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Massachusetts Will Tax Uber to Subsidize Taxi Industry. That’s Absurd.

Paging long-dead French economist Frederic Bastiat.

UberJaap Arriens/NurPhoto/Sipa USA/NewscomUber and other ride-sharing apps are out-competing taxis by offering a better service. And the government doesn't like that one bit.

Take the state of Massachusetts, which has decided to levy a 5 cent fee on every single trip arranged by a ride-sharing service. That would be annoying on its own, but it gets much worse: the government will take the money generated from the fee and create a sort of bailout or subsidy for the failing taxi industry. Massachusetts is robbing Peter to pay Paul, who also happens to be Peter's direct competitor.

The irony is not lost on ride-sharing companies.

"I don't think we should be in the business of subsidizing potential competitors," said Kirill Evdakov, the chief executive of Fasten, a Boston-area ride-sharing service, according to Reuters.

The fee was signed into law by Gov. Charlie Baker, another Republican politician with a shaky understanding of what constitutes a truly free market.

The state's "MassDevelopment" agency—a crony-corporatist sinkhole of misappropriated funds, if ever there was one—will be responsible for figuring out how to spend the money to best help the taxi industry. One idea is to help taxis "adopt new technologies," which probably means using an app to hail a cab. So Massachusetts is robbing Peter to pay Paul so that Paul can learn how to do the thing Peter already does.

Ride-sharing services have little choice but to accept the fee: indeed, they practically have to thank the government for going easy on them. The new law is apparently some sort of compromise—taxi lobbyists wanted Uber banned outright.

Fees like this one are always and immediately passed on to the customer. Lawmakers, in their infinite wisdom, thought they could prevent this by prohibiting ride-sharing companies from charging customers the 5 cent fee. Instead, the companies will pay the government directly. Of course, this will never work in practice. Uber et al will simply find some other excuse to adjust their prices in order to absorb the fee.

Taxing Uber to save taxis is economic idiocy, plain and simple. There's just no good reason for the government to prop up firms that can't succeed in the marketplace on their own: particularly if the government is going to sabotage more successful firms in order to protect the outdated ones. That's something the 19th century French economist Frederic Bastiat understood when he wrote the "Petition of the Candlemakers," a satire of the exact kind of rent-seeking behavior now being employed by taxi companies. The petition concerns a fictitious group of candlemakers who are asking the French government to block out the sun on grounds that it provides unfair competition. The economy would be improved, the candlemakers argued, if the sun could no longer provide light to everyone free of charge—this would create more customers for candlemakers, and thus generate more economic activity.

The argument is nonsense, as Bastiat well understood, because even though the sun's light injures the economic prospects of one rival industry, it increases the economic opportunities for everyone else by liberating them from the financial burden of buying so many candles.

If Bastiat were alive today, he might very well have written "The Taxi Driver's Petition Against the Ride-Sharing App." Nearly 200 years later, governments are still committing the same basic errors of economic reasoning.

Photo Credit: Jaap Arriens/NurPhoto/Sipa USA/Newscom

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  • Hamster of Doom||

    "Government shouldn't be picking winners and losers" is something losers say. I have this on firmest authority.

  • Florida Hipster||

    Coffee is for closers!

  • Hamster of Doom||

  • Florida Hipster||


    An April study found just 6% of Americans have trust in the media.

    News flash: 6 percent of Americans easily fooled...

  • [OMITTED]||

    Thats probably 6% of whatever % still consumes traditional media, otherwise I think would be too optimistic.

  • dchang0||

    Or hard leftists. I know someone who's got a MENSA level IQ but still trusts the mainstream media. Unsurprisingly, he's a Los Angeles-type leftist/progressive.

    Surprisingly, he doesn't think he's a leftist/progressive--he thinks he's in the mainstream and representative of the norm!

  • Hugh Akston||

    Sad!

  • TheseusTheGreek||

    "Nearly 200 years later, governments are still committing the same basic errors of economic reasoning."

