Congestion Taxes

It sounds like an April Fool’s Day joke, but it isn’t:  New York lawmakers have approved a budget that will impose a tax on drivers who venture into Manhattan — one of the most congested driving areas in the world.  Drivers in New York City not only will be cursing the gridlock, now they’ll be paying extra for the privilege, too.

maxresdefaultThe budget deal will create a six-member commission that will set the fee to be paid by drivers who cross into Manhattan below 61st Street.  Because the idea is to use the tax to reduce congestion, pricing is expected to be variable, with higher rates during the peak periods and lower rates at night and on weekends.  Electronic readers will assess the tolls, which are expected to be between $11 and $12 for cars during daylight periods and about $25 for trucks.  The tax is forecast to generate about $1 billion in revenues, which New York lawmakers promise to use to address desperate repair needs in New York City’s subway and commuter rail systems.

Congestion taxes are used in other congested cities of the world, like London, but New York City will be the first U.S. city to adopt them.  And if the taxes work as planned in the Big Apple, it isn’t hard to foresee other congested areas of the country, like southern California, adopting them, too.  After all, local governments are always looking for new revenue sources, and this particular approach can be pitched as a method of using taxes to achieve a virtuous result — reduced road congestion and, if the tax revenues are earmarked, improved mass transit.

I’ve driven through New York City exactly once, in a rental car on a Saturday morning when the roads weren’t bad.  I can’t imagine what how nerve-wracking it would be to drive there on a daily basis — and now to pay special taxes for that added stress.

And here’s what’s interesting, too:  if congestion taxes are, in fact, designed to reduce congestion, that reflects an acknowledgement that taxes influence behavior.  That is, such taxes presuppose that some drivers will forgo taking their cars into the congested zone in order to avoid the tax — otherwise, the tax would have no effect on congestion.  But if taxes do in fact affect behavior, and people take action to avoid taxes, what does that mean for New York and New York City generally, which have some of the highest income taxes and other taxes in the U.S.?