The Liberty Papers

There’s an interesting article in the New York Times about the impact that the increased use of electronic toll collection systems like EZ-Pass has had on how drivers respond to toll increases:

There is a stretch of the Garden State Parkway that used to feel like the tollbooth capital of America. In a span of 100 miles – from Pascack Valley, in northern New Jersey, to Barnegat, along the coast – eight different toll plazas greeted drivers. In much of the rest of the country, you wouldn’t find any tolls on a 100-mile stretch.

I spent a good part of my childhood summers at the Jersey Shore, and the tollbooths on the parkway always seemed to be a cruel final obstacle between me and the beach. Every 15 minutes or so, our car would have to stop yet again to drop a measly quarter in a bucket.

(…)

Which raises an interesting question: If you don’t know how much you’re paying for something, will you notice when the price goes up? Or has E-ZPass, for all its benefits, also made it easier for toll collectors to take your money?

The answer, it would seem, is yes:

A young economist named Amy Finkelstein started thinking about these issues a few years ago when she and her fiancé were driving back and forth between Boston, where they were living, and New York, where they were going to be married. So she collected decades of toll records from around the country and found a clear pattern.

After an electronic system is put in place, tolls start rising sharply. Take two tollbooths that charge the same fee and are in a similar setting – both on highways leading into a big city, for instance. A decade after one of them gets electronic tolls, it will be about 30 percent more expensive on average than a similar tollbooth without it. There are no shortage of examples: the Golden Gate Bridge, the George Washington Bridge, and the Tappan Zee Bridge, among them.

“You may be less aware you’re paying the toll,” said Ms. Finkelstein, now an associate professor at M.I.T., “but you’re paying a higher toll than you used to.”

This isn’t entirely surprising. Kellie and I make frequent use of EZ-Pass when we travel to my father’s house in New Jersey (toll booths in Maryland, Delaware, and New Jersey) and to her parents’ in Ohio (the Pennsylvania Turnpike). In both cases, I can honestly say that I have only a vague idea of what the toll actually is and, if I didn’t check my EZ-Pass statement regularly, I wouldn’t know at all. To make it even more “convenient”, the EZ-Pass account is on automatic replenishment and charges my credit card after the balance falls below a certain level. No fuss, no worry. And, quite honestly, there are few alternative routes anyway.

That’s not to say EZ-Pass is all bad, of course. The ability to go through a toll booth without stopping means that traffic flows more freely. In fact, using an EZ pass ny would be a great way to get rid of cash tolls altogether, it would go a long way toward reducing traffic congestion on roads where tolls are collected. Does it mean I don’t pay as much attention to tolls as I used to ? Probably, but, frankly, it’s worth it.

As the author points out, though, EZ-Pass is only one example of the increasingly invisible ways that taxes are collected:

The idea that hidden taxes – and tolls are really a kind of tax – could lead to higher taxes goes back decades. Milton Friedman famously came to regret his role in creating the withholding system for income taxes during World War II, because it eventually made people forget how much they were paying in tax. “It never occurred to me at the time,” he wrote in his autobiography, “that I was helping to develop machinery that would make possible a government that I would come to criticize severely as too large, too intrusive, too destructive of freedom.”

Even economists who don’t share Mr. Friedman’s political views agree with the larger point that how taxes are collected, and not just the underlying tax rate, matters. “We need to take seriously the possibility that people are not paying attention to the tax code,” said Raj Chetty of the University of California, Berkeley, who has been conducting some fascinating experiments on semi-hidden taxes.

Or take the example of real estate property taxes. Most of us don’t pay our bill directly, it is added into our monthly mortgage payment and paid to the taxing authority by the bank.

On some level, our entire tax system depends on this level of invisibility. If people had to write a check every April 15th for the full amount of the taxes they owed, or pay their property taxes on their own. They’d be much more aware of what they are paying, and more likely to question whether they’re getting their money’s worth.

I made this same point earlier this year:

Because of payroll withholding and the fictional “refunds” that people look forward to every April, the true cost of government is never revealed to the public. Yes, you see small amounts of money being taken out of your paycheck, but the impact of having to write a check every year, or every quarter, would be far greater and, as Brad points out, go a long way toward making people more aware of just how much money the government takes from them every year.

As James Joyner points out, of course, these “hidden taxes” appear to be the wave of the future. They are, after all, the center point of the Virginia transportation deal in the form of the so-called “abuser fees.” One can expect to see much more of the same in the future.

Originally posted at Below The Beltway