The Corner

Economy & Business

Massachusetts’s Shakedown of Uber and Lyft

Given an opportunity to drop expensive and not-so-consumer-friendly traditional cab companies, consumers in Massachusetts became fast adopters of ride-sharing companies like Uber and Lyft. Obviously, the cab cartel in the state was not used to competition, and it wasn’t happy. So they turned to their friendly government officials, including Massachusetts’s Republican governor Charlie Baker, for protection — and these guys were more than happy to oblige.

Unfortunately, the way the politicians responded to the call for protection is novel in that it doesn’t even try to pretend it’s not meant to prop up an industry that consumers have turned against and in that it implements a clear redistribution from the sharing economy to the traditional taxi industry.

Reuters reports:

Massachusetts is preparing to levy a 5-cent fee per trip on ride-hailing apps such as Uber and Lyft and spend the money on the traditional taxi industry, a subsidy that appears to be the first of its kind in the United States.

Republican Governor Charlie Baker signed the nickel fee into law this month as part of a sweeping package of regulations for the industry. ..

The law levies a 20-cent fee in all, with 5 cents for taxis, 10 cents going to cities and towns and the final 5 cents designated for a state transportation fund.

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 law says the money will help taxi businesses to adopt “new technologies and advanced service, safety and operational capabilities” and to support workforce development.

If you are disgusted, raise your hand. It’s simply crazy that lawmakers would have the nerve to force innovators to pay a fee to help their competition catch up. Here’s more:

Soliciting readers for how to spend the 5-cent fee, a column in the Boston Globe offered ideas such as hospitality training, incentive bonuses and help so taxi owners could buy “flagship” vehicles like a 1940s Checker or a Porsche.

Meister [the manager of the Boston area’s Independent Taxi Operator’s Association, i.e., one of the taxi-cartel representatives] said the money could go toward improving a smartphone app his association has started using, or to other big needs.

“We definitely need some infrastructure changes,” he said.

That’s legalized shakedown, period.

I guess I shouldn’t be that surprised since this is happening in Massachusetts, a state where Republican governors seem committed to go above and beyond in order to adopt terrible anti-free-market policies (Governor Mitt Romney, I am thinking of you). In this case, Governor Baker is the one who proposed the legislation to regulate Uber and Lyft that includes the new fee. He claims that — wait for it — more regulations will help the state be a leader in innovation technology.

Now, we know that the companies will find ways to shift the burden of the fee unto consumers or drivers. That’s the law of economics and it won’t be suspended simply because the law bars ride-sharing firms from charging drivers and consumers for the fee. You can be sure that this cost will be passed on in other ways. And that includes passing the cost onto many of us who aren’t even living in Massachusetts. That’s assuming that that no other states will decide to implement this particular idiotic measure to protect their own failing traditional cab industry.

Ah yes, I almost forgot: The fee is supposed to go away in 2026. Raise your hand if you are delusional enough to believe that.

I don’t know why I am so upset about this. After all, lawmakers from multiple states have gone out of their way to try to kill the sharing economy and to protect the competition. This law is pretty awful but is it worse than Austin, Texas, making it so hard for Uber and Lyft to operate in the city that they suspend their business there entirely? Is it worse than Seattle’s ordinance giving ride-sharing drivers the ability to unionize? Or attempts by Chicago to force Uber and Lyft drivers to get a chauffeur’s license? I am not sure but this just reinforces my belief that local governments are often the worst tyrants — and that Massachusetts never lacks for creative ways to destroy economic growth.

Update: My colleague Michael Farren Just published a great piece on the issue at U.S News and World Report:

In an impressive sleight of hand, however, the law also mandates that the $0.20 per ride tax cannot be charged to riders or drivers. Such a requirement is economically laughable, since any revenue to pay the tax would have to come from either higher customer prices, lower pay for drivers or reduced service quality. In short, the law essentially requires the ride-hailing companies to print their own money to pay the tax. However, since Massachusetts’ law ends at the state’s borders, the ride-hailing companies will be able to use revenue from the rest of the country to pay for Massachusetts’ tax. So while this law might initially seem like a Massachusetts-specific problem, it affects the rest of the country, too.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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