Congestion tax, also known as congestion pricing or congestion charges, is a system of surcharging users of public goods that are subject to congestion through excess demand. It is a fee charged to drivers who enter busy city roads during peak hours, with the aim of reducing traffic and pollution while generating funding for public transit systems. The economic rationale behind congestion pricing is that, at a price of zero, demand exceeds supply, causing a shortage, and that the shortage should be corrected by charging the equilibrium price rather than shifting it down by increasing the supply.
In New York City, for example, the congestion pricing plan will charge motorists a fee to drive into the crowded midtown Manhattan, with the aim of raising $15 billion for the citys subways, buses, and commuter rails while reducing traffic and pollution. The surcharge amount depends on the type of vehicle used to provide transportation in or through the congestion zone, and it must be passed through to passengers and reported separately on any receipt given to the passenger. The revenue generated from congestion pricing should be used to improve public transportation and other equitable means of getting around town.
