Monday, August 22, 2016

The Red Tape Times (article 6)

The Massachusetts legislature recently passed a law which levies a 20 cent head tax on every ride provided through Peer-to-Peer ride sharing apps, such as Uber and Lyft, and redistributes the revenue to traditional taxi cab companies i.e. it is a supply-side subsidy for the taxi cab cartels.

Let's keep this in perspective. This 20 cent head tax will be added on top of the federal income tax, the state income tax, the FICA tax, the sales tax, and the cost (both opportunity cost and real cost) of getting a state sales tax certificate. It is plainly obvious that the taxi lobby is behind this, which is one of the many problems with having a private campaign finance system, but I digress. This particular head tax is not an isolated incident, but part of a much larger systemic problem that permeates every level of government; one of the several failures of current capitalism is governments propping up failed and outdated business models by undercutting their more efficient and innovative, though less politically savvy, competitors. The fallout of such policies is several fold: it creates artificial market entry barriers for smaller startups, reduces the number of employers in the market, and raises the price of the good or service in question. These effects are common to all forms of rent-seeking behavior, whether it is supply-side subsidies, regulatory capture, patent royalties, or tariffs. There is no doubt that the 20 cent head tax will be passed on to customers in the form of higher fares, but more importantly, it will actually have the unintended effect of stifling innovation by discouraging the use of app platforms and peer-to-peer networking that ride sharing companies are built around.

The proponents of this subsidy argue that it's not fair that ride sharing contractors don't have to comply with the same regulatory requirements that the taxi cab industry has to, and so a head tax on ride sharing services makes the competition more fair. What they fail to realize is that even if the taxi industry was to forgo these requirements, the ride sharing companies would still enjoy certain natural advantages over traditional taxi companies like less overhead costs and greater availability. If the taxi cab industry was actually interested in making the competition 'fair' they would lobby their city councils to lift the moratorium on new cab companies (which most cities have) and eliminate occupational licensing requirements, you know, all the things that make them cartels in the first place; of course, they wouldn't do that because it would reduce their profits, which are quasi-rents.

Imagine if congress had levied a head tax on every Netflix subscription and used the revenue to subsidize Blockbuster under the pretense of innovating video rental stores. It would have only been fair since Netflix doesn't have to comply with building codes and occupancy permits. Preposterous, you say? Well its no different than subsidizing taxi cab companies at the expense of ride sharing users, and it is about time the taxi cab cartels went the way of Blockbuster.

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