August 16, 2007

Federal Transportation Policy: At War With Itself?

The federal government is now providing cash subsidies designed to discourage people from driving to work. It's also providing an income tax break that encourages people to drive to work. The New York Times' William Neuman has the story.

The cash subsidy, which takes the form of $848 million in grants to local governments, is a new policy. But the tax break has been around for decades. Here's Neuman on how the tax break works:
Close to 400,000 commuters nationwide — about half of them in the New York City area — take advantage of a provision in the federal tax code that allows them to use up to $215 a month in pre-tax wages to pay for their parking at work... While some drivers use it to pay for parking at commuter rail stations or bus stops, most take advantage of it to pay for parking near their workplace, mostly in city centers.
One transportation policy expert summarizes the problem quite concisely:
“It is perverse,” said Jeffrey M. Zupan, a senior fellow for transportation at the Regional Plan Association in New York. “If you’re going to institute pricing measures that are intended to reduce the amount of driving, you don’t want to keep in place other measures that encourage people to drive. What you want is a set of policies that work together.”
How does this happen? The most obvious answer is that the two contradictory federal policies in question are operating in completely different worlds. One policy (the new local subsidy) shows up on the spending side of the federal government's budget, and is part of Congress' annual discussion of spending priorities. The other policy (the long-standing tax break) shows up on the tax side of the ledger, which means that it's essentially a permanent entitlement. It doesn't have to compete with other spending priorities in the annual federal budget, because it's written into the tax code. But make no mistake-- it is just as much a spending program as are the new subsidies.

A sensible starting point for rationalizing these warring federal transportation incentives would be to put both of these spending programs on the same budgetary footing. Repeal the tax subsidy and turn it into a spending program, which policymakers will have to annually evaluate on its merits right alongside the local subsidies that currently work at cross-purposes with it.

The $848 million subsidy was the brainchild of a bunch of wonks sitting in a room at the Department of Transportation. Those wonks didn't think about the obvious incompatibility between their spending initiative and the existing tax incentives because they're not in charge of the tax incentives-- no one is, in fact. If the tax incentive for employee parking were a spending subsidy for employee parking, it seems likely that this roomful of wonks at the Department of Transportation would see immediately, as part of their annual budget request, that the feds are spending millions of dollars on a program that directly counteracts the impact of a program that probably costs a lot more.

The current federal parking tax break, along with a host of other not-so-bright tax breaks, is discussed in Citizens for Tax Justice's "Hidden Entitlements" report, which you can access here. CTJ's weekly email report, the "Tax Justice Digest," frequently includes a fresh look at specific "Hidden Entitlements." (Click here to read a recent edition, which looks at the federal tax code's hidden entitlements for health care.) You can sign up to receive the weekly digest here.


At 6:59 PM, Anonymous Kristina Cowan said...

I agree with your idea to put both programs "on the same budgetary footing." It makes good sense, and would simplify things for everyone.

I blogged about the same subject--see the link connected to my name, above.

Kristina Cowan
Senior writer

At 9:33 AM, Blogger RogerS7642 said...

This is just one more example of the distortions to the market created by tax breaks and subsidies. Of course, they should be considered together.

Some employers, e.g. The City of Jacksonville, have many different places where people work. Only those who work downtown have to pay for parking, others receive it for free.


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