Research & Commentary: Commuter Tax Subsidies

Published September 21, 2011

With the price of fuel on the rise in recent years, millions of American workers are paying more attention to the growing cost of commuting to work. One of the largest government efforts to subsidize individual costs for fuel is the Qualified Transportation Fringe Benefit.

First implemented as part of the 2009 stimulus bill, the provision allows employers to provide their employees with tax-free transit and vanpool benefits. Originally slated to expire at the end of 2010, Congress voted to extend the benefit through 2011 and increase the limit for the benefit from $120 to $230 per month. The number of workers taking advantage of the commuter benefits remains low, despite strong government and nonprofit efforts to encourage workers to use them.

States are also getting into the game. The California legislature passed a bill to allow regional transportation and air pollution boards in many areas of the state to pass ordinances that would require companies to offer their workers commuter subsidies.

The following articles examine transit subsidies and alternative transportation subsidies from multiple perspectives.

Bill on Governor Brown’s Desk Could Force Businesses to Subsidize Workers’ Commutes
The Contra Costa Times reports on a proposal to require California employers to subsidize workers’ commutes if they travel by public transit, carpools, or other low-polluting methods.

Subsidies for Intracity and Intercity Commuting
This paper analyzes subsidies for intracity and intercity commuting in an urban economics framework with two cities and agglomeration externalities, where workers may commute within and between cities. It finds commuting subsidies serve to internalize agglomeration externalities: Intracity commuting subsidies give incentives to move to the larger city, and intercity commuting subsidies make residents of the periphery commute to the core. The paper also finds that if agglomeration rents are locally captured, commuting subsidies act as a welfare-enhancing transfer from the core to the periphery.

Federal Transit Programs: Spending More and More for Less and Less
Economist Wendell Cox contends the federal transit program and the transit systems it subsidizes are among the most wasteful enterprises in the U.S. economy. Reforming them, he says, should be among Congress’s top priorities.

Commuter Subsidy Extension Unlikely
The Washington Post examines the commuter subsidy that federal employees receive and its chances of being extended by the federal government.

Should Employers Have to Offer Help for Workers’ Commute Costs for Transit, Cycling, and Carpools?
Inside Bay Area examines the reaction from public transit agencies and business groups to California Gov. Jerry Brown’s commuter subsidy bill.

Political Economy of Commuting Subsidies
This study reports that commuting subsidies increase the net income of those with long commutes or high transportation costs. They also affect land rents and therefore the income of landowners. The paper explains how the locational pattern of the two income classes and the distribution of landownership affect public support for commuting subsidies.

Income Tax Benefits for Alternative Commuting Afoot, a group supporting alternative commuting, identifies income tax benefits of the practice.

Commuter Tax Benefits Summary Table
This data chart from the National Center for Transit Research provides details about the Commuter Tax Benefit, including how much a commuter can receive.