Is the Federal Parking Benefit Worth $7 Billion a Year?

Transit advocates say the commuter parking benefit increases congestion and disproportionately benefits wealthy workers. But getting rid of it won't be easy.
by | November 24, 2014

Tax breaks for commuter parking cost states and the federal government more than $7 billion a year, according to a new report by transit advocates. The entrenched federal policy also makes traffic congestion worse by annually adding 820,000 vehicles to the road.

The groups conducting the study, the TransitCenter and the Frontier Group, called for Congress to end the subsidy, saying the policy increases congestion, disproportionately benefits wealthy workers and undermines efforts to encourage people to take other kinds of transportation to work. "Ideally the decisions we make through our tax code would reinforce our transportation goals and priorities," said Tony Dutzik, a senior policy analyst for the Frontier Group. "This is very clearly an example of a place where that is not happening."

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Randal O'Toole, a transportation and urban land use expert for the libertarian Cato Institute, said eliminating the parking tax benefit could reduce auto commuting. But, he added, "I fundamentally disagree with the report's premise that free parking somehow contributes to traffic congestion." Congestion, he said, is a self-regulating problem. If traffic gets too heavy, people find ways to drive less. If, on the other hand, traffic is reduced, more people will start driving.

O'Toole also defended the parking tax benefits, arguing that providing parking is a cost of doing business just like giving employees workspace, desks or tools. "Employers know that if they charged their employees rent to use their offices, they wouldn't have many employees. In the same way, if they charge their employees to park, many employees would find different jobs," he said.

But Jason Jordan, the policy director for the American Planning Association, said parking benefits also lead to "problematic street design," because they encourage commuting at peak hours. City planners often design streets to handle rush hour traffic. The more traffic they must accommodate, the wider streets become. "If I'm widening local streets to accommodate rush hour traffic," he said, "then it is harder for me to deal with things like bike lanes," bus stops or wider sidewalks.

The tax benefits also encourage the construction of parking facilities that are a problem for neighborhoods, Jordan said. Developers feel the need to provide more parking in their mixed-use projects, which adds substantial costs. Those costs are passed along in the form of higher rents to both commercial and residential tenants, and can make housing more expensive.

The report points out that the federal government's commuter tax benefits -- both for parking and for transit -- disproportionately benefit wealthy Americans. Only one-third of Americans receive the parking tax benefit. They tend to be high-wage earners who drive into expensive city centers. The deduction is also the most valuable, the report found, to high-income taxpayers, because they pay higher tax rates. (Only 2 percent of Americans use the tax benefit for public transit, and most companies don't even offer them.)

For now, eliminating the parking tax break is a political nonstarter in Congress. But the report suggests other changes that, it says, would reduce traffic and make better use of tax money. Those proposals include:

  • Restoring "parity" between the federal government's commuter parking and transit tax benefits. Currently, drivers can use up to $250 a month in pre-tax income to pay for parking. Bus and rail passengers, though, can only use up to $130 per month. Transit users received the same level of benefits as motorists, briefly, but that arrangement expired at the end of 2013.
  • Reworking the transit benefit, so that more people could use it. Few businesses offer the benefit to their employees, but the groups pointed out that Massachusetts lets residents get tax benefits for buying public transportation passes (even those not used for work commutes).
  • Enacting a "cash out" law, like that used in California. The state requires certain companies that provide free rental parking to their employees to pay workers who do not use the parking an extra amount, equivalent to the value of the parking.

The groups behind the report are now pushing for a law that will make parking and public transit tax benefits equal again. The Washington Metropolitan Area Transit Authority attributed a recent ridership drop to the reduced tax benefits for transit riders. U.S. Rep. Earl Blumenauer, an Oregon Democrat, has introduced such legislation, and U.S. Sen. Charles Schumer, a Democrat from New York, has backed it as well.

In the meantime, Donald Shoup, an urban planning professor at the University of California, Los Angeles and author of The High Cost of Free Parking, said other states or the federal government could replicate California's 1992 cash out law. Studies showed that the longer the law was in effect, the more people took the cash benefit rather than the free parking. Established workers who had a house and a car payment would be less likely to use it. But new employees deciding where to live and how to get to work might take the cash benefit and use it to get apartments closer to work, Shoup said.

The fact that workers were willing to take up to $250 in extra cash -- even though it is taxed as additional income -- instead of taking the parking shows that the parking subsidy is inefficient. "It's just proof that the subsidy was wasteful," Shoup said. "It shows money is being wasted on the parking subsidy. Commuters don't think it's worth it. But if they take the taxable cash, the federal and state and city tax revenues go up. I think it would helping the federal government. It isn't increasing taxes, but it is increasing tax revenue."