The Scale of the Federal Commute Subsidy

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Quite apart from the equity issues associated with treating car and transit modes equally, it’s worth pointing out that keeping the overall deduction level at $240 per month seems on its face like terrible public policy.

The vast majority of transit users are spending much less than that on their tickets and passes*, so most of the deduction isn’t of much utility. On the other hand, it’s probably not the worst thing in the world to turn a few long-haul drives into commuter rail trips.

Meanwhile, show me a place where employees pay $240 a month to park, and I’ll show you a place with severely constrained car capacity and robust transit alternatives.

Given the current federal fervor for austerity and closing tax “loopholes,” it seems like a broad-based reduction in this tax deduction would have positive impacts on congestion and transit use in the most ideal transit markets, while creating little grief at workplaces that are essentially unserviceable for transit. In an ideal world we’d let the transit subsidy be higher than the parking one, but cutting both is the next best thing.

* I tried to get more precise numbers from APTA, but no luck.




Comments

  1. says

    Yeah, I’ve wondered about this for a while. What’s the history behind this? Did companies used to claim a zillion dollar expenses on employee parking lots or something?

    • John Bailo says

      Remember most parking lots are in corporations located in suburban areas where land is far, far cheaper than in cities. I guess I still don’t understand how you see these lots as “costs”.

      • asdf says

        Even in suburban areas, structured parking is not cheap. I can only imagine what the construction cost per space must be in a typical Microsoft garage. Especially if you amortize the cost of the garage over only the number spaces that are actually filled on a typical weekday, rather than the total spaces, including the empty ones.

      • adam says

        Don’t parking spaces cost around $20,000-$30,000 a spot to build these days? You may not see a cost, but the corporation’s accounting department sure does.

      • David L says

        Most Microsoft parking areas are completely full on weekdays. That was a major reason they developed the Connector. In addition to helping them satisfy local regulatory requirements, it was a vastly cheaper capital investment than major new parking facilities.

  2. David L says

    Remember that Washington, D.C. is a perfect example of “a place with severely constrained car capacity and robust transit alternatives.”

    The federal employees’ unions go absolutely bonkers anytime Congress examines this subsidy. They like the transit subsidy too — they were instrumental in getting it reinstated in full in the fiscal cliff deal. But Washington was a driving and parking mecca three decades before it started to become transit-friendly, and those with the most clout still drive and park. It will be very, very difficult to dislodge this one.

  3. Andrew Smith says

    Meanwhile, show me a place where employees pay $240 a month to park, and I’ll show you a place with severely constrained car capacity and robust transit alternatives.

    To me, it seems that people in the sort of jobs that will pay you $240 a month to park see it as a sort of tax-free income treat. As a high-paid attorney, say, it’s just assumed you are going to drive, so it’s a way of giving you some money tax-free.

  4. redmondrider says

    Potentially stupid question: What is this subsidy? Is it a tax write-off that I can take if I buy my own bus/train passes or that my employer takes if it provides me with an ORCA card? Or is it something where my employer gives me $240 per month and I use that to buy bus/train things?

    • Eric says

      It’s not something you can claim for the expenses you pay out-of-pocket. Your employer is allowed to subsidize your transit or parking at up to $240/month. Anything above that will be considered income and you will be taxed accordingly.

      You don’t have to worry too much about exceeding the limit on transit here. For $240/month you can get a $5.25 PugetPass and still have $51 left over for ferry rides.

    • says

      It can be both. Remember, this is an IRS definition talking about tax deductions for fringe benefits.

      You can buy a transit pass pre-tax, using this deduction. You do need your emplpoyer to participate to set up payroll deductions. It’s like a health savings account, deducted pre-tax on a use it or lose it basis. Since you can easily predict the cost of that pass, it’s not a problem of losing it.

      This ammount also refers to an employer covering the cost of the transit pass – that is also a tax deductible expense, it just depends on where that tax incidence falls.

    • BenW says

      In my workplace, it’s taken out of my paycheck, but pre-tax—so when I had a recurring monthly order, every paycheck (approximately) would get $52 taken out of it before income taxes (but after payroll taxes, I think), and I would get an unlimited-ride pass in the mail each month. In general, people seem to use these to get monthly passes, but you can also get value refills (e.g. get $50 in your ORCA e-purse) or get a special charge card that can only be used by certain vendors.