    I think you are being generous. I do not believe the politicians involved care about the economics of the legislation. Instead they only care about the politics of it. In other words, whether they think it will be a net gain or net loss in votes, campaign contributions, etc. My guess is that the particular pols involved calculated that the number of voters who would vote based on this issue as opposed to say gun rights or gay marriage was miniscule compared to the benefit they received from taxi companie's campaign contributions.
    If there were some way to reliably align a politicians incentives with economics I think we would find that they are a lot smarter than they currently appear and are quite capable of thinking in an economic manner.

  • Cyto||

    Yeah, it's sad, but people are generally responsive to incentives. That means that politicians in general are venal.

    One would think that hewing to the constitutional theory of enumerated powers would sharply limit this sort of thing. (I would suspect that the Mass. constitution does not include the power to subsidize an industry, even if it includes the power to levy a fee on livery services. )

    I had this discussion a few years back over beers at a backyard barbecue with a half-dozen corporate lawyers. I was questioning the constitutionality of the pyramid scheme that is social security, and they couldn't even grasp what I was talking about. After a few minutes they coalesced around the fact that the government has the right to levy taxes.... but they were stumped when I pointed out that they didn't have the power to just hand that money out as direct payments to a group of folks.

    The constitution gives the government power to spend money collected in taxes, fees and tariffs, but it strictly enumerates the ways in which that money can be spent. Something that seems completely lost on the courts, the legal profession, politicians and most of the public. Absent a "subsidize certain businesses" amendment to the constitution, I can't imagine that Massachusetts is within their authority here.

  • Doctor Whom||

    One would think that hewing to the constitutional theory of enumerated powers would sharply limit this sort of thing. (I would suspect that the Mass. constitution does not include the power to subsidize an industry, even if it includes the power to levy a fee on livery services. )

    The doctrine of enumerated powers in the U.S. Constitution applies to Congress, not the states. The states have general police power.

    After a few minutes they coalesced around the fact that the government has the right to levy taxes.... but they were stumped when I pointed out that they didn't have the power to just hand that money out as direct payments to a group of folks.

    The general-welfare clause has been read almost as broadly as the commerce clause.

  • Deli-bro||

    Not to disagree with you here, but "general welfare" is another one of those phrases that meant something completely different when the constitution was written (much like "militia") and has therefore allowed the government to do basically whatever it wants.

  • kbolino||

    Indeed, no one* would have thought that direct transfer payments to individuals were encompassed under "general Welfare". Such things would have been seen as promoting personal welfare at the expense of general welfare. That's the sort of thing the Founders were pretty clearly against; although, in their day, such concerns were more focused on the nobility receiving grants from the crown rather than "the poor" receiving checks from the public treasury.

    * = except maybe Alexander Hamilton, although one should note that his personal ideology would likely have precluded such programs as we have, even if his views on government power wouldn't

  • kbolino||

    The states have general police power.

    Rather, the states are not forbidden from having general police power by the U.S. Constitution. A state's constitution may not grant such power even if the Tenth Amendment reserves it to the states generally.

    Put another way, your state might have general police power, but mine might not (reserving that power instead to a local authority). Although I don't know if any state has such a rule in effect any more.

  • Cyto||

    The doctrine of enumerated powers in the U.S. Constitution applies to Congress, not the states. The states have general police power.

    right. And each state in turn has a constitution granting it certain powers. In this case I was talking about the Mass. constitution, but bringing in a federal example probably led to some confusion. 1,500 characters ought to be enough for anybody, but it clearly isn't enough for me.

  • kbolino||

    they didn't have the power to just hand that money out as direct payments to a group of folks

    I imagine there are lots of interesting ways for the Courts to devise that would "grant" such a power*, although I'd be curious to see if there's a standing answer to the question of "how does Congress have this power" besides the almighty FYTW.

    * = e.g. the 16th Amendment; if Congress can levy individual income taxes, then it can issue individual refunds -- although that does leave the question of "how can Congress refund more than was paid?"

  • AlmightyJB||

    Sounds like someone is over due for a tea party

  • Hamster of Doom||

    We had a Tea Party. They marched around, were called racists and other dirty things. They got co-opted.

