DFL deficit: DFL controlled Senate pushes $365 million in new taxes
On Wednesday, I offered a cautious welcome for the House tax bill. Faced with ballooning state government budget deficits as a result of an explosion in spending since 2023, the House proposes no new taxes to fix this problem; indeed, after hiking taxes by $10 billion and still ending up with these massive budget deficits, they ought not to.
This relative moderation is a tribute to the divided control in that chamber. The Republicans have promised to reject any tax hikes, as they should. Representative Mohamud Noor (DFL) provided a sobering insight into what course might have been taken in the absence of this division:
Over to the Senate
The tax bill from the Senate, where the DFL holds a one-seat majority thanks to Sen. Nicole Mitchell‘s continued presence, is another part of the puzzle. It cannot be as warmly received.
KSTP reports:
The Minnesota Senate Tax Committee approved a bill Thursday morning that would impose the first “social media tax” in the nation. Just one of many provisions that add up to about $365 million in new taxes over the next two years.
Sen. Ann Rest (DFL), chair of the Senate Tax Committee, told one tax committee member, “You won’t pay one dime” for the social media tax because it will be imposed primarily on big corporations that mine data from Minnesotans through social media. “You have to be really wealthy or a multi-national corporation or Elon Musk to complain about this bill,” she argued, ticking off a couple of standard talking points.
This argument is absurd. It ignores the crucial point of tax incidence, which is who actually bears the burden. When tariffs — which are taxes — are imposed on Canadian steel imports, for example, we do not say, “No Minnesotan will pay a dime; the steel importers are going to pay for it, you have to be a rich steel importer to complain about these tariffs.” We say, as I did last month, that the burden of this tax will be borne by:
…some combination of the Canadian producer in the form of a lower price, the American importer in the form of a lower profit, and the American consumer in the form of a higher price. Tax incidence — who bears the burden — matters. As a wise man once said, “There is no such thing as a free lunch.”
In the case of “free” services such as those provided by most social media companies, this price will take the form of either an actual price or a reduction in services. “This could lead companies to scale back free or widely used services like Gmail, Google Maps, YouTube and Facebook, tools Minnesotans rely on every day for connection, work and community engagement,” said Kouri Marshall with the Chamber of Progress, a trade group representing tech businesses. No doubt it would.
“Elon Musk will pay for it” is, it seems, the DFL’s version of “Mexico will pay for it.” Sen. Rest is surely far too knowledgeable in tax matters to actually believe the things she is saying. Let us hope the House Republicans are true to their word.