      I suspect it was originally set up to simplify the taxation of fringe benefits for employers who don’t have the same number of parking spaces that they have employees—they can rent out parking spaces for some employees, or rent out their excess parking, and not have their (and the employees) taxes get enormously more complicated as a result.

      • Bernie says

        This loophole is the exact opposite of simplifying the tax code. It needs to just go away, period. It doesn’t help low wage earners since they see little to no benefit. It puts another complication into the life of small business owners. It does little to promote any sort of desirable social change.

      • Ben says

        Well, I can’t say one way or the other if it’s simpler than what came before, but to be fair to the people who cooked it up, they probably weren’t under any illusions that it was helping low wage earners or small businesses. <wry />

    • David L says

      The employer can either deduct pre-tax from your existing pay or provide the parking or transit as an additional tax-free benefit.

      My employer does a little of both. They pay for $50 of my $90 PugetPass (tax-free to me) and I pay the other $40 through pre-tax payroll deduction.

  5. asdf says

    A reduction in the transit benefit would result in fewer companies giving their employees free bus passes. This results in less ridership not only for work commutes, but for off-peak trips as well.

    Without a pass, it is difficult for anyone with a car to financially justify taking transit for trips where the bus fare costs more than the gas to drive.

  6. Mike Orr says

    It’s for cities with higher transit costs. There are actually places where people shell out $200 or more a month for transit passes or tickets, like greater New York. It’s like the cap in FHA loans. $500,000 will buy you three houses in Dallas or half a house in San Jose.

  7. adam says

    There’s one place I know where the $240 limit would be reached, and I speak from experience: New York City.

    It’s good to know that our fares here in Seattle have a long way to rise before coming remotely close to that limit. Of course, we don’t quite have the “severely constrained car capacity and robust transit alternatives” thing down yet.

    • David L says

      Washington, D.C. is fairly close as well for those who commute all the way from the edges of the Metro system.

    • Eric H says

      The outer zone of the Metra commuter RR in Chicago will run $263.50 for a monthly pass.

      BART doesn’t do monthly passes, but it’s not too hard to find some $12 round trips in their system. Throw in some bus connections and you’re well over $240.

      • Anandakos says

        How does this system program if there is no monthly pass? Is it possible to submit ticket receipts for reimbursement under it?

        Seems to me that BART might be the worst of all possible transit worlds: expensive but not tax favored.

        I do realize that it’s waaaayyyyy fast!. And cool. Well, it used to be; although it still looks great outside because of the unpainted aluminum and plastic shells, it’s very dirty inside now; shockingly and rather disgustingly so.

      • d.p. says

        These are all over BART system nowadays.

        The carpets, windows, and every other interior surface are just as disgusting as you recall.

      • Ben says

        I would guess you can arrange for prepaid tickets , “transit-check,” or similar mechanisms? Given a nice federal tax subsidy, most localities will find a way to let you take advantage of it.

      • BenW says

        And apparently I am accidentally transgressing against the multiple-nic rule today, owing to browser autofill—the above “Ben” and “BenW” posts are all the same person, with apologies (I realized at some point that I should add the W to disambiguate, but apparently that was while using a different browser).

    • djw says

      There’s one place I know where the $240 limit would be reached, and I speak from experience: New York City.

      It’s good to know that our fares here in Seattle have a long way to rise before coming remotely close to that limit.

      Let’s be clear: an unlimited bus-and-subway 30 day metrocard at $104 is providing a lot more transit value than a puget pass of similar cost. NYC transit only would ever go over $240 if you’re commuting from far away on Metro-North. Nothing in Seattle costs that much because we don’t offer anything that valuable.

      • Mike Orr says

        And NYC covers an area with the size and amenities of Seattle, Bellevue, Redmond, Kirkland, Burien, and Southcenter, so you can remain in the city limits there for things you have to go to the burbs for here.

      • BenW says

        Not that far—Rockville Centre on the Long Island Railroad will run you $254, though that will also get you to the evocatively-named “Hicksville.” On the New Haven Line, it looks like $240 would get you a monthly ticket for any station short of Connecticut, though you might then end up paying for parking at the station as well, since the Westchester suburbs aren’t exactly known for their awesome bus connections. So, 45 minute train ride from Grand Central, or probably about the same from Penn? Plus any parking costs on the suburban end, and any subway costs on the NYC end.

  8. says

    For those of you in the SF Bay Area, please check out RidePal’s growing network of commuter shuttle buses. Business class comfort and productivity with WiFi straight to your campus or office park. Pre-tax commuter programs and employer subsidies.

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