Taxing Commuters Without a Commuter Tax

Lydia DePillis reports on the release of a hot new book on the sexy sexy subject of Finance and Governance of Capital Cities in Federal Systems, detailing the unique burdens such cities face:

Their analysis identified three different ways in which capital cities are organized: Federal districts carved out of two neighboring jurisdictions (including D.C., Canberra, Mexico City, and Addis Ababa), city states (like Berlin and Brussels), and cities within a province or state (Ottawa, Bern, and Cape Town).

The chapter on the District is written by our own Chief Financial Officer Nat Gandhi—or at least his staff—who knows just how hard it is to run a city where 34 dollars out of every hundred earned disappear to surrounding jurisdictions, and much of the most valuable land contributes nothing to the city’s coffers.

“I do not see any possibility of commuter taxes in my lifetime,“ Gandhi said firmly. And then, about gazing out at the monuments from his former office at 441 4th Street: “Lovely, lovely places, but nothing I could tax.”

It always strikes me that DC government ought to be more creative about ways to shift more of our tax burden onto commuters. The idea of a “commuter tax” appeals because it would literally only tax people who use city services but don’t get to vote for City Council. But congress won’t allow it. That said, the essence of the problem is that there are all these commuters in the city every day and it should be easy enough to place higher taxes on things they’re likely to do and lower taxes on things they’re unlikely to do.

For example, taxes on parking garages (including on the value of free parking) could be raised, and the increased revenue could be offset by lower sales taxes. Except instead of lowering sales taxes throughout the city, we could define a “downtown sales tax zone” where the tax stays at 10 percent, and just lower the taxes outside that downtown zone. The upshot would be higher taxes on everyone who drives downtown (a group mostly composed of non-residents) and lower taxes on everyone who buys stuff outside of downtown, a group overwhelmingly composed of residents.

Like with taxing the rich the important thing to realize is that once you abandon absolute purism, it gets much easier to shift the tax burden around. Taxing exclusively the rich is hard to do efficiently. Taxing exclusively commuters is hard to legally. But coming up with taxes that are mostly paid by those people and then lowering taxes that are mostly paid by other people is much simpler.