November 4, 2016 | Commentary on Regulation, Property and Economic Rights

Taxi Owners' Roadblocks Un-Fare

Massachusetts lawmakers remain among the nation’s most creative when it comes to dreaming up new taxes. A tax measure passed in August will cleave $1.5 million in profits from ride-for-hire companies and transfer it to their beleaguered competition, taxicabs.

It’s a first-of-its-kind tax measure. Indeed, few other states would even consider robbing Peter to pay Paul, so Paul can use Peter’s money to run him out of business.

But this unprecedented act of political favoritism doesn’t go far enough to satisfy the Boston Taxi Owners Association. The group is now suing Gov. Charlie Baker in federal court over the state’s new ride-for-hire regulations, which are less onerous than taxi regulations. The taxi association claims the ride-for-hire regulations violate the U.S. Constitution, and asks the court to force the state to apply burdensome taxi regulations to ride-hailing services, for the sake of “fairness.”

History shows all’s fair in love and taxi regulations. Beginning in the 1920s, established cab companies, threatened by low-cost jitney services, pressured lawmakers to impose rules that would prevent newcomers from entering markets and lowering prices.

Cities like New York created medallion systems, forcing cabbies to buy one medallion per cab to operate. In 1934, Boston adopted this system and issued 1,500 medallions. Today there are 1,825.

Medallions limit access to the taxi market, protecting owners from new competition. Artificial scarcity allows medallions to appreciate substantially in value (peaking around $700,000 per medallion in Boston), giving owners an incentive to fight to keep regulations that kill disruptive innovations.

It’s why taxi companies have spent decades “investing in politicians” to protect their monopolies, as New York City’s comptroller said last year.

What about consumers? A 2011 report to the Washington, D.C., City Council concluded that medallion systems cause “longer wait times for taxis, more non-responses to phone requests, less clean vehicles, poorer quality of service, and higher fares.” Expert economists have shown Uber’s low- cost UberX service delivers billions of dollars in benefits to riders, with prices well below actual value to consumers.

And when politicians fail them, owners turn to courts.

In 2015, the Boston Taxi Owners Association sued the city, calling its failure to enforce entry barriers against ride-for-hire companies an unconstitutional taking of private property without just compensation. Their argument: Boston’s medallion system afforded owners the “exclusive right to engage in the taxi business.” Apparently, the taxi owners feel they literally own the market.

District Judge Nathaniel Gorton disagreed, noting in a March ruling that regulations “did not provide medallion owners with ‘an unalterable monopoly,’ ” and the “owner of a medallion does not possess a property interest in the transportation-for-hire market itself.”

The association also alleged that allowing ride-for-hire companies to operate without medallions and under less-onerous regulations violates the Constitution’s Equal Protection clause. Now they have rehashed this argument against Baker. Association president Steve Goldberg says medallion owners are “stuck in a very strong regulatory framework.” As they say, be careful what you wish for.

If the lawsuits fail, there’s Massachusetts’ new ride-for-hire tax to prove John Marshall’s point that “the power to tax involves the power to destroy.”

Boston knows. Before the American Revolution, colonists guzzled tea, much of it Dutch, smuggled in to avoid English taxes. The East India Trading Company had long benefited from protectionist regulations, but faced ruin with unsold tea filling British warehouses. Parliament’s 1773 Tea Act was a bailout, furthering efforts to monopolize Colonial tea markets. The citizens of Boston did not take it well.

A replica of The Beaver, one of the three ships that “hosted” the subsequent Tea Party, is docked less than 1 mile from the Massachusetts State House. Doubtless, taxis regularly pass that testament of opposition to tax bailouts and grants of monopoly to political favorites.

But taxi owners have a point. Ride-for-hire and taxi companies should operate under one set of rules: those of free-market economics. It’s time for cities to abandon medallion systems.

About the Author

Jason Snead Policy Analyst
Edwin Meese III Center for Legal and Judicial Studies

John-Michael Seibler Meese Center for Legal & Judicial Studies: Legal Fellow
Edwin Meese III Center for Legal and Judicial Studies

This piece first appeared in the Boston Herald.