Time To Park The Commuter Tax Subsidy

By :: December 31st, 2013

Am I the only one who thinks today’s commuter tax subsidies are nuts?

The issue is in the headlines because at midnight tonight, thanks to yet another dose of congressional inaction, the amount of pre-tax dollars mass transit commuters can put aside will fall from a maximum of $240 a month to $130. At the same time, people who drive to work will get a boost from $245 to $250 (don’t ask).

Mass transit supporters, not surprisingly, are furious. But the whole flap makes me want to ask: What’s the point of this crazy subsidy?

It can’t be to encourage energy efficiency, cut pollution, or reduce dependence on imported oil.  Using tax dollars to encourage people to drive to work has the opposite effect. And even if the transit tax break is restored to its higher level, the incentive would be roughly the same whether you drive or take the bus. So it is unlikely to change behavior very much at all.

In effect, we are merely giving people a tax break to go to work. Well, some people anyway. If you are an independent contractor or work for a firm that doesn’t offer this benefit, you get squadoosh. Same if you bike or walk to work.  And the less money you make, the less of a windfall you get.

As it stands, the program lards one more subsidy on top of all the other benefits we give drivers. It adds another cost to what society already pays for long commutes in gas guzzling cars--such as pollution and wear and tear on roads and bridges. And don’t tell me about the gas tax. In 2014, the Highway Trust Fund will be solvent only because of a $14 billion transfusion of general revenues, according to the Congressional Budget Office.

But we not only give outsized benefits to drivers, we give them to the richest motorists in the most expensive cities. A top-bracket lawyer can pull his BMW 760Li into the office lot,  pay the monthly parking max of $250, and reduce his costs by about $100 (what the heck, it pays for a round of golf at the club).

Note that the average cost of monthly parking in the U.S. is only about $165 so unless your commuting in a city such as New York, Boston, or San Francisco, you’ll never hit the $250 cap.

But the transit piece may not be much of a bargain either. A woman who cleans that lawyer’s office would save a monthly maximum of $13 under the current schedule—if she’s lucky enough to make it into the 10 percent tax bracket. Even if Congress raises the maximum pre-tax limit to $245 or $250, it wouldn’t do her much good since she’s unlikely to spend that much each month. A typical commuter bus ride in the U.S. is about $2.

Then there is the question of whether this incentive changes behavior in any significant way. Would that bus rider, who may not even own a car, change her mode of transportation without the incentive? Not likely. Better to ditch the subsidy and give her a bit more cash though a more generous Earned Income Credit.

And Beemer guy? He’ll happily pocket the $100 bucks, but would he stop driving without it?

Perversely, even if the subsidies do change behavior on the margin, they may do so in exactly the wrong way by encouraging people to live in more distant suburbs. This is even true for those who take public transit which, in many cities, charges more for longer trips.

There is a good chance the transit subsidy will be restored sometime in the next few months, along with 55 other expiring tax provisions. That will equalize the give-away for those who ride mass transit and those who drive—an improvement over the situation on New Year’s Day. But the whole thing still seems pretty stupid.

 

6Comments

  1. B Klemens  ::  8:32 pm on December 31st, 2013:

    The elasticity of transit ridership is not zero. To give a local example, consider DC’s Metro operator, WMATA. In early 2012, it raised fares an average of ten cents a trip and transit subsidies were cut from $245/month to $130/month. “Given the Authority’s reliance on riders who receive transit benefits (the latest rail passenger survey indicates that two-thirds of rail passengers in the AM peak receive a transit benefit), these changes have had a substantial negative impact on rail ridership.” The year-over-year ridership for the AM peak fell by over 2%, and mid-day ridership (when rides may be more discretionary) fell by over 4%.(*)

    One survey found that 45% of the DC region’s federal workers use the transit benefit program (others may drive, walk, telework, or take Metro without subsidy). On the other side of the equation, another survey reported 35% of trips on Metro are from federal government employees.(**) With the federal government paying the fare for up to a third of Metro’s riders, the transit subsidy is an indirect but very large way in which the federal government funds WMATA’s operating budget, making the subsidy reduction effectively a many-million dollar budget cut for WMATA.

    As for the tax subsidy to help drivers defray what they pay in gas taxes, I dunno….

    (*) Taken from wmata.com/about_metro/docs/Q1 Financial Report.pdf , PDF pp 9–10
    (**) These stats are from older surveys, taken from page 4 of http://smartgrowthamerica.org/documents/wmata-regional-benefits.pdf

  2. Michael Bindner  ::  4:04 am on January 1st, 2014:

    The car companies support this one – big time. Instead of parking and mass transit subsidies (no subsidy will get garage owners to lower prices), raise the gas tax to cover not only roads, the externalities of pollution (distributed to Medicaid and insurance companies), and to fund lower transit fairs (both equipment and operation). Now THAT would be good public policy and would hit the rich harder.

  3. William  ::  10:03 am on January 1st, 2014:

    Almost every tax break is stupid. Trying to marginally change behavior is a losing proposition that lends itself to rent seeking, special interest and corruption…..

  4. Joel Michael  ::  10:01 am on January 2nd, 2014:

    I agree that this makes little or no sense (either or both provisions), if the assumed purpose is to change behavior. I had always assumed there were two primary rationales for this. The first is the difficulty of valuation for the parking benefit, particularly when it is provided in employer-owned facilities and there is not clear market price available in comparable facilities offered by third parties. Second, I assume that the transit benefit was simply provided to offset or equalize the parking benefit. Put another way, if we’re going to subsidize automobile commuters, then, we need to offer similar benefits to transit users so we don’t distort the choice between auto commuting (presumably an environmental “bad”) and transit (an environmentally better alternative).

    I agree with Howard that the best option would be to let this all expire and have employers, employees, and the IRS live with any valuation challenges of the fringe for parking. Of course, that won’t happen. It will get renewed like most of the other expiring provisions, probably in November or December by a lame duck Congress when the tax year is nearly over.

  5. Tax Roundup, 1/6/2014: Start this year’s year-end planning now! And lots more. « Roth & Company, P.C  ::  9:39 am on January 6th, 2014:

    […] Gleckman, Time To Park The Commuter Tax Subsidy […]

  6. John  ::  6:16 pm on January 10th, 2014:

    Many commuters pay more than $245 per month on mass transit, especially in the New York City area. I pay $276 for a monthly Long Island Rail Road ticket, and if I lived farther from Manhattan, I would pay a lot more. Prices are similar for Metro-North and New Jersey Transit. Letting the mass transit subsidy decrease and keeping the parking subsidy high might as well be called the “Screw the Northeast, Chicago, and San Francisco Act of 2014.” That might be the real reason the extension has not happened.