Tax Breaks For Data Centers Bring Few Jobs

Data centers are central to the digital infrastructure powering the modern economy—but they may not be the robust job creation engines some proponents would claim. Instead, they resemble traditional infrastructure projects like highways or bridges. The primary value lies in their utility rather than the jobs they create long term.

While there may be compelling reasons to support data center construction and the enhancement of other related internet infrastructure, providing subsidies for ownership and operation of data centers provides a limited return on investment for local communities.

Data Center Tax Breaks

A recent report by ProPublica highlights how Washington State’s tax breaks for data centers have spiraled into one of the state’s largest corporate giveaways. The breaks were intended to spur job creation in rural areas, and have cost more than $474 million in taxpayer funds since 2018, but the bulk of these benefits have accrued to Microsoft—not local communities.

In Washington, the exact number of jobs created is not a matter of public record but, according to ProPublica, an array of data center projects with a total taxpayer cost of $53.3 million would only need to collectively hire 260 people to meet the required threshold. That is an average cost of $205,000 per job or about three years salary at the median income in the state.

Despite this result being just the latest of many, a number of rural states have enacted or are considering sales and property tax breaks for data centers.

Data centers not only fail to create jobs in significant numbers, they are huge drains on local infrastructure—everyone is aware that they use a lot of electricity, but few realize they also need tremendous amounts of water to operate. This makes data centers located in water scarce environments particularly expensive from a resource perspective, and puts further emphasis on their ineffectiveness as job creation mechanisms.

Data Centers As Infrastructure Projects

As governments look to stimulate economic development, it is crucial to see the industries they are supporting for what they are—rather than what they’d like them to be. Data centers, while essential to the modern economy, do not serve as permanent and ongoing job creation engines anymore than the construction of a highway or a bridge does.

Data center construction more closely resembles infrastructure projects that provide a backbone for economic activity, rather than being viewed as economic activity itself. It is for this reason that private industry seeks to offload the cost of data center construction onto taxpayers—it is increasingly becoming merely the cost of doing business rather than a profit center or competitive advantage.

As such, it is more appropriate for public subsidies to focus on construction and development of these facilities and the infrastructure required to make use of them—rather than their ongoing operation and ownership. Investing in the construction and laying out of telecommunications infrastructure can be justified in the broader context of development in underserved areas.

For example, building data centers as a project adjacent to enhancing digital connectivity, which in turn can attract other businesses and support economic growth, makes good policy sense. Similarly, ensuring data centers make use of renewable energy sources by subsidizing their provisioning returns broader social benefits.

Subsidizing ownership of data centers, through property and sales tax breaks for example, is less defensible. The tech companies that dominate the market for these centers are among the most valuable companies in the world, with market caps that regularly dwarf the gross domestic product of the states they are asking to foot the bill. These corporations have ample resources to manage their own operational costs without public support.

State governments should therefore reconsider their approach to supporting data centers, focusing on subsidies for the construction phase and overall improvement of internet infrastructure. Simultaneously, states must ensure that these investments are tied to clear public benefits such as job creation in the construction industry, environmental sustainability, and enhanced connectivity for under-connected communities.

Outlook

Ultimately, the overarching policy goal should be to balance the need for critical digital infrastructure with the responsible use of public funds. This can be achieved by incentivizing companies to place their data centers where it is most beneficial and source energy for them from the most renewable sources available.

These projects should be viewed as time-bound infrastructure projects, not ongoing corporate welfare initiatives. Through focused subsidies on construction and digital infrastructure development, rather than the ongoing operation of data centers, state governments can better ensure that the investments of public funds yield public benefits.