Saturday, April 14, 2012

A Proposal for New MTA Revenue by Taxing All Foreigners Living Abroad

The New York MTA is in a semi-permanent state of financial distress. Over the decades this had led to an array of various funding mechanisms that bring needed revenue to the system, but the prospects of new revenues are shaky at best. The state legislature is not exactly forthcoming with new taxes or other money.

Without making normative claims about the structure of MTA finance or transit finance in general, I have a suggestion for new MTA money based on the ideal form of taxation: taxing all foreigners living abroad. The way this would work is that all hotel rooms in New York City (average nightly rate is about $200) would be charged $5 per occupied night, and then the room key would work as a transit pass.

In New York City there are about 90,000 hotel rooms. At an 85% occupancy rate, 76,500 rooms at $5 per night will generate about $140 million annually. Obviously some of this revenue will be offset by fewer tourists and travelers buying MTA fares because the key will be their transit pass, but I suspect that the net gain in revenue will still be over $100 million each year. The fare pass can be limited to only the room key(s) so that families and groups will still have to buy some fares, and visitors not staying in hotels will still have to buy conventional fare passes. Overall this plan can raise a lot of money and is a way that tourism and business travelers can directly improve the lives of New Yorkers by making the transit system more financially solvent. This doesn't solve all of the problems of MTA finances, but will help quite a bit.

This proposal will correct current transit subsidies going to tourists. Since the MTA effectively loses money on each fare paid, tourists who use the subsidies are having some of their travel costs paid by the city and state through MTA operations. By charging travelers for their transit use through a hotel tax the travelers will be paying closer to the full cost of providing transit service.

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