    We had an Occupy. They marched around, were called rapists and other dirty things. They got co-opted.

    And now we have Johnson on the Libertarian ticket and a Trump presidency may happen.

    It's like a great game of Whack-A-Mole.

  • Florida Hipster||

    It's like a great game of Whack-A-Mole.

    I prefer "punch the clown" for my euphuism.

  • Cyto||

    Yeah, don't type that into your search engine.

  • Florida Hipster||

    It's my home page.

  • Citizen X||

    Florida Man Punches Clown; No Survivors

  • Eman||

    "Punch the clown" has GOT to be a masturbation euphemism

  • Eric Bana||

    Yeah, and 70% of Tea Party Supporters opposed cuts to Medicare and Medicaid and 66% opposed cuts to military spending. That's not a very good thing to encourage.

  • Eric Bana||

    Google "McClatchy-Marist Poll National Survey April 18, 2011"

  • eyeroller||

    Taxing the successful to benefit the unsuccessful? The voters will never stand for it.

  • mojoe||

    Here in Massatwoshits?

    They'll INSIST on it.

  • Jerryskids||

    Fees like this one are always and immediately passed on to the customer. Lawmakers, in their infinite wisdom, thought they could prevent this by prohibiting ride-sharing companies from charging customers the 5 cent fee. Instead, the companies will pay the government directly.

    Did they include a provision that the fee couldn't be expensed by Uber? They obviously want to make sure that nickel comes straight out of Uber's profits, the profits Uber is only able to generate through the unfair competition of attracting more customers than the other guys. Remember, fairness is not a process, it's the outcomes. If one competitor gains more customers and more profits than another that's obviously not fair and the government must step in to make sure the level playing field produces equal prizes for all.

  • Cyto||

    Actually, I think "fair" in this instance comes down to "who is under our control and paying a vig to the man?"

  • Jerryskids||

    I think it's a matter of the only tools the state has to work with are hatchet, axe, and saw.

    "Equal opportunity" is a phrase George Orwell would be proud of - enforced unequal opportunity to arrive at equal outcomes. If you can't make the slow guy run faster, you have to knee-cap the fast guy to make him run slower.

  • rudehost||

    +1 Harrison Bergeron

  • gah87||

    "There's just no good reason for the government to prop up firms that can't succeed in the marketplace on their own." If you're the one getting propped up, there are millions of good reasons, each emblazoned with a dead president.

  • Doctor Whom||

    Any disruption that hurts consumers will, of course, the fault of free-market capitalism. Rent-seeking isn't a thing, as is evidenced by the fact that the right-thinking people never even utter that term.

  • Doctor Whom||

    OT: Californians can make their state as dysfunctional as they like, and businesses still won't leave.

    As start-ups across San Francisco and the Silicon Valley try to contend with high salaries and housing costs, many are expanding to lower-cost cities in the West and employing more people like Ms. Rogers. For Phoenix, which is about a 90-minute flight from San Francisco, the Bay Area's loss is its gain.
  • Lee Genes||

    I think a lot of it has to do with the Fed and stock overvaluations. As long as absurd P/E ratios exist and unicorn companies like Twitter can continue to raise money, there isn't a real motivation to save money by leaving. That can't last forever.

  • IWasADemocrat||

    The Fed and the government (mostly federal) can control the total quantity of money.

    But the Fed does not control the distribution of money, where the method of the initial outlet is mostly set by Congress.

    In my opinion, this current setup does create a two-speed economy. I just don't think it's the Fed's fault given its limits.

  • kbolino||

    The Fed drives this in part through very low interest rates. If you remove banking as an avenue for favorable returns, then people will look elsewhere.

  • Krabappel||

    The bubble stays inflated until it doesn't.

  • Deli-bro||

    I occasionally listen to a morning show on my way to work who has governor baker on for a segment every month or so and he takes phone calls and answers questions to his constituents. I can respect that.

