New York City, the economic, social, and cultural capital of the world, appears to the outside eye as a bustling metropolis. However, the traffic and congestion statistics may tell a far different story about the greatest city in the world. NYC ranks as the 25th most congested city in the world and the most congested in the US. On average, this traffic costs drivers 102 hours of their lives and 1,802 dollars out of their wallets each year. To combat this, Albany, in partnership with NYC leaders, proposed a controversial imposition of a flat tax on market transactions that produce a negative externality, otherwise known as a Pigovian Tax, specifically $9 during peak times and $2.25 overnight on drivers entering Manhattan below 60th street. 

A negative externality of consumption is when the consumption of a good or service leads to welfare loss that is borne by a third party, leading to market failure as a good is overconsumed. NYC’s traffic can be seen as this type of externality, as the overuse of roads impacts the safety, air quality, and overall efficiency of the city as a whole, impacting more than just those who contribute to this externality. This additional surcharge adds an extra cost to driving into midtown; this auxiliary cost will make drivers less willing and able to participate in this activity. Ideally, this tax is equal to the marginal cost of this action, which will lower the consumption of this good to the socially optimum level. Moreover, the “congestion relief zone” will go to fund NYC's Capital Improvement Plan for the MTA (Metropolitan Transportation Authority), aimed at improving the function and efficiency of New York's public transit. 

However, there's a great amount of outrage aimed at this plan. Firstly, this tax indirectly targets those who are forced to travel from outside the city to their place of work. These people do not have substitute options for driving and will now have to pay this tax daily on their commutes. Additionally, this tax may indirectly target lower-income New Yorkers who cannot afford it, while wealthier residents will be able to pay it. For New Yorkers earning less per year, this tax accounts for a greater share of their income, as Pigouvian taxes are flat and not based on consumer income.

As New York faces constant legal challenges from federal and local governments over this tax, it is yet to be seen whether New York's traffic can move just as fast as New York's bustling sidewalks. 



Works Cited

“Congestion Pricing Program in New York - MTA | About.” MTA, congestionreliefzone.mta.info/about.

Friedman, Jordan. “The 10 Most Congested Cities in the U.S.” US News & World Report, U.S. News & World Report, 13 Oct. 2020, www.usnews.com/news/cities/articles/10-cities-with-the-worst-traffic-in-the-us.

Kagan, Julia. “Pigovian Tax: Definition, Purpose, Calculation, and Examples.” Investopedia, 22 Aug. 2024, www.investopedia.com/terms/p/pigoviantax.asp.

TomTom International BV. “Traffic Congestion Ranking | TomTom Traffic Index.” Www.tomtom.com, 2023, www.tomtom.com/traffic-index/ranking/.