Monday, November 19, 2012

Taxing the Lower Classes

President Obama recently won his election with a popular plan to raise taxes on the rich in order to help balance a budget that includes medical care for all citizens. In doing so, he put himself firmly in the Democratic tradition of Franklin Delano Roosevelt's "New Deal" - aimed at helping working people and the unemployed - and the "War on Poverty" of the Kennedys and Lyndon Johnson. 

San Francisco’s supposedly “liberal” Democratic politicians, however, appear to be suffering from dyslexia. They've declared war on the poor instead. 

Having spent several years criminalizing homelessness, they've recently moved on to cab drivers with a plan to take taxi medallions, that had been intended as a reward for drivers who'd worked and served the public for 15 or 20 years, and sell them to pay  down the city’s debt that has been partially created by under-taxing corporations like Twitter. As a result the politicians are effectively turning San Francisco’s taxi drivers, who make about $25,000 a year in a town where the average salary is $63,000, into the most heavily taxed group in the city, possibly the country. 

In addition to grabbing the medallions the City also intends to charge usurious fees for the transfer of a medallion. While New York takes a 5% cut, San Francisco wants from 15% to 33.33% to 50%. In addition, both cab companies and drivers are already paying high and rising business taxes and licensing fees. 

It’s ironic that much of these fees, including money which could go to giving pensions and benefits to drivers, would be used to pay for the benefits and pensions of city employees, many of whom make in excess of $100,000 or $200,000 and upward a year. 

What we here, then, is the opposite of a graduated income tax. Not only that but the amounts involved are humungous and unheard of. Obama only wants to increase taxes on the rich by 3%. This is so bizarre - at least in a democracy - that I don't know what to call it. Taking the racial and ethnic makeup of the majority of cab drivers into account how about, "Robbing the Hood?"

As some of you know, this didn’t just happen by accident. It is the brainchild of former Mayor Gavin Newsom and Malcolm Heinicke, who is currently a Director on the Board of the San Francisco Municipal Transportation Agency (SFMTA). As far back 2005, the pair targeted cab drivers for what Heinicke has called a “revenue stream.” 

However, this was impossible at the time. From 1978 until 2010, taxi medallions were not for sale in San Francisco. They were given out on the basis of one per driver, and the drivers could only keep them for as long as they kept working. In reality, this meant that the driver kept the medallion until he or she died, at which point it would then go back to the city and be given out to the next working driver on the list. Cab companies and medallion owners didn’t like this very much. Between 1979 and 2000 they put six different measures on the ballot to allow the sale of medallions—all of which failed.

In 2007, Newsom backed a ballet measure named Proposition A for “Transit Reform, Parking Regulation and Emissions Reductions.” Tucked away as a rider that wasn’t mentioned in the Voter’s Digest was a paragraph that gave the SFMTA the right to regulate the taxicab business, including the power to supercede  “all previously adopted ordinances.” The SFMTA intended this language to give the agency the power to do anything it wanted.

Prior to the election, Mayor Newsom had publicly promised, that under Prop A, taxi medallions would not be sold. After Prop A passed, Newsom proved himself a politician’s politician and reneged on his vow two months before the law even took effect. In January 2009, he presented a scheme to take all the 1,500 taxi medallions away from the drivers/owners and sell them at an auction to cover San Francisco’s $576 million debt. At the same time, he fought against a 1.395% tax on businesses, including businesses he owned himself.

Newsom caught heavy flack, backed off and set up a series of Town Hall Meetings to study “taxicab reform” under the leadership of Director Christiane Hayashi, who had been chosen to head the MTA’s new Taxi Services division.

Armed with a copy of "Getting to Yes: Negotiating Agreement Without Giving In," Hayahsi amazingly got an industry—where nobody ever agreed with anybody on anything—to compromise on a plan where some medallions would be sold for $250,000 with 15% going to the SFMTA and 5% going to a Driver's Fund. Older drivers were able to “retire with dignity,” younger drivers were able to buy into the business, and a waiting list was kept alive for aging drivers.
Newsom and Heinicke, not surprisingly, wanted to trash the waiting list and the Drivers Fund. But Hayashi somehow convinced them that what Heinicke would later call “appeasement” was better than lawsuits. Thus, a temporary agreement called the Pilot Plan came to be.

