We Are Subsidizing Rich Suburbanites to Clog Cities With Their Cars

A new report documents the counterproductive effects of the commuter parking tax benefit.

Not a new problem, but an annoying one: The federal tax code encourages companies to provide free parking to their employees by exempting the fringe benefit from taxation. That means the government is subsidizing commuters to drive themselves to work instead of carpooling or taking mass transit or walking or biking or working from home.

The tax break promotes traffic congestion and eats up parking spaces. It’s worth the most to the people in the highest tax brackets. And it’s worth the most in places where parking is the costliest—that is, the places where congestion is the biggest problem. 

Plus, of course, the tax break is money that the government doesn’t collect that could have been used to reduce other taxes or fund other programs.

A new report from TransitCenter, a foundation that says it “works to improve urban mobility,” calculates that the parking benefit is worth up to $1,000 a year for commuters who are in high tax brackets and work in big cities. Collectively, it calculates, the break costs $7.3 billion a year in lost tax revenue. 

True, there’s also a tax benefit for mass-transit commuters that costs the government about $1.3 billion a year. TransitCenter says that while it’s good as far as it goes, “it is overshadowed by the parking tax benefit’s much larger adverse impact.”

If you work in a place where there’s lots of free parking in lots or on the street you don’t benefit from the tax break. That’s because in such places the employee parking lot isn’t an economically valuable fringe benefit; you could have parked for free even if it didn’t exist. The break is only valuable for people who work in crowded areas. So two-thirds of American workers are in effect transferring money to the other one-third.

One obvious option is simply to eliminate the tax break. “Nations such as Australia, Ireland, Austria, and Sweden have established systems for taxing the value of employer-provided parking that could serve as a model for the United States,” says the TransitCenter report.

But the organization seems to recognize that outright elimination of the break is a political long shot. The last time it was seriously attempted was the 1970s, and there was “serious pushback,” the report says, referring readers to this 2014 study for the gory details. (They’re in Appendix B.) 

So it lays out a variety of other options, which are important but unfortunately wonky. They include such things as expanding benefits for other ways to get to work. It’s all in the report, “Who Pays for Parking?”

One last thought: Treating free parking like any other taxable fringe benefit could even, oddly, benefit some commuters by getting them out from behind the wheel. Says TransitCenter: “A growing body of evidence suggests that, compared to drive-alone commuting, workers who walk, bike, carpool, or ride transit to work arrive energized and refreshed, and experience lower rates of mental health issues.”


    Peter Coy
    Bloomberg Businessweek Columnist
    Peter Coy is the economics editor for Bloomberg Businessweek and covers a wide range of economic issues. He also holds the position of senior writer. Coy joined the magazine in December 1989 as telecommunications editor, then became technology editor in October 1992 and held that position until joining the economics staff. He came to BusinessWeek from the Associated Press in New York, where he had served as a business news writer since 1985.
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