The So-Called Cost of Free Employee Parking

A new report from two pro-transit groups, the Frontier Group and the Transit Center, argues that allowing employers to deduct parking costs from their income when calculating their profits (and, thereby, their taxes) represents a $7 billion subsidy to driving. This subsidy, the report claims, adds significantly to highway congestion.

Baloney. First of all, just like providing office space to office workers and factory space to factory workers, providing parking is a cost of doing business. No one would argue that employers should charge their employees rent for the office or factory space they use. Why should employers charge for parking space?

Second, even if this were a subsidy, it has nothing to do with traffic congestion. The report claims that ending the tax break would reduce auto commuting by 2 percent. That’s probably high: just ending the tax break wouldn’t necessarily cause all employers to begin to charge for parking. But even if the number is accurate, the authors clearly don’t understand how congestion works.

The Texas Transportation Institute’s most recent urban mobility report estimates that the time the average commuter wastes in congestion has more than doubled, from 15 hours to 38 hours, since 1982. Yet census data reveal that the average amount of time auto commuters spend getting to and from work has remained almost unchanged at around 25 to 26 minutes each way. These two facts aren’t contradictory; instead, people adjust their lives to deal with increased traffic, such as by moving their homes closer to their work or by picking jobs in less congested areas.

This means that, if ending the parking tax deduction eliminated 2 percent of cars from the road, everyone else would simply adjust their home or work locations to compensate and we would have just as much apparent congestion. This is a version of the so-called induced-demand story, and while I disagree with many of the implications behind this claim (such as that there is something wrong with letting more people go where they want to go), the hidden truth behind it undermines the claim that free parking increases congestion.

(Curiously, in a recent blog post the Frontier Group agrees with the Antiplanner that induced demand is “a good thing” because it means people are making the best use of infrastructure. However, the post goes on to say that induced demand is still bad when applied to highways but not when applied to transit because “the marginal cost of serving an additional transit rider is near-zero” while the costs of adding an additional car to a highway “are significant.” However, when dealing with transit policy we aren’t talking about adding a single transit rider but spending billions of dollars on new transit infrastructure that won’t reduce congestion or particularly help transit riders.)
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In any case, what is really going on with this free-parking report is sour grapes on the part of pro-transit groups. A couple of decades ago, these transit groups claimed that the reason so many Americans drove to work instead of taking transit is that it was unfair that employers could deduct the cost of parking but not the cost of giving transit passes to their employees. Congress fixed that in 1998, so that today, if anything, the tax breaks are biased in favor of transit today. Neither employers nor employees can deduct the costs of commuting by car, but now employers can give their employees free transit passes and deduct those costs from their taxable incomes.

We can see this bias right in the anti-free-parking report. Page 15 estimates that the parking tax break represents a $7.3 billion subsidy per year, while the transit pass tax break represents a $1.3 billion subsidy per year. Since auto commuters outnumber transit commuters by more than 17 times, the tax subsidy per transit commuter, as calculated by the report, is more than three times as much as the parking subsidy per auto commuter.

Yet nationally, this hasn’t led to a significant increase in transit’s share of commuting. Transit’s share grew from 5.12 percent in 1990, before the transit tax break, to just 5.17 percent in 2013. (The Census Bureau collected journey-to-work data in 1990, 2000, and every year since 2005, but not in 1998.)

Since giving tax breaks for transit passes didn’t significantly reduce driving, anti-auto groups are now going after the so-called free-parking subsidy. If parking really were an unfair subsidy, I wouldn’t have any problem with that. But they aren’t arguing that it is unfair, they are falsely claiming that it adds to congestion.

There is a proven economic value to expanding people’s job opportunities and the pool of workers available to employers. Automobiles are roughly twice as fast as transit and so at least quadruple the economic opportunities available to people. Increasing commute costs and times with the hope that it will force more people to switch to transit reduces those opportunities and thereby reduces economic productivity.

If the authors of this report genuinely cared about congestion, they would focus on the one thing we know that can fix congestion: variable-priced tolls. But I suspect they don’t really want to relieve congestion; they just want to get people to drive less.