    I wonder if anyone will call in to give him shit for this bill. I might try to call in.

  • Eric Bana||

    If you do call in, make sure you've thought it through how you want to word your position. It's easy to get flustered and lose your thoughts under pressure like that.

  • ||

    And no mention of wood pulp

  • ||

    BPR on 89.7. I listen to the same show, if only to see what the liberal derp du jour is.

    You're in our area. Drop me a line and I'll make sure you get invited to the next New England Area Reasonoid gathering.

  • Murray Rothtard||

    "Fees like this one are always and immediately passed on to the customer. Lawmakers, in their infinite wisdom, thought they could prevent this by prohibiting ride-sharing companies from charging customers the 5 cent fee. Instead, the companies will pay the government directly. Of course, this will never work in practice. Uber et al will simply find some other excuse to adjust their prices in order to absorb the fee."

    this is not how economics works. you can't just "pass fees onto the consumer." They reduce the company's revenue, and thus, their profit. if the extra taxes are "passed on" to anyone it is the employees and shareholders of uber, NOT the customers. if uber could simply pass more fees onto consumers that easily, they'd have raised the price there themselves.

    it's still stupid and bad and shouldn't happen. I just hate that reason is peddling that stupid "you can't hurt a company with taxes, just their customers" bullshit.

  • Murray Rothtard||

    /especially in an article that's ostensibly about calling other people economically stupid. Robby, meet kettle.

  • Agammamon||

    Murray, increased prices are passed on to employees, shareholders, *and customers*. Same as with taxes.

    Its just a matter of Uber trying to figure out how to split the new bill.

    There's no guarantee that the customers will have to pay any part of it, but some combination of the three will.

  • Murray Rothtard||

    you can repeat it, but you are still wrong. pricing data (including taxes) flow UP the production chain, not down it. put enough businesses out of business, and i guess you could indirectly raise consumer prices by reducing the supply. but it's important to remember that taxes are simply another cost for a business, and cost has NOTHING to do with pricing. cost has a lot to do with planning your future activity, but price is simply supply and demand. that's why things can and do get sold under cost.

  • kbolino||

    If, as you say, pricing data only flows up the production change, then it affects the supply curve. Which in turn alters the equilibrium price.

    Just because price can be thought of as purely based upon supply and demand curves doesn't mean those curves are unchanging and there aren't feedback effects.

  • kbolino||

    What you're saying reminds me a bit of people who say "inflation is a purely monetary phenomenon". Which may be technically true in some sense, and yet is entirely beside the point. Money and prices aren't in some closed vacuum divorced from other economic factors.

  • Murray Rothtard||

    yes. this is all true. but you see how this is NOT at all what Robby was saying. Robby said that uber is just gonna add 5 cents to every ride and have the consumers pay for it. no company can do this. that's not how it works.

    any increase in consumer price has to come from a supply disruption that occurs as a secondary effect. no business can just go, "taxes went up 10%, let's raise prices 10%."

    my comment was about rejecting that inane simplification. the very fact that you can even engage me in nuance suggests that you agree with my point but are dedicated to being more pedantic than i.

  • kbolino||

    no business can just go, "taxes went up 10%, let's raise prices 10%."

    Well, yes, but that's more because taxes don't make up the entirety of a business's expenses. Robby didn't say the cost would be passed on penny-for-penny to the consumer. That's your interpretation of what he wrote.

    I guess the gist of your counterpoint is that other factors in the supply chain (drivers esp. in this case) will feel the shock of the tax first. Which seems likely but doesn't negate the notion that costs will be passed on to the consumer.

  • Murray Rothtard||

    i think we agree. effects will be felt by everyone: employees and shareholders first, consumers later (as a result of the business adjusting to the new tax.)

    the reason this point bothers me so much is that many pro-business anti-tax people will use the argument "you can't ever tax a corporation, you're just taxing their customers," as an argument against corporate taxation. they fail to see how utterly unpersuasive it is to a pro-tax person. all they hear is, "i'm taxing everyone, and not hurting the business? great! mission fucking accomplished!"

    it's very important to me that people grok that industry-specific taxation does serious, real, direct damage to that industry. the effects felt by the consumers are a result of hampered supply-chain, NOT greedy corporations trying to pass off tax increases.

