The tech world is pouring money into that buildout, and the tax breaks Republicans included in their 2025 tax cuts are helping make the bill smaller for the companies at the top. The public, meanwhile, gets the debt, the strain on resources, and the usual lecture about fiscal discipline.
Who Gets the Breaks
The incentives were not written specifically for AI, but hyperscalers are making the most of them. The tax breaks apply to all kinds of business investments, yet the tech industry is using them heavily enough to put a major dent in corporate tax receipts. Matt Gardner, a senior fellow at the liberal Institute on Taxation and Economic Policy, said, “The notion that they’re doing this because of the tax laws doesn’t pass the laugh test.”
That line lands because the companies are not building out of charity, and they’re not doing it for the public good. They’re chasing profit, and the tax code is handing them a cushion while the Treasury takes the hit.
The AI-fueled hit to the Treasury comes as a voter backlash against the data hub-building boom is roiling Congress ahead of the midterm elections. Lawmakers are pointing fingers over who is responsible, and some Democrats blame Republicans’ tax cuts. A July POLITICO poll found more Americans oppose data centers than support them, reversing earlier sentiment from earlier this year. The people living with the consequences are not the ones writing the rules.
Who Pays for the Boom
The budget impact also comes amid mounting concerns over the government’s debt, which now tops $40 trillion. Wall Street is increasingly worried about red ink, and bond traders are steadily pushing up the government’s borrowing costs. The same system that showers corporations with breaks then turns around and demands austerity from everyone else when the numbers come due.
Some Democrats, including Sens. Ron Wyden of Oregon, the ranking member on the tax-writing Finance Committee, and Mark Warner of Virginia, are pushing to curb investment breaks for data centers. Wyden said in a statement, “Massive corporations should pay their fair share.” He added, “This starts by fixing the corporate income tax” including “repealing big giveaways for data centers.” Warner would prevent corporate taxpayers from tapping the depreciation break unless data centers meet certain energy efficiency standards, a move intended to limit their use of electricity, water and other resources.
That’s the reform lane: trim the damage, add standards, keep the machine running. The structure stays intact. The corporations stay in charge of the buildout, and the public is left to negotiate over how much of the fallout they’ll be forced to absorb.
Republicans included a range of investment provisions in their “big, beautiful bill,” including expanded breaks for research and development programs, “expensing” provisions that let companies immediately deduct the cost of investments instead of spreading them out over many years, and a new subsidy for manufacturing structures. The Treasury Department also loosened a Biden-era minimum tax on big businesses that had threatened to blunt the impact of the new provisions. Left in place, it would have taken back some of the tax benefits when companies’ tax rates fell too much. Meta told investors in April that change alone saved it billions of dollars in taxes.
What the Companies Say
The new incentives came online just as businesses were ramping up AI-related spending. Goldman Sachs figures AI expenditures this year will approach $600 billion in the U.S. and $1 trillion worldwide. Donald Schneider, deputy head of U.S. policy at Piper Sandler, said, “Now that we have a full expensing regime, and a secular trend towards an AI buildout — in which much of that is expensed — you’re going to see that exert downward pressure on corporate taxes.”
Companies in the thick of the buildout have been reporting big drops in their tax bills. In July, Microsoft told investors that its current tax bill amounted to $2.5 billion, down from $14.1 billion the previous year, even as its income soared. That’s the arrangement in plain sight: rising income at the top, shrinking payments to the public purse.
The Congressional Budget Office underestimated business investment this year, which means the tax breaks will likely cost more than anticipated. In the second quarter of this year, nonresidential investment was $178 billion more than projected, according to the Bureau of Economic Analysis. The CBO said the provisions are “offsetting the increases in those receipts that otherwise would have been expected, given the rise in corporate income.”
It’s impossible to know precisely how much AI spending is cutting into receipts because big companies pay their taxes in quarterly installments without much information explaining the payments. Forecasters have to wait for annual returns to understand the math behind them. Other factors are also contributing to the decline in corporate taxes. As part of their 2017 tax cuts, Republicans created a big, one-time charge on companies’ overseas profits, but they allowed companies to pay it in installments over eight years, and many wrapped up those payments last year, so receipts now look smaller in comparison. The back-and-forth over the Trump administration’s tariffs also muddles the picture, since companies initially paid up before they were issued refunds after the Supreme Court struck down the duties.
Gardner said the depreciation breaks look like companies are getting paid for things they were going to do anyway. He said companies are racing to build artificial intelligence because they think it will be highly profitable, not because they are trying to reduce their tax bills, and many announced AI development plans before Republicans’ tax cuts became law. “They’re going to do it either way,” Gardner said. “That they’re getting generous tax breaks for doing so is just icing on the cake for them.”
Wyden wants to ban entities building data centers from claiming expensing, as well as tax benefits tied to the Opportunity Zone program and to real estate investment trusts. Warner would limit the depreciation break unless data centers meet energy efficiency standards. It’s also possible that artificial intelligence will eventually prove a boon for federal coffers. If the investments translate into supersized profits, companies should have significantly higher taxable incomes, and businesses can only deduct the cost of investments once.
Kyle Pomerleau, a senior fellow at the American Enterprise Institute, said, “The government is a silent partner in these investments.” He added, “If Google and Meta and all these companies make it big, then the federal government is going to share in that.” Silent partner. That’s one way to describe a state that subsidizes the buildout, waits for the receipts, and calls the arrangement policy.