During the lame duck session of Congress, transit advocates are working to fix a glaring absurdity: the tax preference given to Americans who drive to work over those who take transit. As it stands now, drivers can avoid federal taxes on up to $250 per month of commuter parking expenses, while transit users are only allowed to claim up to $130 per month in tax-free benefits.
The argument for restoring “parity” between the two benefits – which existed from 2009 through 2013 – is that privileging drivers over transit riders is unfair, and that cutting the cap on tax-free transit nearly in half, as occurred at the beginning of 2014, puts more cars on the road.
All of which is true. But the debate over parity has left a very important question all but unasked: Why is it that taxpayers subsidize commuter parking in the first place?
Today, Frontier Group is partnering with TransitCenter to release Subsidizing Congestion: The Multibillion-Dollar Subsidy that Is Making Your Commute Worse, a new report that takes a clear-eyed look at tax subsidies for commuter expenses and their implications for transportation. It finds that the tax subsidy for commuter parking is both costly – diverting $7.3 billion in federal and state tax revenue each year – and counterproductive.
Indeed, the commuter parking tax subsidy puts about 10 times more cars on the road than the transit benefit removes. The biggest subsidies tend to go to those working in areas where parking costs are highest – usually dense urban cores. And it is targeted at commuters, who are the people most likely to use the roads during peak periods.
In other words, if you wanted to design a public policy to maximize rush hour congestion, you’d be hard pressed to do better than the commuter parking subsidy.
The transit tax benefit counteracts those impacts somewhat, but falls short because it reaches far, far fewer people. While the vast majority of businesses provide free or subsidized parking for employees, only a small percentage of businesses offer transit benefits.
Bumping up the maximum level of the transit subsidy to re-establish equity for all commuters would be a good start, but it barely begins to address the major problems caused by the parking tax subsidy. Rather than trying to create two equal and opposite tax benefits that perfectly cancel one another out – at great expense to taxpayers – we should aspire to have our tax code provide unambiguous support for transportation choices that improve the efficiency of the transportation system and benefit public health and the environment.
Eliminating the current parking subsidy could be an important step in that direction – saving billions of dollars per year while easing congestion. Most Americans would benefit from the move. While the vast majority of us drive to work, most Americans work in places where free parking is so abundant that the IRS considers it without value (that’s a problem for another report). Indeed, the vast majority of American automobile commuters are net losers under current policy because they subsidize the commutes of others, thereby making congestion worse for themselves.
Eliminating the parking tax subsidy would also create space to re-evaluate and improve the transit tax benefit to make it more widely available, equitable and/or effective in motivating smart transportation choices.
At minimum, however, we need the federal government to study the implications of the parking and transit tax benefits. In months of research, we were unable to find even one such rigorous official evaluation of the parking tax subsidy; a costly public policy with tremendous implications for transportation that has been the law of the land for three decades.
A thorough re-evaluation of commuter tax subsidies is necessary if the United States is going to deploy tax dollars wisely in support of true transportation priorities. We hope our new report will start the ball rolling on that discussion.