Restoring Parity Between Public-Transit Users and Drivers in Commuter Tax Breaks

One of the pieces of good news about the transportation bill passed by the Senate this week is that it restored the tax break for employees who commute by public transportation. This is an important incentive, especially since the tax code has long benefited those who drive their cars by subsidizing parking.

Since 2009, with passage of the stimulus package, drivers, straphangers and those who use van pool) have been able to have $230 deducted pre-tax from their paychecks each month and then reclaim those pre-tax dollars for expenses incurred in commuting. That is, drivers could claim expenses for parking fees while public transit users could recoup expenses for subway, bus, train, and van pool fees. But, effective January, 2012, the $230 was reduced to $125 for public transit users while drivers’ maximum credit was raised to $240, an increase granted to keep pace with cost of living increases.

This is foolish policy, of course. It's a perverse incentive to drive, generating more pollution and fuel use. This is even more wrongheaded now, when one-third of us are paying $4 or more per gallon of gas and that's likely to spread before the year is out. Now more than ever we need options so we don't bust our budgets to get around.

I know I've felt this particularly keenly. When the tax break dropped I immediately saw my commuting costs spike. I live just a few blocks from a train stop and I never drive to work, so I'm among those who got hit when the benefit dropped off a cliff.

Thankfully Sen. Charles Schumer (D-NY), vowed to restore parity and promoted an amendment to the Senate version of the transportation bill that would restore parity in the tax benefit and make it permanent.

While the final bill doesn't extend it permanently, for the next year it sets the benefit at $240 per month for everyone. Employers also benefit from the commuter tax breaks because they don’t have to pay payroll taxes on the amount of money set aside.

The fate of the overarching bill is, of course, far from clear, but it is heartening to see this in the Senate bill.

In terms of policy preferences, parity could be delivered in perpetuity, as Senator Schumer says. Or perhaps transit could be subsidized, not parking, given its benefits to society (fuel savings, less pollution). Another option would be not to subsidize any mode of transportation (a hardship for commuters, to be sure, but that's another way to achieve parity that would deliver fiscal savings).

Or there is always another option long championed by parking policy guru Don Shoup: Parking cashout. Commuters get a tax break – or cash – that they could use in whatever way they wanted – to pay for parking if they drive, to pay for public transit or van pools, or to pocket if they walked or biked. There's evidence that given the choice people will skip driving (scroll down to see table summarizing the studies, courtesy of the talented Todd Litman, here), take transit or another means of travel, and pocket the savings or use it for more fun purposes than renting pavement for a vehicle.

At any rate, with this Congress a one-year extension of parity for transit riders and drivers is definitely a victory worth celebrating. Here, here!

Now we just need the House of Representatives to follow suit. No more delay, pass MAP-21 right away.