If the corrupt politicians didn’t demand $1,000,000 for a ‘medallion’ to drive a cab, then taxis could be much cheaper.
The government doesn't get the $1M.
The reason the prices were so high was because the city capped the number of medallions in 1937. The total number has fallen and risen over the years, but it's still limited: 13,237 in 2009.
The inflated price of medallions is on the secondary market. Since you must have a medallion to operate a cab in NYC, it's a valuable asset.
It's just another example of the law of supply and demand. If you limit the supply and demand goes up, the price will go up. Now that demand is falling, the price is going down.