Congress Expected to Level Tax Benefit for Transit and Car Commuters

A federal policy that has encouraged Americans to drive to work instead of taking the bus or the train won’t tilt the playing field toward car commuters so much.

Those who take the bus or train to work will soon enjoy the same tax benefits as those who drive. Photo: Wikipedia
People who take the bus or train to work should soon be eligible for the same tax benefits as people who drive. Photo: Wikipedia

A bill that extends provisions of the tax code will permanently set the maximum transit commuter tax benefit at the same level car commuters get for parking expenses. Both classes of commuters can now pay for those costs with up to $255 in pre-tax income per month. The tax deal is expected to clear Congress this week, reports Forbes.

Currently, the monthly pre-tax expense for transit riders is capped at $130, while the cap for parking is set at $250. The mismatch primarily works against commuter rail and express bus services, which can easily cost more than $130 per month.

In recent years, lawmakers went back and forth between temporarily leveling the playing field and stiffing transit riders.

Jason Pavluchuk of the Association for Commuter Transportation applauded the measure, which would take effect in 2016. “This provision will eliminate the financial incentive to drive alone and will increase transit,” he said. “Further, this will help both transit riders as well as drivers who will benefit from less congested roads.”

While commuter tax benefit parity is an improvement, eliminating the benefit entirely would be better.

A report released last year by TransitCenter and the Frontier Group pointed out that commuter tax benefits amount to a gigantic transfer from low earners to high earners, who are best positioned to take advantage of them. Also, the maximum benefit may now be level for individual commuters, but in the aggregate the vast majority of these tax incentives will continue to go toward driving, an enormous subsidy that makes rush hour traffic congestion worse.

  • Brian Howald

    We pay people to drive to work? And have been paying more than for transit?

    Next you’re going to tell me that we allow people to drive on roads for free, or that we don’t charge people for the congestion or pollution they create.

  • Joe Enoch

    This has been such a boondoggle tax benefit. One of my coworkers drives to the office every day and saves thousands every year from this tax benefit. He maxes out the benefit to to pay for parking in Manhattan tax free.

    Even he agrees that its ridiculous that he should get that benefit and said that it would force him to take public transit if they ever got rid of it.

    He said even with a reduced benefit, the incentive is still greater for him to drive.

  • Peter Javsicas

    Wouldn’t that be a helluva shock!

  • calwatch

    The issue is, how do you value the “free” parking normally provided by landlords and businesses on site from a tax perspective? For fringe benefits in general, valuation is at “fair market value” but if the parking was required by the planning code, such as in an office park environment, the FMV of that parking is close to zero (since it is generally placed in a mandated setback, required as a condition to building the facility in the first place, or in an environment where street parking is free).

    Then, it would be considered an unfair subsidy to suburban areas since employees would get “free” parking while center city employees get taxed on the imputed income (i.e., money the employee never sees). Therefore, Congress created the parking benefit to level the playing field between suburbs and cities, and to avoid the convolution of each business owner deciding what the FMV of parking is.

    Transit advocates then saw the unfairness of people getting their parking paid for and not transit, and so got the transit benefit added. The issue there is that commuting expenses are not tax deductible if you drive, but are if you ride transit. This is acceptable in my mind because transit serves national goals like reducing oil dependence and congestion, but creates an inequity, which Republicans tried to address by shorting the transit subsidy.

  • BK

    If you want to make things equitable, how about simplifying the tax code and eliminating both subsidies??? Besides, in the end, it does nothing to change the fact that most people have to drive because mass transit is inadequate and not a practical option.

  • marcgravez

    “Mass transit is inadequate” does not apply everywhere. But I agree that the subsidy should be eliminated or apply to any commuting cost; highway tolls or the cost of any long commute can be expensive too.

  • vgXhc

    In Germany, you can claim a mode-agnostic deduction for commuting costs, based on the distance from home to work place. The mode agnostic part of it is nice, but of course, this system rewards people living far away from their place of work, which is probably not something we would want.

  • calwatch

    The TransitCenter study cited above says that 63% of parking provided has zero fair market value. Which means that 37% does. How do you value that fairly? Valuing parking would be an accounting nightmare, especially for parking provided on site by an employer and not through an arms-length transaction like purchasing parking from a third party. It would make the discussion of employer provided meals seem like grade school.

  • It’s been going on for years. Actually, the transit benefit was lowered, supposedly in the name of cost-cutting, while the parking benefit pork was kept.

