Washington Metro as Wealth-Redistribution Tool

Paging Karl Marx. Karl Marx, please. Three left-leaning think tanks think businesses should be taxed to subsidize lower Washington Metro fares.

The progressive outfits — the Virginia-based Commonwealth Institute, the DC Fiscal Policy Institute and the Maryland Center on Economic Policy — have declared their opposition to a region-wide one-cent sales tax to fund the Washington metropolitan region’s decrepit Metro heavy rail and bus systems. Such a tax would fall disproportionately on poor families, they argue, taking five times the share of income from the bottom 20% of earners when compared to that of the top 1%.

“It does not make sense to add an extra cost to families who already struggle from stagnant wages, rising housing costs, and Metro fare hikes and service cuts,” says the joint position paper. “Black and Latino families are more likely to be living on low incomes than white families, which means that a sales-tax approach would ask communities of color to devote a greater share of their incomes toward fixing Metro.”

Who, then, should pay for Metro, which requires billions of dollars in maintenance and capital improvements to reverse a vicious cycle of poor service, eroding ridership, and declining fare revenue?

“Those who benefit the most should pay the most, including businesses,” say the think tanks. “A strong Metro is critical to a functioning economy. This suggests that businesses should be expected to shoulder a substantial share of the costs, since their success depends on a strong public transit system.”

All businesses should be expected to contribute, whether they are close to public transit or not, since even businesses not near public transit benefit from the reduced traffic that results from having a strong public transit system. Public transit takes cars off the roads and reduces congestion for those who drive.

The think tanks did suggest, however, that localities might consider imposing the biggest taxes on businesses located closest to Metrorail lines. “While it’s likely that these businesses already face higher rents and property taxes because they are in a desirable location, it’s also the case that these businesses have the most to benefit from a strong Metro system.”

The authors also oppose cost-cutting measures such as reducing hours of operation or cutting low-usage bus lines on the grounds that they would fall hardest on low-wage workers and economically disadvantaged communities.

Bacon’s bottom line: Wow. I would be hard-pressed to devise a way of thinking more diametrically opposed to my own. My core principle is that all modes of transportation should be self-supporting to the greatest extent possible, and that those who benefit from a transportation asset should be the ones who pay for it.

The most immediate beneficiaries of the Metro system are the riders — the people who actually use it. In an ideal world, fare box revenue would cover all operating expenses. Politically, that is impossible, of course. A major cause of Metro’s slow-motion fiscal train wreck is that the Washington Metropolitan Area Transit Authority has kept fares excessively low for years, largely on the grounds that higher fares would harm the poor and minorities. Decades of under-funding have led to the situation WMATA now finds itself in.

The absurdity of holding down fares is that it subsidizes fares for the non-poor as well as the poor. If the think tanks and WMATA board members really want to help the poor, then they should find a mechanism that targets low-income people rather than subsidize all Metro riders equally. To the extent that Metro rail serves suburbanites commuting to work in the region’s urban core, many are well-off and can readily afford a fare increase.

The second set of beneficiaries is not the generic business community. While businesses may benefit from proximity to Metro stations, they pay for that location through higher rent. The real beneficiaries are the property owners. A respectable body of thought says that heavy rail can be financed through “value capture” — capturing the increased value of the real estate created by building a Metro station. That value represents a windfall to the property owner who did nothing to create it. Insofar as property owners near Metro stations can charge higher rents, it is reasonable to ask them to pay a real estate tax surcharge out of their higher cash flow. But that’s not what the think tanks are arguing. They advocate charging everyone, including tenants who are already paying higher rents to landlords for the privilege of proximity to Metro.

While it may be true in a very general sense that businesses benefit indirectly from the construction and operation of mass transit, that is no justification for compelling them to subsidize Metro service. Businesses benefit from people having food to eat — why not make them subsidize grocery stores? Businesses benefit from people knowing how to read — why not make them subsidize schools? Businesses benefit from the digital revolution — why not make them subsidize the cost of PCs, laptops and smart phones?

Subsidizing everyone to benefit the poor becomes an opaque and open-ended handout. If left-leaning think tanks want the poor to have more money, perhaps they should help elected officials create a program that precisely targets lower-income Americans and appropriates funds annually in a transparent process visible to all.

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12 responses to “Washington Metro as Wealth-Redistribution Tool

  1. So WMATA “has kept fares excessively low for years, largely on the grounds that higher fares would harm the poor and minorities.” I disagree, at least with “largely.” Seems to me the initial push was to keep fares low in order to boost ridership, given the competition from POVs. Sure, there was political merit in selling the benefits of low-wage urban dweller access to suburban jobs — and that remains an important benefit — but what I remember was all those arguments for out-competing the subsidies lavished on our roads by subsidizing fares (and penalizing parking) more. And then, the cost of those subsidies began to pile up.

