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Subsidizing Congestion: The Multibillion-Dollar Tax Subsidy That’s Making Your Commute Worse

Posted by Content Coordinator on Wednesday, November 19th, 2014


The federal government provides subsidies through the tax code for employer-provided and employer-paid automobile parking, transit passes, and some other commuter expenses, but it does so in ways that run counter to the nation’s overall transportation goals.

Ultimately, the effect of the tax benefit for commuter parking is to subsidize traffic congestion by parking roughly 820,000 more cars on America’s most congested roads in its most congested cities at the most congested times of day. It delivers the greatest benefits to those who need them least, typically upper-income Americans, and costs $7.3 billion in reduced tax revenue that must be made up through cuts in government programs, a higher deficit, or increases in taxes on other Americans.

The tax benefit for commuter transit only weakly counteracts the negative impact of the parking tax benefit. The transit tax benefit reaches too few people, and the drop in its value compared to that of the parking tax benefit at the beginning of 2014 limits its potential to get cars off the road.

We estimate that the parking and transit tax benefits together account for an estimated $8.6 billion total in forgone federal and state income tax and payroll tax revenue each year. The high cost and significant transportation impact of commuter tax benefits demand that the federal government undertake a detailed evaluation of the benefits and initiate reforms to ensure that they support, rather than hinder, achievement of the nation’s transportation policy goals and fiscal priorities.


The parking tax benefit subsidizes traffic congestion and is costly.

  • The parking tax benefit adds approximately 820,000 automobile commuters to the roads, traveling more than 4.6 billion additional miles per year. Because the parking tax benefit delivers the biggest savings to those working in dense employment centers such as downtowns, and because commuting tends to disproportionately occur during the most congested times of day, the parking tax benefit has the effect of increasing the number of cars on the road at the times and places of maximum congestion.
  • The parking tax benefit represents a $7.3 billion subsidy to a subset of automobile commuters in the form of avoided federal income and payroll tax payments and state income taxes. The federal income tax revenue avoided from the parking tax exemption alone would have been enough to offset nearly two-thirds of the $6.1 billion in federal general tax revenue infused into the Highway Trust Fund in 2012.
  • As a result of the method the Internal Revenue Service uses to calculate the market value of parking, only about a third of American workers receive any tax savings at all from the parking tax benefit. Those beneficiaries tend to work in areas where parking is most expensive (such as downtown business districts), with those in higher-income tax brackets receiving the greatest benefits.
  • Most automobile commuters receive no savings from the parking tax benefit, as they work in areas where free parking is abundant and has no market value. These commuters are net losers under the nation’s current parking tax benefit policy, as they must endure higher taxes or reduced government services to subsidize parking for a minority of commuters in other areas and often must endure increased congestion as a result.



Download full version (PDF): Subsidizing Congestion

About TransitCenter
TransitCenter is an independent, civic philanthropy that sparks innovations and supports policies to improve public transportation. We believe that fresh thinking can change the transportation landscape and improve the overall livability of our cities. We commission and conduct research, convene events, and produce publications that inform and improve the practice of planning, financing, and operating transit.

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