Unlike Toll Reform, a Sales Tax Really Is a Regressive Way to Fund Transit

Funding the MTA with sales taxes? This is who will end up paying the most for it. Image: Institute on Taxation & Economic Policy
Among New York state residents under 65, poorer households currently pay a far greater share of their income in sales and excise taxes than more affluent households. Chart: Institute on Taxation & Economic Policy [PDF]
The MTA capital program is facing a $12 billion shortfall, according to Comptroller Thomas DiNapoli, and unless that gap is closed, transit riders will end up paying even more to cover the agency’s ballooning debt load. There’s one clear way to address that problem while cleaning up the traffic mess that ensnares motorists, bus riders, pedestrians, and cyclists alike — raising revenue by reforming NYC’s broken toll system. But a leader of Governor Cuomo’s MTA Reinvention Commission appears to favor a regressive option that won’t fix the dysfunction on city streets.

Capital New York’s Dana Rubinstein reported yesterday that Ray LaHood, former U.S. secretary of transportation and co-chair of the commission, thinks Virginia’s transportation funding model is worth considering in New York. “They went from a gas tax to a sales tax,” LaHood told Capital. (Virginia repealed its gas tax in favor of a wholesale tax paid by gas station owners and a sales tax increase paid by consumers, raising $880 million each year.)

Speaking to Brian Lehrer on WNYC this morning, LaHood said he was unfamiliar with the “Fair Plan” promoted by “Gridlock” Sam Schwartz and the non-profit Move NY, which would raise revenue for transit by creating a more rational citywide toll system. LaHood went on to say, “People think [the Virginia sales tax model] has great potential.”

But a sales tax is one of the most regressive revenue-raisers out there. Of the types of taxes states typically levy — on property, income, and sales — “sales and excise taxes are the most regressive, with poor families paying eight times more of their income in these taxes than wealthy families, and middle income families paying five times more,” according to the non-partisan Institute on Taxation and Economic Policy [PDF]. In New York, sales taxes already hit the poorest fifth of the state’s households more than twice as hard as the wealthiest fifth, when measured as a percentage of income [PDF].

Compare that to who would pay under the Move NY toll reform plan: Tolls would increase only for people driving to Manhattan south of 60th Street, while tolls would drop on outer borough crossings. Car owners are wealthier than car-free New Yorkers, and a Move NY analysis shows that drivers who will pay more under the plan have household incomes far higher than transit users. Asking them to pay a higher toll to support train and bus service, while lowering tolls in the outer boroughs, transfers resources from the haves to the have-nots — it isn’t regressive at all.

Is a sales tax the only politically viable option? Not if Governor Cuomo decided to support toll reform. Congestion pricing, after all, passed the City Council and enjoyed good polling numbers when it was linked to affordable transit fares. Tolling the East River and Harlem River bridges came within a handful of votes of passing the state legislature in 2009 — three of the four state senators who blocked it are no longer in office.

The Move NY plan, meanwhile, has the added carrot of toll reduction on outer-borough crossings and is polling better than congestion pricing. City Hall is open to the idea, and the speaker of the City Council, Melissa Mark-Viverito, is one of the most vocal political supporters of road pricing on record. So is her deputy in the council, Brad Lander.

“I don’t know that it’s radioactive,” said Gene Russianoff of NYPIRG’s Straphangers Campaign. “We’re in different times than 2007.”

The Move NY plan would raise an estimated $1.4 billion annually. Transportation economist Charles Komanoff, who crunched the numbers for Move NY, says that raising the same amount through the sales tax would require a hike of approximately 0.7 percentage points in the entire 12-county MTA region. The Move NY plan only affects crossings entirely within the five boroughs. Komanoff estimates that restricting a tax hike to New York City would increase the city’s sales tax by 1.2 percentage points, from today’s 8.875 percent to over 10 percent.

“The sales tax is the most regressive of all major tax instruments,” Komanoff said. “If you wanted to destroy New York City’s economy and its communities, you couldn’t pick a better policy than rejecting the Move NY plan and hiking the sales tax instead.”

Sales taxes already fund a small portion of the MTA’s budget, which relies primarily on tolls, fares, and taxes on payroll, real estate transactions, and petroleum, among other things. Tweaking that formula could be up for consideration in Albany later this year, and members of the reinvention commission say they are examining all revenue options before issuing their recommendations in September.

“It has to be a combination of several mechanisms, and I don’t know what the best combination will be,” said Tri-State Transportation Campaign executive director Veronica Vanterpool, adding that tolls for driving to Manhattan is a “key funding mechanism” because of the larger benefits it creates, like encouraging transit use.

Road pricing offers other benefits a sales tax can’t duplicate. “With bridge tolls comes a reduction in congestion and a lowering of shipping costs and a more rational use of our highways and less pollution,” Russianoff said. “But with a sales tax, generally what it does is makes people without a lot of money agonize over whether they can buy a winter coat for their kids.”

  • Very good article overall, but just to nitpick, your chart at the top is for sales AND EXCISE taxes. It is well known that poor people smoke and drink more than rich people, but these are behaviors with very large negative externalities and therefore quite worthy of taxation despite their regressive nature. It’s like saying that punishing crime is regressive because criminals tend to be poor. While certainly true, this does not mean we should stop punishing crime. I just wonder to what extent the lopsided nature of that chart comes from the excise tax portion versus the sales tax portion.

  • Andy B from Jersey

    You make good points on this but it has long been noted that sales taxes punish the poor much more than the rich which is nothing new here.

    But it is good that you remake this point! Why fund transit with sales taxes when other taxes are more equitable? This is something I wondered about too when traveling out here in the West where cities like Denver, Seattle and Salt Lake have been using such taxes to fund mass transit upgrades.

  • JK

    As MTA Chair, Joe Lhota also thought that sales taxes were probably the most politically palatable way to raise funds for MTA. It would be good to see the Retail Workers union (RWDSU) come out strongly against an MTA sales tax hike now — when it matters most. They rep store workers and working class people.

  • Jeff

    You bring up a good point. Why not fund transit with excise taxes placed on behaviors with large negative externalities? Like say I wanted to move throughout the city in a massive box that spews pollution and makes honking noises. Tax that, and put the proceeds towards transit!

  • Joe R.

    In general we should tax behaviors we don’t want and not tax things we do want. Sales and income taxes both make little sense in today’s world. It makes more sense to do things like tax driving more, perhaps have a wealth tax, and only have sales taxes on luxury, optional items, or highly undesirable behavior like smoking or recreational drug use (yes, it should be legal but taxed heavily). On the flip side, I could make a good argument that there should be a negative tax (i.e. payments) for desirable behaviors such as using bikes or public transit, keeping your weight within certain guidelines, probably a bunch more things I can’t think of at the moment. Taxes are revenue for governments but at the same time they can be used to provide incentives for things which save governments money, or disincentives for things which cost them money.

  • dporpentine

    If you look at the data on the PDF linked to in the caption, you’ll see that sales tax alone (to individuals only) follows exactly the same overall progression, with the bottom 20% paying 3.7% of their income for general sales tax exclusive of excise taxes and the top 1% paying only 0.6%.

    So: no need to wonder.

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Kate Slevin is executive director of the Tri-State Transportation Campaign, and this post was originally published on TSTC’s blog, Mobilizing the Region. If and when the candidates produce transportation platforms, we’ll see whether they acknowledge the truth inherent in many of these proposals: You don’t have to spend big on transportation to achieve big improvements […]