The Pilot Plan proved generally popular with the drivers and put over $20 million into the city’s coffers. Everyone assumed that, with a few tweaks, it would be would be enacted into law. Hayashi came out with a tweaked version that most drivers found acceptable. Heinicke, however, found it totally unacceptable and came out with his own plan that would give SFMTA up to 33.33% or 50% of sales in some cases, dilute the drivers fund and kill the waiting list.

Talk about shock and awe! The new plan meant that hundreds of cab drivers, who put in so many years of service, would have their future stolen from them to pay for the benefits of people who make five or ten times more money than they do. 

The drivers protested and the SFMTA backed off. Or maybe not. The scenario keeps changing. Maybe they’ll give out 100 medallions to the list before they kill it. Maybe they’ll give 50. Maybe they’ll give 25. The latest is that they won’t give any “earned” ones but they’ll let 150 drivers buy medallions for $150,000 a piece that they can then sell for $300,000. This means that the drivers will be able to retire someday in the second most expensive city in the country on $150,000 minus interest on loans to buy the medallions and about 25% in taxes

But word on the street is that Heinicke doesn’t want to give any money away. “The medallions are our assets,” he once said,” and we can do what we want with them.” But we don’t know for sure. Heinicke likes to do his planning behind closed doors in violation of San Francisco’s strict Sunshine Ordinance. As he put it in an earlier e-mail to fellow board members:

"... most of all we all need to come to agreement on this (the MTA's plan) as best we can BEFORE IT IS FORMALLY PROPOSED." (my capitalization)

“... we need to get our agreed plan and then sell the Mayor and the Supes."

"... Chris (Hayashi) is significantly limiting the revenue to the MTA and sending more to the amorphous Drivers's fund ... The MTA should get revenue. And, if we do not push for that, we are sacrificing the needs of the City to placate a few cab drivers."

In other words, Heinicke doesn't mind sacrificing the futures of several hundred cab drivers to pay off a debt that they had no hand in creating.  An idea apparently backed by Mayor Lee and the Board of Supervisors - Democrats all.

FDR, Lyndon Johnson and the Kennedys must be turning in their graves.


  1. Here’s what the MTA should do with part of the money they take from the cab industry, and solve many problems along the way:

    1. Develop a smartphone hailing app (e.g. “Open Taxi Access”) and make it freely available to every driver, on an optional basis. If half the fleet used one app, Uber and the rest would never be able to compete for reliability and speed of service.

    2. Abandon the plan for new corporate “temporary full time” medallions. These won’t be needed, and it sends a goodwill message to drivers.

    3. Convert all part-time medallions to full time medallions. This gives the MTA back some of the full time medallions they lost in #2 and gets rid of a category of medallion that won’t be needed.

    4. Create a new class of part-time permit, a “flex taxi” service akin to the current rideshare services. These would be directly linked to the MTA-controlled hailing app and could not take streethails. The MTA could control the number on the streets by issuing “invites” only when the OTA system indicates that demand exceeds the supply of cabs. They could be cabs or private cars distinguished by a detachable sign or decal reading “SFMTA Flex Taxi”.

    This solves the main problem in the cab industry, which is meeting variable demand with a fixed supply. And it improves on the new innovative technologies by bringing them under regulatory control.

    One more thing, the app should not be a concession to a commercial service. It should be open source, so that it could be freely adopted by other cities, and improvements to the app could be made faster and easier than with a proprietary model of development.

  2. the drivers,never agreed to anything,maybe the author is talking about medalion holders,and please forget these apps and computers its all bullshit.

  3. Cab industry going to have a hard time finding drivers pretty soon as the salary for driving a cab is too low, and work and dangers too high.
    City added like what 150 medallions directly to companies recently along, with S peak time cabs, mix in uber and the rest and people gonna find other ways to make money like, delivering pizza being security guards, and other jobs that are a higher level than I just described. Cab driving is seasonal and now in the 4-5 slow months with all these cabs out there who is going to want or be able to do this work as even masochists would starve to death with the economic reality of driving a cab.

  4. Taxing lower classes can put a burden on them. Learn to avoid it

  5. The authority needs to re-consider the tax for lower classes


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