  • dschwar||

    Actual question from ignorance as I have never used Uber (yet):

    Does Uber provide an itemized statement when you request the ride? In short, can they list the fee as a separate part of your charge as is done with many other franchise services (telephone, Internet/cable, trash pickup)?

  • Stilgar||

    Can we stop with the nonsense of calling Uber "ride sharing" - it is a taxi service. It may use different dispatch and "employment/payment" models than the the taxi system of the 20th century, but it is still a taxi service. What would be better is for local/state govt to de-regulate the existing system. (And then find a way to buy back those medallions)

  • kbolino||

    A lot of places have legal definitions of "taxi service" that do not include Uber/Lyft whether intentionally or incidentally. Calling them as such seems practical (they do more or less the same thing) but may not be legally correct.

  • Agammamon||

    Well - personally I don't care about the feels of the local city councils that regulate taxis. Certainly not enough to care whether or not I'm using their preferred nomenclature.

  • Agammamon||

    This wisdom is why Stilgar is Naib.

    But no one ever asks for the current regulations to go away, only that they apply to more people.

    UPS wants FedEx to be forced to unionize like they are.

    Hospitals support CoN's.

    Taxi companies, instead of expanding into Uber and Lyft as alternative ways to attract customers instead want the apps shuttered. And this one is triply stupid. As a medallion *owner*, why would you care how the guy you're leasing it to makes the payment? And if you're the driver leasing the license, why wouldn't you do what whatever you could to ensure that you're working hours were maximally productive.

    Why wait for dispatch to send you a customer when the customer can contact you directly? Why sit around when you don't have to?

  • Deven||

    Reminds me of how left wing minorities don't really want the boot lifted off the neck of their people, they want it applied equally to everyone else.

    Is there some psychological or sociological term for this? It seems like a very real phenomenon.

  • dantheserene||

    Fuck everyone who bought a medallion thinking they'd have a government-backed and enforced monopoly forever. Live by the arbitrary regulation, die the same way.

  • Robert||

    But it was the only way they could enter the biz.

  • dchang0||

    Then they shouldn't have entered the biz, and since they chose to anyway, let them be the first to suffer the other edge of the double-edged sword.

    Crony capitalists deserve no protections and no sympathy because they already cronied their way into immoral and unethical protections they don't deserve and that harm the taxpayers or consumers with protectionism backed by gov't force.

  • Eman||

    I thought the cronies came with the medallion

  • Robert||

    That's right.

  • loveconstitution1789||

    Great, so Uber Taxi should not have to pay this ride-sharing fee and gets to collect its share of this government scheme to keep government picking winners and losers.

  • Bob Meyer||

    " (And then find a way to buy back those medallions)"

    By providing taxis with monopoly pricing they have already paid the taxi owners for their medallions. The taxi owners would not have "bought" the medallions if the medallions didn't pay for themselves.

    Just deregulate and if the taxi owners don't like competing in a freer market then to hell with them. Let them become honest parasites and go work for the government.

  • Butler T. Reynolds||

    This must be the right thing to do. Wikipedia says that their governor, Charlie Baker, was raised in Massachusetts. They're always bragging about how their schools are the best.

  • loveconstitution1789||

    "The fee was signed into law by Gov. Charlie Baker, another Republican politician with a shaky understanding of what constitutes a truly free market."

    Another RINO claiming to be a Republican in a Democrat dominated state.

  • mojoe||

    Exactly. No other way for a republican to get voted in here.

  • Uncle Jay||

    RE: Massachusetts Will Tax Uber to Subsidize Taxi Industry. That's Absurd.

