Introduction to the Proposed Tax
Mayor Brandon Johnson may want to find a $31 million budget fallback for his proposed tax on big social media companies. One constitutional expert predicted it’ll end up “a complete loser” when it’s inevitably challenged in court by opponents in the big tech industry.
The Proposed Tax
The mayor last week proposed taxing social media companies to help close a $1.15 billion shortfall, dinging at a rate of 50 cents per user after the first 100,000 users, similar to tax structures that have been floated — but not approved — in Minnesota and Washington state. Johnson’s office contends it’s a legal “amusement tax” that they’d be slapping on Meta, TikTok and other sites that many experts say can harm the mental health of young people.
Implementation and Enforcement
Senior mayoral adviser Jason Lee struggled to explain how City Hall would keep track of the number of users above 100,000 without requiring social media companies to share data with the city that they may not be willing to share. “These are publicly traded companies. They already share data on users with the public on a quarterly basis and an annual basis. So, even if we had to go solely off of publicly available data, we could still use that and extrapolate that,” Lee said. Three city departments — Law, Finance and Business Affairs and Consumer Protection — are “working on potential models for collection” and enforcement of the tax, Lee said.
The Argument for the Tax
Johnson has argued that social media companies that have been allowed to “collect our data and sell it for profit” have implemented “more and more aggressive strategies” and algorithms to get people “addicted” to social media and use it for prolonged periods every day. The mayor said it has caused “depression and anxiety and mental illness” among young people in particular, which is why it should be treated “just like” nicotine, tobacco and other “addictive vices.” That’s why he’s promising to isolate the $31 million in revenue from the social media tax in a so-called “protecting care fund” that would be used to expand the number of “care teams” that replace police officers in responding to mental health emergencies.
Big Constitutional Questions
Social media companies raking in billions of dollars in revenue are certain to mount a legal challenge to block a Chicago tax that could be a trend-setter. Industry opponents say Johnson’s proposed tax would get passed onto small businesses. “This shortsighted tax proposal would ultimately hurt Chicago consumers and small businesses,” said Amy Bos, vice president of government affairs for NetChoice, a trade group representing dozens of tech giants, including Meta, Reddit and X. “The costs will be paid by local businesses advertising on these platforms and everyday Chicagoans using these services to connect, communicate and conduct business.” Bos said the mayor’s proposal is “also unlawful,” citing a 1983 U.S. Supreme Court decision that blocked a Minnesota state tax on newspapers for paper and ink purchases beyond a $100,000 yearly threshold.
The First Amendment Concerns
Martin Redish, a professor of constitutional law at Northwestern University’s Pritzker School of Law, agreed, saying he would be “shocked” if Johnson’s social media tax survived a court challenge. “You just can’t pick out the media to impose a burden that you haven’t imposed on other businesses,” Redish said. “You could tax the media as part of a generally imposed tax. But once you start picking out the media, it’s inherently suspect.” Redish noted that “everything on the internet is, in one sense or another, covered by the First Amendment” that protects freedom of speech.
The Precedent
Redish said the “first case anybody is going to think of” is an infamous 1936 Supreme Court ruling that blocked Louisiana Sen. Huey Long from imposing a tax on major newspapers in his state that refused to support him. “I can’t believe the people in the corporation counsel couldn’t advise him better than this. This is a complete loser,” Redish said. City Corporation Counsel Mary Richardson-Lowry said “We think it’s an amusement tax. And that’s what we’re going to stand on for purposes of pursuing that particular tax category.” “The category is social media. And the tax category is the amusement tax. We stand by that,” she said.
The Mental Health Threat Argument
Bos claimed Johnson’s proposal “perpetuates a false narrative that social media is solely responsible for youth mental health challenges, when research shows these issues are far more complex and multifaceted.” “Scapegoating tech companies does nothing to address the actual underlying factors affecting young people’s well-being,” she said. But experts have increasingly sounded the alarm on social media’s potential threat to young people. Last year, former U.S. Surgeon General Vivek Murthy proposed warning labels for social media sites like those on packs of cigarettes, citing studies that found nearly half of kids ages 13-17 said social media made them feel worse about their body image, with two-thirds saying it exposed them to hate-based content.
The Call for Sin Taxes
Massachusetts Institute of Technology professors Daron Acemoglu and Simon Johnson have called for “sin taxes” on digital advertising revenue for companies like Meta and TikTok that “seek to prey on young minds” with addictive content, they wrote last year in Network Law Review. “We are locked into a bad equilibrium, just as we were when 45 percent of adult Americans were addicted to smoking,” Acemoglu and Johnson wrote, suggesting hefty federal taxes to incentivize finding business models “that are not based on keeping people addicted and sustaining intense emotional responses.”
Conclusion
The proposed tax on social media companies by Mayor Johnson is likely to face a legal battle. While the mayor’s office contends that it is a legal "amusement tax," constitutional experts argue that it is a violation of the First Amendment and will not survive a court challenge. The tax is intended to help close a $1.15 billion shortfall and to address the mental health concerns associated with social media use. However, the implementation and enforcement of the tax are still unclear, and the city is working on potential models for collection and enforcement.
FAQs
Q: What is the proposed tax on social media companies?
A: The proposed tax is a 50-cent tax per user after the first 100,000 users, similar to tax structures that have been floated in Minnesota and Washington state.
Q: Why is the tax being proposed?
A: The tax is being proposed to help close a $1.15 billion shortfall and to address the mental health concerns associated with social media use.
Q: What are the constitutional concerns with the tax?
A: The tax is likely to face a legal battle due to concerns that it violates the First Amendment and unfairly targets social media companies.
Q: How will the tax be implemented and enforced?
A: The city is working on potential models for collection and enforcement, but the details are still unclear.
Q: What are the potential consequences of the tax?
A: The tax could lead to a legal battle and may not survive a court challenge. It could also have unintended consequences, such as passing the costs on to small businesses and everyday users.
