Summary: Current tax rules favor employer-provided parking over employer-provided transit benefits, thereby encouraging individuals to drive to work rather than take mass transit. Increasing the tax-exempt amount of transit benefits that workers get from their employers, however, is unlikely to have a major impact on either transit ridership or drive-alone commuting. First, it is unclear how many additional employers will offer the benefit. Second, not everyone offered the benefit will take advantage of it. Third, proposals to tax the value of employer-provided parking in excess of $145 to $160 per month may not have a major impact because most parking subsidies fall below this taxable range. Over time, the effect could be more significant as the changes in the tax treatment of employer-provided transportation benefits begin to work in conjunction with other changes mandated at the federal, state, and local level to discourage driving to work alone. The recent attempt by Congress to discourage driving alone represents a major departure from earlier federal efforts. Although the societal benefits of relieving congestion, conserving energy, and reducing air pollution are important, limits exist on what can be achieved through changes in tax policy. If proposed changes to the tax treatment of transportation benefits are enacted, the Department of Transportation will need to monitor them to gauge their effectiveness before Congress determines whether more restrictive actions are desirable.