    We must all reach further in our pockets to subsidize other industries, not just Uber. This way, the old, antiquated and obsolete industries will continue to thrive and prosper. Just think of the possibilities. Now the buggy industry that has been dormant for over a century can return to its proper place as a top 100 company. Muskets can now again enjoy the benefits of subsidies and make an amazing comeback. Togas can make a quick U-turn in fashion. It will only cost billions of dollars of our needless tax dollars. Chariots too will be able to compete once again with the buggy. We can subsidize ships that use oars for movement, and should, since slavery is now illegal, and one would be amiss if one would forget the long past dead industry of spear making. The possibilities are endless as is our tax dollars when it comes to subsidizing failed industries. So let's all give all our money to the elitist ruling filth who are already stealing and embezzling our money so they can give even more of our money to their cronies.
    Won't life be wonderful?

  • Bob Meyer||

    Taxis fall under "The Endangered Species Act" and are therefore entitled to protection from human predators like Uber drivers.

    Sometimes, it's best to let a species die out.

  • ||

    Uber and Lyft are making serious headway in deconstructing public transit systems, and rightly so. Why stand out in the weather for 15 minutes only to have the bus not show up? Having to navigate the interiors which are redesigned to accommodate an influx of people attending the people in wheelchair convention, leaving maybe a dozen usable seats in a 50 person bus? (When door to door paratransit is already available for $3). Exact change only, no digital payment methods. Going from anywhere to anywhere means going to downtown and transferring. A 15 minute uber ride door to door would take 2 hours by bus.

    The city of Charlotte NC is on track to open its 9 mile LRV extension next spring for a mere $1.2 billion. The only obvious users will be UNCC students going "up"town on Friday night to drink. That's only the capital cost, not the operating subsidy. $1.2 billion would have bought a lot of stuff to make Uber and similar systems more efficient like pickup locations, airport staging areas, etc. Getting commuters on uber/lyft would greatly reduce the demand for land for parking garages in the central core - but then again, parking lots are a cash cow to politicians.

  • Gozer the Gozarian||

    That's why the state is called: "Mass of two shits"

  • josh||

    it really doesn't occur to them that they should just deregulate the taxi industry does it?

  • ||

    Next thing, people would start running jitney buses, and before you know it chaos would break out and we would have another triangle shirtwaist factory fire, killing six year olds working in forced slave labor. You don't want that, do you?

  • Trollificus||

    They're also planning to cut power to the containment chambers of any firms engaged in the unregulated capture and detention of ectoplasmic entities...who themselves are lawyering up in anticipation of becoming a federally-protected class. (And no, the separate-but-equal solution of cemetaries is NOT a Title IX-compliant accommodation).

    Mass hysteria, indeed!

  • Akira||

    DE-regulate?? Are you crazy? That would bring to a grinding halt the cycle of making more regulation to mask the problems caused by previous regulations, then making more regulations to mask the problems caused by those regulations, and so on. God, it's like you don't understand politics at all.

  • fiftyville||

    Well, well. If anyone would have said that eminent domain extended to money, I surely would have thought that Massachusetts would be the first to implement it.

  • Eman||

    Seriously mass? Let's get dumb!

  • Animal||

    Already there.

  • jm15xy||

    The Massachusetts Republican Party is great. Some great Mass. Republicans: Romney, Weld, Baker.

  • Rockabilly||

    I live in Taxachusetts - the biggest bunch of fucktards run this state like it's part of the USSR. It took the jackasses 3 years to license a medical marijuana dispensary.
    And the jackass Gov. Charlie Baker, who claims to be from the party of small limited government, is campaigning against re-legalizing marijuana because only a small limited government knows what's best for you.

  • Jimbo||

    Just wait one godamn minute, Rocko! I live in CA and I can assure you Mass is no where near as retarded as CA is. I resent your claim that Mass has more retards than we do!
    "We're #1!"

    Being a nice guy, I will allow you the moniker "we're #2!"

    (Wait a minute...CA is #2 as well...if you know what I mean)

  • jbsnc||

    The anti-freedom governments that rule much of The Banana Republic of North America trashes the spirit of the Constitution in their rule of wealth for themselves and hangers on and payola contributors. Where to turn? The MSM? That's a joke son!

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