American taxpayers pick up New Jersey commuters’ fare

With President Biden’s signature on the Infrastructure Investment and Jobs Act, taxpayers around the country will underwrite New Jersey commuters’ trips to work. The legislation authorizes funds to move forward with the Gateway Project — a $12.3 billion tunnel under the Hudson River to New York. But the long-run beneficiaries won’t necessarily be commuters; they’ll be Jersey real estate developers and New York City employers. 

The Gateway Project is a long-awaited expansion to the 115 year-old North River Tunnel (originally privately built by the Pennsylvania Railroad). It will double the number of passenger rail lines connecting Secaucus Junction Station to Manhattan’s Penn Station, but it won’t increase the number of passengers served. That’s because Penn Station is already at capacity. A $16 billion expansion that would have added more train platforms has been put on hold indefinitely.

In a rhetorical sleight-of-hand, politicians and advocates argue that the project is critical for the U.S. economy. That’s not accurate. 

They begin by stating (factually) that the portion of the country served by Amtrak’s Northeast Corridor – from Washington, D.C. to Boston – produces 20 percent of U.S. GDP. They then posit that the flow of goods and people through the region is critical to this economic activity (which is true, but implies that Amtrak trains are integral for most of this transport). The sophistry is capped off by making a logical leap to the idea that if the North River Tunnel were taken out of service for renovations, it would somehow incapacitate the region’s entire economy.

The truth is somewhat less dire.

On a typical day in 2019, 212,000 passengers passed through the North River Tunnel. Over 88 percent were commuters from New Jersey into Manhattan, with the balance being Amtrak passengers. In other words, the Gateway Project primarily serves the interests of workers and employers in the New York City region, rather than some intrinsic national economic linkage.

A back-of-the-envelope analysis (assuming zero inflation and financing costs, pre-pandemic ridership resumes and remains constant, and project costs are accurate) suggests that the project could easily be funded via a tunnel toll on passengers who actually use the infrastructure. A $5 toll per trip would pay for the project in about 45 years — quite a good deal given that the original tunnels have lasted more than a century. It’s right in line with other existing tolls, too, since a round-trip vehicle toll through the adjacent Lincoln Tunnels costs $13.75. 

But why should New Jersey workers pay for their own commute? Don’t other Americans benefit from infrastructure that is funded by some other taxpayers? The answer is twofold: economic and political.

To maximize economic efficiency (getting the most bang for the buck out of every resource), buyers need to face, or at the very least fully understand, the costs of their purchases. Cost concealment leads to suboptimal choices in which customers fail to accurately gauge how valuable a good or service actually is to them versus its real cost. In undermining the vital information contained in prices, we get greater demand for a subsidized good or service than we’d otherwise see.

In the end, the taxes paid by people across America to fund Amtrak’s new Hudson River Tunnel will eventually end up in the pockets of a privileged few. Underpriced fares lead to greater demand among Jerseyites to live near a subway station, causing even higher housing prices. New Jersey property owners will capture some of this sudden increase to the value of their real estate. But New York City employers will capture some of the value of the subsidy, too, because suburban workers are less likely to demand the higher salaries that they’d need if they paid their full commute cost.

Even worse, the politics of subsidization lead to ever-increasing demands for government-granted privilege. As taxpayers realize what’s happening, they start to demand their own special treatment, funded by other taxpayers. The result, as I described last June, is the fulfillment of the French political scientist Frederic Bastiat’s prediction that government becomes “an entity by which every person tries to live at the expense of everyone else.”

None of this is to say that the Gateway Project, and commuter railways in general, aren’t valuable. Rather, every American should resist politicians’ pandering to voters using other people’s money. I should pay the full cost of my travel, whether I’m riding the Washington, D.C. Metro or driving on the highway, and so should everyone else. 

Michael D. Farren is a research fellow with the Mercatus Center at George Mason University.