Thursday, August 25, 2016

The free market innovates, government policy restrains change. How much is too much regulation?

Massachusetts will tax Uber and Lyft to subsidize taxi companies

Money to be transfered to traditional cab services at a rate of 5 cents per ride

Massachusetts is preparing to tax ride-sharing services like Uber and Lyft…in order to subsidize the traditional taxi industry. According to Reuters, a new law -- signed by the state’s Republican governor Charlie Baker (bipartisanship!) -- slaps a 20-cent levy on each and every ride hailed with a ride-sharing app; the state keeps some, municipalities get another chunk, and part of it will go right back to the taxi companies that these services compete with.
We hate to start another debate on the merits of largely unregulated ride-sharing services versus heavily regulated taxi companies, but levying a tax on popular upstarts to prop up the flagging competition strikes us as a little too on-the-nose to include in an Ayn Rand novel. Keep in mind that, if the new ride-sharing services weren’t wildly successful and immensely popular with consumers, the tax wouldn’t be worth all that much to begin with.
Again, not all of the 20-cent per-trip levy goes to the taxi companies: 10 cents go to municipalities and five cents go to a state transportation fund. The taxi guys have to make do with the last nickel. In the aggregate, though, that’s hardly pocket change; according to David Ingram at Reuters, “The fee may raise millions of dollars a year because Lyft and Uber alone have a combined 2.5 million rides per month in Massachusetts. “
The tax will not be levied on ride-sharing users directly; instead, the ride-sharing companies will pay the state (we’re sure that none of this cost will be passed down to riders in any way whatsoever). Also, Massachusetts hasn’t yet decided what, exactly, to spend its portion on; needless to say, not a penny will go to waste.   

Perhaps to acknowledge that Uber, Lyft and the like are here to stay, the tax legislation does include a pair of sunset provisions. The taxi subsidy expires in 2021, with that five-cent portion thereafter going to municipalities and the state. The whole levy expires in 2026.
By that point, presumably, taxi companies will have either adapted to better meet the needs of riders, or discovered that they can simply use their pile of nickels to lobby for more legal protections.

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