What’s wrong with free parking at work?
Cities, states, and the federal government are trying to reduce traffic congestion, air pollution, and carbon emissions, but a Catch-22 in the federal tax code works against those goals. The income tax exemption for employer-paid parking subsidizes solo driving to get to work, which is why 81% of American commuters drive alone to get to work.
The tax exemption for employer-paid parking creates three big problems. First, free parking at work increases the number of cars driven to work by about a third, mainly during rush hour. Second, higher income commuters are more likely to get tax-exempt parking subsidies. The tax exemption is also worthless for the 44% of American households who do not pay income tax because of their low income. Third, free parking does not help transit users, who are disproportionately communities of color. In Los Angeles, for example, 92% of metro users are people of color.
Repealing the tax exemption for a popular social benefit is unlikely, but the discussion does not end there. In an effort to reduce driving and increase fairness, the District of Columbia adopted its Changing transportation equity in 2020. If an employer with 20 or more employees subsidizes workplace parking, the law requires the employer to provide an equal benefit to employees who do not drive.
Called “parking withdrawal”, This policy gives commuters the flexibility to choose between free parking or some other benefit of equal value. Commuters can continue to drive and park for free, or they can take the dollar value of the parking subsidy and use it for whatever they want, like using it for rent for a remote apartment. walking or cycling from work.
California enacted a similar cash withdrawal law in 1992. The California Air Resources Board examined the effects of the law in a study of the travel of 1,694 commuters at eight companies in Southern California. the 1997 study found that after employers offered the cash option, solo driving to work decreased by 17%, carpooling increased by 64%, transit use increased by 50 % and walking or cycling increased by 39%. These changes reduced vehicle trips to work by 12%, which is equivalent to taking one in eight cars off the road to get to work. Employers indicated that parking parking was inexpensive, manageable and fair. It also helped them recruit and retain workers.
Complying with the withdrawal law costs employers little because the laws in California and Washington only apply to parking spaces that an employer rents from a third party. When a commuter cash in for a parking spot, the money the employer previously spent on renting the parking space becomes the commuter’s cash allowance, and the business breaks even. After employers offered cash payments for parking in California, the total cost of transportation subsidies only increased by $ 2 per employee per month.
If commuters can choose between free parking or its monetary value, anyone who takes cash and stops driving will be better off (otherwise they wouldn’t choose cash). Even the remaining solo drivers will be better off as the cash payment reduces traffic jams.
While other states and cities could adopt this near-free reform, there is an even simpler solution: change the United States Internal Revenue Code’s definition of employer-paid parking that qualifies for exemption. fiscal.
Here is the current definition of employer paid parking that is tax exempt, followed by the 22 word amendment in italics:
Section 132 (f) (5) (C): QUALIFIED PARKING – The term “qualifying parking” means parking provided to an employee on or near the employer’s business premises. . . if the employer offers the employee the possibility of receiving, in lieu of the parking lot, the fair market value of the parking lot.
Cashing in for parking is a simple change from a traditional social benefit, as it simply gives commuters the choice of how to receive that benefit. If an employer gives commuters a fair deal – free parking or an equivalent benefit – the parking subsidy will continue to be tax exempt. Commuters can get to work and park for free, or they can use the value of the parking subsidy for any other purpose they choose, including a tax-exempt contribution to health insurance or a pension plan . But if an employer gives commuters an unfair offer – free parking or nothing – free parking doesn’t deserve a public subsidy, and its dollar value should be taxable income.
Tax revenues will increase when a commuter chooses taxable money over free tax-exempt parking. In California, federal income tax revenue increased by $ 48 per year per employee offered in cash for parking, as some commuters preferred taxable cash to a tax-exempt parking subsidy. State tax revenues have increased by $ 17 per year per employee.
Cashing in on parking will ensure fairness in travel subsidies, increase the use of public transport, reduce road congestion, improve air quality and reduce carbon emissions. It will also increase tax revenues without increasing tax rates and improve employee benefits without significantly increasing costs for employers. Employers who oppose the opt-out offer will have to defend their right to subsidize only drivers, at taxpayer expense.
Adding 22 words to the Internal Revenue Code can benefit almost anyone, almost at no cost to anyone. Subsidizing people instead of parking will improve tax fairness, transport efficiency, and economic and social justice.
Donald Shoup is a distinguished research professor in urban planning at the University of California, Los Angeles Luskin School of Public Affairs and the author of The high cost of free parking.
Don Pickrell is Chief Economist at the Volpe Center of the United States Department of Transportation and a lecturer in the Department of Civil Engineering at MIT.