New York, New Hades
"Welcome to New York… It's Been Waiting for You!" – Taylor Swift
The setting is New York but it feels like it's hell—or, at least, Hades. Through Travis Bickle's eyes, NYC is a sinful nightmare full of animals, terrible people bent on destroying innocence.
It's kind of a cliché to say that "[Name of place] is like a character in this movie!" but New York really is like a character in Taxi Driver. It's an evil, evil, sketchy character. In a sense, it's Travis Bickle's main antagonist, even more than Sport the pimp (since Sport just crystallizes everything Travis already hates about the city).
In the mid-1970's, when the movie was made, New York (and the rest of the country) were in the middle of a crime and murder wave. Time Square wasn't yet the family friendly home to the Bubba Gump Shrimp Company restaurant or the Hershey Chocolate store—it was basically a giant clot of porn theaters full of illegal activity (it was cleaned up in the early-mid nineties, and went from being one of the worst parts of the city to a part that's fairly safe). The fact that the movie was shot during a heat wave and a garbage workers' strike, with trash piling up on the streets, probably helped bring out the gritty horror and sense of total madness.
Early in the movie, the personnel officer at the taxi company asks Travis if he's willing to drive in Harlem and the South Bronx—two high crime areas in the 1970's. Travis says he's willing to work "anytime, anywhere"—he'll go there. However, he goes there only to fuel his anger with the poverty and crime he witnesses.
For instance, there's a scene where he sees some kids harassing a woman in one of these areas. We also hear some out-and-out racism in the way the other taxi drivers talk—when Travis says that a driver got cut up at 122nd street (which is in Harlem) Wizard responds, "f***in' Mau Mau land." (The Mau Mau Uprising was a rebellion in Kenya in which African rebels killed British colonists.)
In the original script, Travis was essentially a racist—everyone he killed in the final scene, including Sport, was supposed to be black. However, Scorsese wisely changed this, in order to avoid the impression that the movie itself had a racist message. Nonetheless, we can still see elements of this in Travis' attitudes towards the African-American parts of New York—like when he gets distracted by some African-American pimps in the diner where he's hanging out with the other taxi drivers and stares at them.
An Open Sewer
Locations in Time Square are also featured in the movie. Travis drives by the Terminal Bar—a famously rough dive bar—and hangs out in Time Square porn theaters. (He tries to hit on the concession girl at one of these theaters, but we get the sense that she has to deal with guys like this all the time.)
None of these locations inspires any genuine affection in Travis, obviously—especially because the porno theater date turns out to be the nail in the coffin of Travis' and Betsy's fledgling relationship. The effect of these neon-lit mini-settings is to add to the sense of desperation and emptiness that pervades the movie.
Travis' apartment is another location in the movie that heightens a sense of despair and emptiness. It's small, but, hey, that could describe pretty much any apartment in NYC, and totally bleak. Also, the room where he visits Iris has an unusual vibe—it's technically not very nice at all, but it has lots of candles burning in it. Maybe this is because Travis views Iris as an almost religious symbol of abandoned innocence?
Travis sums up his feelings about his environment in a speech he gives when he picks Charles Palantine up in his cab:
"Whatever it is, you should clean up this city here, because this city here is like an open sewer you know. It's full of filth and scum. And sometimes I can hardly take it. Whatever-whoever becomes the President should just [Travis honks the horn] really clean it up. You know what I mean? Sometimes I go out and I smell it, I get headaches it's so bad, you know... They just never go away you know... It's like... I think that the President should just clean up this whole mess here. You should just flush it right down the f***in' toilet."
That's how Travis feels about his environment—it's an abomination, and there's no solution but to destroy it. By the time the movie ends, there's no real indication that he feels any different.