  • com63

    Does anyone know the total cost of each of these deductions in the last few years?

  • BBnet3000

    Subsidizing travel for the rich (a majority of people doing itemized deductions are almost certainly above the median income) is ridiculous. If we’re going to do it at all it should be for desirable modes, ie those that improve environmental and safety outcomes.

  • Will Fitzpatrick

    I don’t think you have to itemize deductions to enjoy the tax break. At least for me the deduction is pre-tax and is not included in my “Wages, tips and other compensation” on my W2.

  • gharlane

    This article must be wrong. We couldn’t POSSIBLY be doing that. That would be insane from an economic perspective.

  • Sonny Gunk

    I guess you just want to complain about how your life didn’t work out as expected, but you do NOT have to itemize to get this deduction. It works just like the deduction you get for medical expenses. BTW, NYC just passed a law that any company with more than 30 (might be off on the number) or employees HAS to offer this option. So it helps almost everyone in NYC (you probably assume everyone in NYC is rich, so you probably wont understand what I wrote)

  • BBnet3000

    Wow, would you like some fries with your salt? My life is working out better than expected, thanks. Sorry I mistook this benefit for something else, but I still don’t see the point of subsidizing travel. I have used this benefit in the past and my current job offers it, but at present I don’t use it because I cycle to work, which costs me about $300/yr.

    I don’t assume everyone who lives in NYC is rich, but even with this mandate I suspect there will be a huge skew toward wealthier people taking advantage of this policy. Even if we assume that there’s no skew in using the policy at all, living in this city and riding transit you would likely only be able to take advantage of $116/mo of this offer. Suburban rail riders and drivers (who also skew wealthy) are the only people who can take advantage of the whole thing.

  • dr

    This is not especially true. Most studies indicate that poor people have some of the longest commutes, because they can’t afford to relocate to job centers, or relocate frequently. This is a subsidization of long commutes, which is of debatable value, but the transit benefit is likely to benefit people of lesser means as much or more.

    I would argue for eliminating the parking deducation, which has obvious negative externalities, but the transit deduction likely has positive externalities, and is probably much less regressive.

    Both subsidies support optimal job-matching by decreasing the role transportation plays in decision making.

  • BBnet3000

    http://www.wnyc.org/story/transit-benefits-rich-pay-less-and-poor-pay-more/

    Really wealthy riders could save 50 percent off of the cost of the MetroCard by using pre-tax dollars, while a working-class family would save less than 10 percent, according to Len Burman, the director of the Tax Policy Institute in Washington.

    Your point about job matching is a good one but the discount just isn’t all that steep for low income people.

  • EcoAdvocate

    I doubt the transit deduction will do much at all–and doubt the parking subsidy does either. It’s just handing over cash to people who will likely already make those same commuting choices. Now if they END all personal motor vehicle parking subsidies next year…it still probably wouldn’t have a big impact.
    One thing cites could though: remove parking minimums, allowing for more dense development, which is also supportive of public transit.

  • EcoAdvocate

    the mass transit isn’t as good in many loctations partly because it is so cheap to drive there is more interest in living farther away…we pass along so many subsidies to drivers. From parking requirements which can flood the market with spaces, making them all cheap or “free” cheap subsidized gasoline, a very very low gas tax that hasn’t kept up with inflation/efficiency…

  • EcoAdvocate

    there are other options, such as carpooling, choosing different living arrangements than living so far away one has to drive. Removing this driving subsidy would be a step in the right direction to gradually disincentivize driving (mostly by passing the costs of driving to the drivers, removing the burden from the general tax base)

  • EcoAdvocate

    It’s similar to the largest housing subsidy that the US Gov’t gives: to home owners. Yes, that’s right, most of the housing money is to homeowners, incentivizing something that people want anyway. Why do we do it? Who knows, homeowners tend to vote more?

  • Joe R.

    Good point about subsidizing travel. If anything, I think we should be giving businesses tax breaks for offering telecommuting, flex time, 3 or 4 day workweeks, etc. Those are all things which will help overburdened road and mass transit systems.

  • Flakker

    It’s significantly more in New York City than in most of the rest of the country, because of high, regressive state and local personal income taxes. In that story, as it says, the woman who is the example making $40,000, assuming she is single (and as a city employee she pays city income tax no matter where she lives), is paying 25% of her marginal gross income in personal income tax (not SS and Medicare tax), not 10%. The only state with a higher income tax on low earners I have been able to find is Oregon.

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