DFL deficit: ‘Blue Dogs’ proposed tax on social media companies is a bad idea

The DFL deficit

In February 2023, Minnesota Management & Budget (MMB) forecast a state government budget surplus of $17 billion for the 2024-2025 biennium. In that “historic” session, the DFL trifecta blew through that surplus and, between 2019 and 2024, Minnesota’s state government spending per person and adjusted for inflation increased by 23%.

That “historic” trifecta also hiked taxes and fees by $10 billion, but even this wasn’t enough to cover the explosion in state government spending, and, in November 2024, MMB forecast a state government budget deficit of $3.5 billion in the 2028-2029 biennium, or $5.1 billion if you account for inflation.

This month, we learned that Minnesota’s fiscal situation had deteriorated even further. The forecast budget surplus for the 2026-2027 biennium is down $160 million — from $616 million in November to $456 million — and the forecast deficit for the 2028-2029 biennium is up to $4.0 billion, or $6.0 billion if you account for inflation.

This deficit — the result of gross fiscal mismanagement by the state government over the last two years — is the central fact of state government finance. How we deal with it — with higher taxes, spending cuts, or some combination of the two — will dominate political and policy discussion in Minnesota for the next two years.

Taxed Enough Already

We have been clear that there should be no more tax hikes.

On the spending side, such is the scale of the explosion of state government spending in recent years, that, according to the November 2024 numbers, Minnesota could close its looming budget deficit entirely with spending cuts and real terms, per capita spending would still be higher in 2029 than in any year before 2024. That is probably true with the more recent numbers.

On the revenue side, Minnesotans are already some of the most heavily taxed citizens in the United States. As Figure 1 shows, the Tax Foundation finds that Minnesota has the fifth highest top rate of income tax in the United States, at 9.85%. Furthermore, the income level at which the top rate kicks in, $330,410 for a married couple filing jointly, would be taxed at a lower rate in each of those states except Oregon.

Figure 1

The Tax Foundation also finds that Minnesota’s corporate tax rate is the second highest in the United States, as Figure 2 shows. It currently stands at 9.8% on the first dollar of taxable income, second only to New Jersey’s rate of 11.5%.

Figure 2

Minnesotans agree. Last month, KSTP reported:

At some point after the Minnesota House settles its political stalemate, legislators will start focusing on issues. When they do, lawmakers will find that Minnesotans want them to focus on lowering taxes, addressing health care and stopping fraud in state government spending, according to the latest KSTP/SurveyUSA poll.

“You are getting a public reaction against tax increases,” said Carleton College political analyst Steven Schier after reviewing the survey results. “Now Republicans hope they can use that and ride that through the legislative session and into the next election as a winning issue for them.”

When asked to name what they consider to be the most important issue facing Minnesota lawmakers, 25% said “lowering taxes,” making it the single most mentioned top issue in the survey… [Emphasis added]

Our own polling supports this. Recently, my colleague Bill Walsh wrote:

Sixty percent of Minnesotans said spending cuts are the way to close the budget gap.

“‘Cause I’m the taxman…”

Others disagree.

DFL legislators in both the Senate (SF 3197) and House (HF 3117) want to impose a brand new tax on social media companies, such as YouTube, Meta, and X, that collect information on users for the purposes of selling targeted advertising. According to the Minnesota Department of Revenue, the tax would raise roughly $334 million for the state’s general fund over the next four years and would apply to any social media company that reaches more than 100,000 Minnesotans per month, with an escalating tax rate at 500,000 and then 1 million users. The bill’s Senate sponsor, Sen. Ann Rest (DFL), claims that a total of 14 platforms would be hit by the tax: YouTube, Facebook, Instagram, TikTok, Nextdoor, Bluesky, Snapchat, Pinterest, LinkedIn, Reddit, Discord, X, Threads, Twitch, and Tumblr. 

“Not one single Minnesotan will pay a tax from this bill,” Sen. Rest argues, “Not one. Just the mega-bucks social media platforms whose business is social media.” This is, to be generous, naive. These businesses are not likely to simply hand money over to Minnesota’s state government without trying to make it back somewhere. “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.  

So much for the ‘Blue Dogs’

We could dismiss this proposal as simply another of the DFL’s crackpot schemes to chisel more money out of Minnesotans, albeit indirectly, to finance its spending mania. But it is more serious than that. It would be yet another area where our state is “pioneer” of nutty tax policy. You notice that nobody points to us as an example of the Blue State That Works anymore?

And, of more local interest, this proposal marks the final curtain on the short-lived “Blue Dog” pantomime. Launched in December, this group of eight DFL senators claimed to stand for “pragmatic, reasonable, and balanced policies” and it was reported that they would oppose any tax hikes. Now, not only are they backing tax hikes, they are introducing them. They say that a leopard never changes its spots. Neither, apparently, does a Blue Dog.