[The Trap of Subsidies] Tax Breaks for Data Centers and Job Creation 'Muktwi'

Bill Proposed to End Benefits in Georgia and Virginia
Only Creates Dozens of Jobs... Tax Revenue Impacted
"This Is Not Profitable... Cannot Create Jobs"

Among U.S. state governments that have poured tax incentives for years to attract big tech companies' data centers, doubts about their effectiveness are growing. Some states aimed to create jobs and revitalize local economies, but seeing only reduced tax revenues without significant economic changes, they are now considering eliminating these benefits belatedly.

[Image source=EPA Yonhap News]

According to Bloomberg on the 11th, the Georgia state legislature passed a bill in March to suspend tax incentives provided to data centers for the next two years. This will also allow analysis of the impact on energy supply and fiscal revenue. Governor Brian Kemp vetoed the legislature's decision, saying the measure, effective from July, would disrupt companies' investment plans.

In Virginia, regarded as the largest data center hub in the U.S., Democratic lawmakers are also urging to block tax incentives for corporate data centers. They introduced a bill to cut tax breaks given when data centers replace equipment such as computer servers. Lawmakers explained that although tax incentives were provided to create jobs, they introduced this bill based on the judgment that the benefits were being used for unintended purposes. The state government analyzed that $750 million (about 1.03 trillion KRW) in tax revenue disappeared due to tax incentives provided to data centers during the 2023 fiscal year.

Across U.S. states, various tax incentives have been promised for years to attract big tech companies like Apple, Facebook, and Google to build data centers. This is because when manufacturing plants are attracted to a region, hundreds or thousands of jobs are created, revitalizing the local economy. However, in the case of data centers, only basic personnel such as security staff who monitor the machines and protect the facilities are needed, so actual job creation is limited to a few dozen.

A representative case is Meta Platforms, Facebook's parent company, which built a data center in Ohio. According to Bloomberg analysis, Meta received property tax reductions amounting to at least $35 million for establishing the data center in Ohio. Additionally, $54 million in further tax breaks are expected. In return, Meta promised to create only about 50 jobs locally.

Social networking service X (formerly Twitter) in Georgia also received tax incentives worth $10 million for introducing artificial intelligence (AI) equipment for its data center. Currently, only about 20 employees work at this center, with no plans to add more, but an additional $16.5 million in tax credits over the next 10 years has been announced.

In Georgia, various incentives provided to data centers are expected to cause a total tax revenue loss of $435 million by 2030. However, the number of jobs expected to be created by each facility receiving government support is only 25. Republican Georgia State Senator Chuck Hufstetler said, "This (providing tax incentives to data centers) is not profitable," adding, "Lobbyists say that giving tax incentives creates jobs and benefits the economy, but in reality, data centers have created almost no jobs."