Tax Foundation authors warn a levy on AI tokens would raise the price of access

An opinion piece argues proposed token taxes would scale with use and likely reach consumers, echoing the failed 1990s bit tax.

Two Tax Foundation authors, Garrett Watson and Andrew Lautz, have published an opinion piece in City Journal (dated October 26, 2026) opposing a tax on AI tokens. Tokens are the discrete units of data that large language models such as ChatGPT or Claude process as they read and generate text. Representatives Greg Casar of Texas and Sara Jacobs of California have introduced legislation to create such a tax. The idea has high-profile sympathizers: Bill Gates has backed taxing automation for nearly ten years, and OpenAI CEO Sam Altman is described as supportive. Other congressional proposals include Senator Bernie Sanders's AI Sovereign Wealth Fund and Senator Elizabeth Warren's excise tax on data centers.

The authors' central argument is historical. In 1995, economist Arthur Cordell proposed a bit tax of $0.00000001 per bit of storage, about eight cents per megabyte. At that rate an hour of music streaming (about 30 MB) would carry roughly $2.40 in tax, and an hour-long video conference (nearly 500 MB) about $40. The proposal drew bipartisan opposition. Congress and President Clinton sought to stop states from enacting bit taxes in the Internet Tax Freedom Act of 1998, and Clinton and a bipartisan commission called the bit tax complex, non-neutral, and a threat to economic growth.

For abundance, the concern is mechanical. A tax tied to token volume rises with every use, so it would hit AI companies first and, the authors argue, likely consumers. That would make a fast-falling cost of knowledge and software services stickier. The counterargument, which this piece does not weigh, is that such levies could fund broader sharing of AI gains.

Caveats: this is advocacy from a free-market-aligned outlet, not neutral reporting. The bit tax comparison is the authors' framing, and the piece gives no rate or detailed terms for the actual token tax bills. Its claim that the idea is gaining momentum comes without vote counts or sponsor totals. Watch for bill text and any cosponsor growth.

Source: Google News