Congress Threatens to Restore Unequal Tax Treatment between Car Drivers and Transit Users
Customers using the popular Metro-North New Haven Line in New York and Connecticut would see fewer tax benefits. Credit: Flickr user HelveticaFanatic (cc)
The decision by the Congress in early 2009 to expand the credit individuals can take out on their income tax returns for the purposes of transit commuting was an important step forward in the effort to improve the federal commitment to alternative modes of transportation. Prior to that decision, while those commuting by car could take advantage of a $230 monthly tax credit on parking, transit users could only declare $120. That was blatantly unfair to public transportation riders, and the law recognized that fact by allowing them to declare as much as drivers.
Now Congressional inaction could revert that sum to the original amount, since the measure was only temporary. If no law is passed before the end of the year, transit commuters will again be treated as transportation inferiors, at least according to the Internal Revenue Service.
The tax credit allows commuters to deduct their monthly spending on transportation, up to a set limit, from their income taxes. The amount people save thus depends on their overall tax rates defined by their income brackets.
It’s worth noting who exactly will be affected by this law. Users of most intra-city transit lines would see no change, since there are few (if any) local systems with monthly passes that cost more than $120. Yet there are plenty of commuter railroads that charge more. People riding Philadelphia’s SEPTA regional rail outside of the city pay between $127 and $191 for monthly passes. On the Metro-North line that runs to Grand Central Terminal, commuters from Stamford set down $258.72 a month—and from New Haven, people pay even more: $386.12.
The Transit Center, which makes its money from the distribution of transit tax rebates, released a report this week that suggests that the total amount commuters will spend could increase costs by 22% on average. This, the study claims, could be enough to reduce transit patronage significantly. That would mean more cars on the road, less economic productivity, and fewer ticket receipts for public transportation agencies.
Fortunately, that may not be a problem. The New York Times quotes Mark Luscombe, principal federal tax analyst at CCH, as saying that “most people people think [the tax credit] is likely to get extended.” Senators are planning to introduce the proposal along with another set of tax issues during the December session, which will take place before the congressional changeover brought on by this month’s elections. If they fail top approve the extension of the credit, they will be implicitly encouraging driving over public transit use through official policy.
Of course, the transit tax benefit has its problems as well. Most of the increase in subsidy will go to people who live in relatively distant suburbs of major cities; this means it’s not much of progressive policy, at least between transit users. And because of its reliance on income tax refunds to distribute commuting subsidies, people who depend on transit but do not hold down steady jobs are generally left out of the game—and they are the people who arguably need transportation aid the most. To be achieved, true transportation equity needs much bigger thinking than the equalization of tax credits.
Yonah Freemark is an Urban Leaders Fellow, sponsored by the Rockefeller Foundation. He writes the Grassroutes column for Next American City. He also writes The Transport Politic blog. Contact him at yonah@americancity.org
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Shawn Towey in Philadelphia, PA on Fri, Nov 19, 2010 at 5:12pm
Just one small detail: Not all pricey commutes are to distant (affluent) suburbs. Here in Philadelphia, the two commuter rail lines near me each have seven stops within the city limits that are in the $127/month zone. My neighborhood is one, and our income level is about average for Philadelphia—a city where one in four people is below the federal poverty level.
Marc on Wed, Nov 24, 2010 at 12:38pm
How about eliminating this subsidy all together - for both auto commuters and transit commuters? This subsidy - in addition to the myriad other indirect subsidies and tax credits out there - just promotes the status quo (urban sprawl) and indirectly encourages people to live as far form work as possible. As the article pointed out so well, most intracity commuters see no benefit from this tax incentive; it is really just one of MANY handouts for the middle class (the same middle class that enjoys inveighing against “big government” these days).
I mistrust any ‘solutions’ that call for increased subsidies, tax credits, and regulations to solve problems (auto-centric travel and urban design) that were caused by subsidies, tax credits, and regulations in the first place! Rather than complicating the tax code in a halfhearted attempt to bring mass transit to an equal playing field with auto travel, we should work to eliminate all subsidies to all kinds of transportation.
If we eliminated all subsidies towards sprawl-centric design and transportation (rather than creating a new layer of subsidies to combat the still-intact old layers) we would find that suburban/exurban living and mandatory motoring would not be economically feasible in most places. More mass transit systems would therefore be able to support themselves.
Many suburban residents who fancy themselves libertarians think the auto-centric lifestyle is a product of the free market and that absolutely no government subsidies are involved. I would love to see an in-depth NAC article that itemizes exactly every indirect and direct subsidy, tax credit, regulation, zoning law, etc. that props up the contemporary suburban lifestyle.
Thomas in Phoenix, AZ on Sat, Nov 27, 2010 at 3:32pm
Transportation will never be a completely free market system, but creating political preferences for one over other transportation options is wrong headed. Why give a credit at all to influence their choice for something that most workers already have to do anyway? If we eliminate special tax treatments for competitive choices, the remaining forces of the free market will influence where our limited tax dollars go. We can have superior transporation options for all needs that are affordable by removing preferential treatment and allow users to choose with their pocket book. It’s not perfect, but its much better than what we have now.