Transit is economically beneficial; i.e., it creates more value than it destroys. (And set aside whether this is actually true.)
So, here’s an imaginary conversation between The Suburbanist and an enquiring interlocutor (EI):
Suburbanist: An unsubsidized transit fare might be about five dollars, so that’s what users should pay.
EI: That’s nuts. People can’t afford to pay five dollars for a bus ride!
Suburbanist: Sure they can. In fact, they are paying that right now through a combination of fares and taxes.
EI: But taxes are more equitable than fares alone because everyone benefits from transit, so therefore everyone should pay something.
Suburbanist: Everyone also benefits from transit users eating breakfast so they can have the energy to get to work. Should their breakfasts also be subsidized with taxes?
EI: To some extent, yes. That’s why we have food stamps.
Suburbanist: So a parallel policy would be means-tested transit vouchers, and not a general transfer of wealth to anyone who uses transit. (Of course, a less paternalistic policy would be means-tested cash grants to be used as the recipients choose.)
EI: But even if you can afford to pay five dollars, who would? That’s a lot of money! Transit would cease to exist.
Suburbanist: Transit is economically beneficial; there is money to be made by having it. Business are not going to walk away from profits. Salaries would adjust to reflect the shifting burden of paying for transit because real wages are set by supply and demand, and will therefore remain constant regardless of whom the government places the nominal burden of taxation on. It’s a good guess that lower employer taxes (and employer surplus created by transit) would be converted to employee wages. And that lower employee taxes (and employee surplus created by transit) would be converted to higher fares. In the end, those who benefit the most from transit will be paying the most -- instead of the current system where transit is paid for by profitable businesses (and passed along to their employees and customers) only because they happen to be profitable -- regardless of how much they actually benefit from transit.
EI: That still doesn’t seem right, because there will still be businesses who will free-ride on the costs paid by others.
Suburbanist: Not so, because transit is not a public good. The costs can be captured by fares, and then paid by beneficiaries as the actual burden of fare payment filters through the system.
EI: What about people who need transit for reasons other than going to work? How can they be expected to pay five dollars?
Suburbanist: 1) Fares do not need to be five dollars for everyone; transit agencies could practice price discrimination, as airlines do. 2) User taxes will be lower, so that will partially offset the fare. 3) In the longer term, and politics notwithstanding, competing transit companies would try to attract riders by lowering their costs and fares. 4) How can people be expected to pay five dollars for anything? Why single out transit? How do they pay five dollars for a pack of batteries or a pair of socks or whatever?
EI: But what about transit services that are not profitable? Who will pay for those?
Suburbanist: Are you saying that transit is not economically beneficial? Check that opening assumption again and ask yourself why it is essential to provide services that destroy value.