Wednesday, April 1, 2009

Gavin Newsom Tries to Shaft the Ordinary Cab Drivers

Democratic governments ordinarily raise money by taxing either the rich or the middle and working classes. This usually takes the form of fairly large personal or business tax on the lucky few or a smaller sales tax on the many. Ronald Reagan thought that the state could manufacture wealth by eliminating the tax on the rich altogether but we all know how that turned out.

San Francisco Mayor Gavin Newsom recently came up with yet another strategy - creating revenue by imposing an humongous tax on a small group of the working poor. In attempting to force the auctioning of 1,500 taxicab medallions (with "most" of the proceeds going to city coffers), this in effect was exactly what Newsom was trying to do.
  • Taxicab drivers are among the lowest paid workers serving the public.
  1. They put in 50 or so hours per week for $20,000 or $30,000 year - and these figures are from before the economy tanked. Current business is down 30% to 50% or more.
  2. Drivers lease the cabs and thus are not protected by minimum wage laws. On a bad day a driver can actually lose money.
  3. As "Independent Contractors" cab drivers are required pay a 15% self-employment tax. 
  4. As "Independent Contractors" they are unprotected by labor laws and work at the whim of company managers for whom the polite euphemism might be "eccentric" - as in, "Nero was eccentric."
  5. Drivers can be fired or have their contracts cancelled for any reason or no reason at all. Numerous veteran drivers have recently lost their shifts (i.e. jobs) because the managements of Luxor and Yellow Cab decided to convert to long-term leases.
Of course Newsom's tax doesn't directly take money away from the ordinary drivers. How could it? They don't have anything worth taking. What the plan would do would be to destroy any possibility for the average driver to ever own a taxi.
  • Under Proposition K, drivers could sign up on a waiting list and eventually get a medallion transferred into their name on a first come first serve basis. The average waiting time under this system was about 15 years but at the end of that time the drivers finally had some financial security.
  • Newsom's plan to auction off taxis effectively destroys Proposition K.
  • The Mayor claims that his plan would allow drivers on The List to compete in the auctions but realistically very few drivers would be able to come up with the necessary money. Nobody knows exactly what a medallion would sell for in an auction but the estimates begin at $100,000 and I've heard numbers as high as $500,000.
  • If you figure the average time that a driver owns (or holds) a medallion at 20 years: at the current dividend rates of $20,000 per year, Newsom would in effect be taxing the drivers on the waiting list $400,000.
In other words, the average drivers lifetime income would be reduced by 50%.

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