  2. I have argued for years– YEARS –that the metro serve businesses by providing transportation to both their employees and their customers.– as big business consolidates their jobs in 1 area– people have to move out because of cost to live close by–the demand for more spaces to operate their companies, raises the cost of the property and drives the poorer people out, making them commute farther & farther as development grows — as well as the cost of those public services needed to allow those businesses to operate in the first place, increasing the cost of living in those cities
    — and the ‘ METRO ‘— which is needed top bring all of those tens of thousand of workers working for our government, consolidated in one section of the country called WASHINGTON DC.– that want to become their own state–as democrats consolidate all of those jobs from all over the country to help their cause–while taking jobs away from other cities all over the country–
    our democratic governor wants to add another tax to fund the job that the businesses should be funding
    all small businesses need to provide their own parking— but NOT the big ones–the taxpayers are expected to fund them— or provide transportation to both the customers & the workers.– for those big boys that donate to those politicians

  3. I do not have the funding answer, but +1% sales tax is probably not it for me. Hitting up business in this area is tantamount to hitting up Uncle Sam, since just about everyone is working for the Gov’t or its contractors.

  4. so what is the difference between “taxing all businesses” and a sales tax or for that matter a VAT? Any tax on a business get bundled into the prices for it’s goods or services.. anyhow..

    but at least now – we at the point of realizing that METRO does need funding and if it is under-funded bad and worse stuff happens…

    I look at other systems like Singapore and similar and they end up being the “property owners” at the stations.. and to me… just like the airports – let the folks who use the stations pay for goods and services – if they want to..just like at the airports.. Some folks will not pay $8 for a sandwich.. others will..

    I also think that SOLO car driving consumes MORE than HOV does in resources and am in favor of tolling SOV and using that money to pay for HOV and transit…

  5. Free the BMW drivers!

  6. First, I never pass up the opportunity to repeat the basic truth that business doesn’t pay taxes, people pay taxes. A tax imposed on a business comes either from the pocket of the firm’s employees, its owner(s) or (most commonly) the customers pay a higher price. Usually it is a combination, but one way or another – people pay it all.

    Second, there is no doubt that a driver on the highway benefits from a mass transit system that keeps other drivers off the highway. There is no question that Metro is a regional economic asset and some of the cost should be passed along to people who do not directly use it, and it should not be 100 percent rider financed. Right now a supplemental regional gasoline tax is one of the mechanisms for that. In Europe the tax on retail gasoline sales is massive compared to the US, and I assume those funds heavily subsidize other forms of transportation.

    Special taxing districts around the stations that capture that increased value make sense. As someone who goes up there very seldom, I’m not going to squawk about whatever they come up with, even a small uptick in the sales tax.

    • Steve – the market determines whether businesses pay taxes or not. In many instances, the cost of taxes is passed along to consumers, but in other cases, they cannot. Back in the 1990s, there was a study that showed home builders could not always pass along the costs of state infrastructure impact fees. If the market was hot, they could. But in many instances, they simply had to accept lower returns on new home sales. And in may cases, they cut the price they offered for land.

      The study also found that lower priced homes often did not recover the costs for impact fees.

      Why should someone in Centerville pay higher taxes so that developers and landlords near rail stations can make bigger and bigger profits. No one should get higher density without paying the costs for the infrastructure that allows the higher density. I find crony capitalism revolting.

  7. There’s an odd continuing dynamic between those that say cities are where modern commerce takes place, where the jobs are , where the infrastructure is to power commerce but transit is “bad” … as well as the fact that most cities are “blue” politically… it’s like it’s just cannot “be”! Cities violate all the basic tenants of “conservatism”.. yet Jim seems to love them… and actually speaks of rural as if that’s a fatal affliction… but the bastion of Conservatism…

    lots of conflicting stuff… 😉

    • Larry, most of the job growth (hopefully better than today) is forecast for the District and NoVA.

      Metro made multi-millionaires of the landowners near rail stations. Yet, at least with respect to the Silver Line, they paid darn little. I’m sick of crony capitalism.

      • That’s politics right? Those “in the know” buy up land at low cost and then when development is approved, that makes them rich. Sort of a combination of insider trading with conflict of interest to push to make the development to happen. Probably ways to get out of paying tax on the huge gains too. But I do not know how to “claw back” the tax on those gains. If there is a way, I am for it.

        • When Gerry Connolly was an SAIC vice president and chairman of the Fairfax County Board of Supervisors, voted as the latter to put an additional station (largely paid for by Dulles Toll Road users) in front of the SAIC campus in Tysons.

          And Democrats and Republicans alike go the Bush administration (43) to fund part of the Silver Line when it did not meet funding guidelines.

          I’m a free market kind of guy who is suspicious of taxes and regulation, but crony capitalism has to be one the greatest wrongs in the world. Had Dante been alive today, those folks would be down deep in the 9th Circle of Hell.

  8. How could I forget?…For Virginia, I favor a NOVA regional gasoline tax increase to help with Metro. My fundamental belief is that Virginia’s low gasoline tax policy negatively impacts NoVA, for a couple of reasons. So let NoVA increase that tax, and rural Virginia can stay happy with the lower gaso taxes they have .

    However, I also see possible merit in business tax especially if it is somehow possible to focus the tax on those businesses/gov’t that depend on the Metro. It would have to be structured in a way to encourage Metro use vs. single driver.

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