Level the Commuter Playing Field By Reducing the Tax Break for Parking

Happy New Year, transit riders! Congress has a special present: Some of you will be getting a tax increase this year.

Some transit riders will get a tax hike this year. Image: ##http://watchdog.org/81498/ohio-bill-increases-penalties-for-assaulting-transit-workers/## Ohio Watchdog##
Some transit riders will get a tax hike this year. Image: ##http://watchdog.org/81498/ohio-bill-increases-penalties-for-assaulting-transit-workers/##Ohio Watchdog##

Legislation that puts tax subsidies for transit commuters on equal footing with car commuters has been allowed to expire by Congress. That means people who drive to work can deduct up to $250 in parking expenses each month from their taxable income. But for transit riders, the new limit is $130.

Last year the two were equal at $245, thanks to some shrewd last-minute maneuvering by lawmakers in New York and Massachusetts. This year, no such luck, straphangers. Drivers, on the other hand, get a little bump up.

Many observers — from outlets including Time and the New Jersey Star-Ledger — have pointed out that this is obviously backward policy. And they’re absolutely right: It’s a bad idea to provide an additional financial incentive to commute by car, which has so many negative consequences for society, from air pollution to increased congestion.

Common sense dictates that at the very least, there should be equity between the tax incentives for transit commuters and car commuters. While the path of least political resistance seems to be to raise the maximum transit benefit again, the fact is that most American transit commuters (though definitely not all) would not be affected by that.

Congress should instead achieve commuter tax benefit parity by reducing the incentive for parking so that it’s equal to the transit tax break, especially since deficit reduction is purportedly a high priority on Capitol Hill.

How is the national interest at all served by a tax break for parking? It’s hard to imagine there are many workers for whom this incentive is essential to afford access to a job. The parking tax benefit is more like a popular but unnecessary perk, enabling car commuters to claim as much as $3,000 tax-free income each year. Meanwhile, we’re slashing food stamp benefits. As a simple matter of social policy, anyone car commuting to a $250 per month parking spot probably doesn’t need a handout.

But commuter financial incentives do affect how we get around. Multiple studies have proven that leveling the playing field between different modes of commuting leads people to drive less and choose other ways to get to work.

Today, it’s the very cities with high land values like Boston and Chicago — places where parking rates reach $250 a month or higher — that most need to reduce congestion and cut the number of cars flowing into the city. Using federal tax policy to subsidize parking in a city like Boston leads people to consume more parking and, in turn, space that could be put to more productive use. But monthly costs for most transit commuters in these cities don’t come close to $250. While commuter rail and express bus passengers might get something out of the higher tax benefit, the vast majority of train and bus commuters won’t.

It won’t be politically popular, but lowering the parking benefit is the smarter way to achieve commuter benefit parity.

As a compromise, there’s a bill with bipartisan support on the table that would create a $220 maximum monthly tax-deductible benefit for parking and transit (and include bike-share as a form of transit). Unfortunately, so far, Congress seems to be less interested in sound policy than in keeping a broken system of incentives. To convince them to take action, sign on here.

10 thoughts on Level the Commuter Playing Field By Reducing the Tax Break for Parking

  1. While we’re at it let’s raise the gas tax and end the mortgage interest deduction and replenish the unicorn population and make it rain cookies and… you get my point… When enough people in America buy into something we don’t call it a subsidy anymore. It’s a right. Only people in the minority receive “subsidies” (unless the minority is rich people).

  2. I attempted to sign on to their letter to my congresspersons, but their boilerplate letter is outdated and makes references that may no longer be valid now that we’re in a new year. (Any hope in getting “Commuter Benefits Work for Us” to update their template?) In the interim, their template does allow one to make edits, so I made some changes for my letter and in case there are others who could get some use out of my revised text, here it is for your copy-and-paste convenience (between the “—” marks):

    I am writing to ask you to support the passage of legislation to establish permanent parity between the parking and transit portions of the commuter benefit. Legislation to establish parity was recently introduced in both the U.S. Senate (S.1112, the “Commuter Benefits Equity Act”) and the House of Representatives (H.R. 2288, the “Commuter Parity Act”). I urge you to co-sponsor this important legislation, and support its final passage as soon as possible.

    At the beginning of last year, as part of the “fiscal cliff” legislative package, Congress enacted a provision to maintain the transit portion of the commuter pretax benefit at $240 per month. (A subsequent IRS cost-of-living adjustment raised the limit to $245 per month.) This important legislation re-established parity between the parking and transit benefits, which had been in place since 2009, to provide commuters who choose public transportation the same tax savings as those who drive to work by allowing them to pay for their commute with pretax dollars. However, this provision expired on 12/31/2013, and because Congress did not act last year to establish permanent parity, or at the very least further extend the current monthly limit on a temporary basis, the pretax transit portion of the benefit once again plunged to almost half the level of the parking benefit on January 1, effectively increasing the cost of riding public transportation.

    A decrease in the monthly limit for the transit benefit could force many commuters out of trains, buses, and vanpools, and back into their cars, which will only lead to increases in congestion, fuel consumption, lost production and wasted time that could be spent on the job or with their families. Establishing permanent parity is especially important as more and more commuters turn to public transportation as a means to cope with high gas prices and to minimize their impact on the environment.

    The transit benefit also provides small businesses and job creators with a financial incentive to help their employees increase their disposable income. This is a perfect example of how targeted and effective federal policy can provide employers with an opportunity to help their employees save money on their commute. Additionally, employers save money because their employees’ gross taxable income is reduced by the amount of the pretax benefit, thereby reducing the employers’ FICA burden. This is money that can be reinvested in their businesses to create new jobs. Congress should continue to support a policy that rewards businesses that are doing the right thing by providing their employees with transportation alternatives.

    For the sake of America’s transit commuters, I urge you to join the bi-partisan and bicameral efforts underway to establish permanent parity between the parking and transit portions of the commuter benefit.

    Thank you in advance for your support of this critical issue.

  3. Just why do drivers get a tax benefit for parking in the first place? What public policy interest does it serve? I don’t get it.

  4. Why not push to just eliminate the parking subsidy altogether? Establishing permanent parity implies that the government thinks that parking is as important as transit.

  5. The easiest thing to do right now is keep the parity. It’s something Congress has done many times in the past.

    However, I agree that eliminating the parity and choosing a new parking subsidy (between $0 and the current amount) is the next goal.

  6. It might be just as easily described the other way around. The way the law works, you pay income tax based on the compensation you receive for your work. They don’t want to count just monetary pay, because many companies give compensation in other forms as well. Certain sorts of compensation get exemptions from income tax – for instance, health insurance up to a certain amount, certain sorts of retirement plans, and some other benefits that we think make sense. Other sorts of compensation get exemptions because we think of them as merely reimbursement for work-related expenses – this is true for things like meals and hotel stays for business travel, and I think transportation costs to and from work make sense here. In general, it costs people money to get to and from work, and we don’t think that people should pay taxes on the reimbursement their employer gives them for this, as long as the employer is reimbursing them for a reasonably-priced means of travel. Thus, it makes sense to allow some reimbursement for a parking benefit, or a gas benefit, or a subsidized transit pass. The question is just what “reasonably-priced” should be taken to mean.

  7. To promote employment in cities, where parking is often expensive, over suburbs, where it is typically free (to the one doing the parking).

    (Personally, I’d rather see suburban parking priced appropriately than a subsidy to counteract a subsidy.)

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