Last week, an MIT study made headlines for claiming that drivers of services such as Lyft and Uber make an average of $3.37 per hour in post-expense, pre-tax profit. On Saturday, Uber’s in-house economist Jonathan Hall — who, according to his LinkedIn profile, has worked primarily as an economist for tech companies since obtaining a Ph.D from Harvard — posted a rebuttal on Medium, charging that the methodology used to calculate the rate was flawed. Yesterday in an email to Reuters, MIT’s Stephen Zoepf acknowledged the potential faults of the study and promised to re-run his analysis.
It’s troubling that Uber, a private company with an incentive to make itself look good, managed to get one of the authors of an independent study to revisit its findings. But it also distracts from the study’s potentially more damaging takeaway — that making a profit while driving for a rideshare service is contingent upon taking advantage of a per-mile tax deduction that allows a driver to take 54 cents off their taxable income for every mile driven. The paper’s authors write, “If drivers are able to [take advantage of tax law] correctly, then 73.5% of ride-hailing driver profit would go untaxed.” The study also notes that, “Uber’s website provides tax tips for its drivers that includes a list of items for deductions and a recommendation to ‘speak with a tax advisor’.”
There’s real-world evidence that this is indeed the case. In a breakdown at the site The Rideshare Guy — a driver-focused rideshare blog whose 2017 driver survey provided the underlying data for the MIT study — one driver explained how in a weekend where he drove 790.2 miles and earned $476.58, he was able to use the per-mile deduction to pay tax on $53.71 of his earnings. This left him with over $260 in untaxed profits, for a total weekend profit of about $300.
Even if the MIT researchers’ methodology in determining a driver’s per-hour profits was suspect, their paper’s conclusion — which calls the per-mile deduction “a social subsidy for the ride-hailing business model” — is still worth paying attention to. It also might explain why Uber is so hotly contesting this study. After all, if their drivers are making most of their money because of a tax loophole, closing it might put their business model in jeopardy.