Reverse Big Ugly Tax Breaks for Data Centers Act
- Sponsor
- Rep. McDonald Rivet, Kristen [D-MI-8]
- Committees
- Ways and Means Committee (primary)
- Last action
- Sep 16, 2026
Bottom line
The bill eliminates specific tax incentives for large data centers, aiming to increase federal tax revenue by ending what proponents call 'tax breaks' for these facilities.
What it actually does
This bill amends the Internal Revenue Code of 1986 to remove tax benefits for large data centers. Specifically, it exempts 'qualified data center property' from bonus depreciation and excludes 'covered data centers' and 'qualified data center property' from being treated as 'qualified opportunity zone business property.' These changes apply to data centers with a power capacity exceeding 50 megawatts, including those used for artificial intelligence.
Proponents argue
Proponents argue that current tax incentives for large data centers, particularly bonus depreciation and Opportunity Zone benefits, constitute unnecessary corporate welfare that distorts markets and may not align with public interest. They contend that removing these 'big ugly tax breaks' will level the playing field, reduce federal spending on subsidies for profitable industries, and potentially free up resources for other priorities. The focus on large data centers (over 50 megawatts) suggests a concern about the scale of these operations and their potential impact.
Opponents contend
Opponents would likely argue that eliminating these tax incentives would deter crucial investment in data center infrastructure, which is vital for the nation's digital economy, technological innovation, and the advancement of artificial intelligence. They might contend that such incentives are necessary to encourage the development of high-tech facilities and create jobs, especially in Opportunity Zones where economic development is a priority. Removing these benefits could place the U.S. at a competitive disadvantage globally in the rapidly evolving tech sector.
The bill is very short and can be read quickly, allowing ample time for informed evaluation of its specific tax code amendments.
Section 2(a), amending Section 168(k)(2) of the Internal Revenue Code of 1986
Exemption from Bonus Depreciation for Qualified Data Center Property
This provision modifies existing tax law to make certain data center-related property ineligible for 'bonus depreciation.' Bonus depreciation allows businesses to immediately deduct a large percentage of the cost of eligible property in the year it's placed in service, rather than depreciating it over many years. By exempting 'qualified data center property,' the bill means these large data centers would have to depreciate their assets over a longer period, reducing their immediate tax savings.
Supporters argue
Supporters argue that bonus depreciation for large, profitable data centers is an unnecessary subsidy that distorts market incentives. They contend that these facilities, especially those engaged in AI development, are already highly profitable and do not require additional tax breaks to encourage investment. Removing this benefit promotes tax fairness and reduces federal spending on corporate subsidies.
Critics contend
Critics would argue that removing bonus depreciation will discourage investment in critical data infrastructure, including facilities essential for artificial intelligence development. They contend that accelerated depreciation is a standard tool to stimulate capital investment and economic growth, and singling out data centers could hinder technological advancement and job creation in a key sector.
Tradeoffs
This provision balances the goal of reducing federal tax expenditures and promoting tax fairness against the potential impact on investment and growth in the data center and AI sectors. It creates a tension between immediate tax revenue gains and long-term economic development incentives.
Section 3(a), amending Section 1400Z-2(d)(2)(D) of the Internal Revenue Code of 1986
Exclusion of Data Centers from Qualified Opportunity Zone Business Property
This provision prevents 'covered data centers' and 'qualified data center property' from being designated as 'qualified opportunity zone business property.' Opportunity Zones are economically distressed communities where new investments, under certain conditions, are eligible for preferential tax treatment. By excluding data centers, the bill removes the tax incentives for investors to locate these large facilities in Opportunity Zones.
The definition of 'covered data center' includes a specific threshold: 'has a maximum rated power capacity or total peak power load in excess of 50 megawatts.'
Section 2(a), amending Section 168(k)(2)(I)(iii)(I)
Why it matters:This is standard legislative practice for defining scope within a complex statutory framework. However, the specific numerical threshold is highly consequential for determining which facilities are affected.
Case for: Proponents would argue that the 50-megawatt threshold is a precise way to target only the largest, most energy-intensive data centers, which are often the focus of concerns regarding tax subsidies and environmental impact, without affecting smaller, more localized operations.
Case against: Opponents might argue that this specific threshold is arbitrary or could be easily circumvented by structuring data center operations to fall just below the limit. They might also contend that even data centers below this threshold contribute significantly to the digital economy and should not be overlooked in policy discussions.
Estimated impact: This threshold significantly narrows the scope of data centers affected by the bill, focusing its impact on very large-scale operations.
The definition of 'covered data center' explicitly includes facilities used for 'developing, providing training in, or operating artificial intelligence,' and defines 'artificial intelligence' by reference to section 5002 of the National Artificial Intelligence Initiative Act of 2020.
Section 2(a), amending Section 168(k)(2)(I)(iii)(II)(bb) and (iv)
Why it matters:Cross-referencing definitions is standard legislative practice for consistency. Explicitly listing AI activities within the definition ensures clarity on the bill's scope, but its placement within a nested definition means a casual reader might miss the specific targeting of AI infrastructure.
Case for: Proponents would argue that explicitly including AI-focused data centers ensures that the bill addresses the most rapidly growing and potentially resource-intensive segment of the data center industry, which may be receiving significant public subsidies without sufficient oversight or justification.
Case against: Opponents might argue that singling out AI infrastructure for reduced tax benefits could impede the nation's leadership in a critical emerging technology. They might contend that AI development requires massive computational resources, and disincentivizing investment in these facilities could slow innovation and competitiveness.
Estimated impact: This provision ensures that the bill's tax changes apply directly to the rapidly expanding and strategically important sector of AI infrastructure, potentially influencing investment decisions in this area.