When I was much younger and far less aware of the complex interactions of governance and political culture, I was very critical of America’s use of the tax system to influence behavior. If the government needs X dollars to pay for the services we want that government to provide, why not simply set a rate or rates sufficient to collect those dollars? Why include provisions–aka “loopholes”–intended to promote or discourage targeted behaviors?
I’m still aware of the considerable pitfalls of using tax policy to mold desired behaviors; after all, we humans remain blissfully ignorant of the ways in which human incentives/disincentives actually work, and far too often, a provision intended to produce outcome A turns out to produce an altogether unanticipated and negative outcome B.
That said, I’ve reluctantly come to admit that carefully crafted and thoughtful policies can advance important goals. My husband recently shared with me an article from Bloomberg, reporting on one such success.
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 these goals. The income tax exemption for employer-paid parking subsidizes solo driving to work, which helps explain why 81% of American commuters drive to work alone.
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, mostly at peak hours. Second, higher-income commuters are more likely to get tax-exempt parking subsidies. The tax exemption is also worth nothing to the 44% of American households who pay no income tax because of their low incomes. Third, free parking doesn’t help transit riders, who are disproportionately communities of color. In Los Angeles, for example, 92% of Metro riders are people of color.
Repealing the tax exemption for a popular fringe benefit is unlikely, but the discussion doesn’t end there. In a bid to reduce driving and increase fairness, the District of Columbia enacted its Transportation Benefits Equity Amendment in 2020. If an employer with 20 or more employees subsidizes parking at work, the law requires the employer to offer an equal benefit to employees who do not drive.
Called “parking cash out,” this policy gives commuters flexibility to choose between free parking or another benefit of equal value. Commuters can continue to drive and park free, or they can take the cash value of the parking subsidy and use it for anything they want, such as putting it toward the rent of an apartment within walking or biking distance of work.
California enacted a similar cash-out law in 1992. The California Air Resources Board examined the law’s effects in a travel study of 1,694 commuters at eight firms in Southern California. The 1997 study found that after employers offered the cash option, solo driving to work fell 17%, carpooling increased 64%, transit ridership increased 50%, and walking or biking increased 39%. These changes reduced vehicle travel to work by 12% — equivalent to removing from the road one of every eight cars driven to work. Employers reported that parking cash out was cheap, easy to manage and fair. It also helped them to recruit and retain workers.
This appears to be an example of policy done right: it was simple and easily understandable, it corrected inequities in the existing tax structure, and perhaps most importantly, there was ongoing monitoring by California–research to confirm (or not) that the policy change was working as intended. (One of the frustrations of policymaking in the U.S. is the usual lack of such follow-up and the difficulty of changing or abandoning interventions that have proven to be counterproductive.)
It’s getting more and more difficult for the science deniers to ignore climate change. As California and Oregon burn, as Miami spends billions of dollars trying to elevate its airport above the encroachment of the ocean, as national and international weather patterns become more and more destructive, it becomes critically important to identify and enact policy interventions that retard or at least minimize our more ecologically destructive human behaviors.
That may mean that the tax code continues to be considerably less than straightforward, but I guess I can live with that…..
Why is it so hard to fix the tax system? Why is a flat tax based on income for EVERYONE so hard to make law? It would truly be the fairest way to finance all the things we need to do.
But oh wait, the powerful, wealthy, politicians don’t give a hoot about what is fair or right, regardless of political affiliation.
This discussion makes me wonder if our nation should at least consider stopping the BILLIONS in tax subsidies for the Oil – Gas – Coal industries. WHY on earth are we providing massive subsidies to these folks? Where is the public good? This is just welfare for the super wealthy.
Patmcc’s question is one everyone should be asking. I have seen a few different numbers, but the most recent one was $20 billion a year. That is the direct subsidy given to the fossil fuel industry by the government. The only component I recall involves depreciation of equipment, but there are a number of others. Eliminating that would reduce the industry’s profits, so intense lobbying occurs to prevent that.
But the direct subsidies are peanuts compared with the indirect ones. The costs to society of having the fossil fuel industry operating are enormous. The biggest one is the amount spent by the public on health costs associated with air and water pollution due to the companies’ operations. The total “social cost” has been estimated at a few hundred billion a year.
“District of Columbia enacted its Transportation Benefits Equity Amendment in 2020. California enacted a similar cash-out law in 1992.”
I just thought we should look at the above two sentences side by side to see how far advanced the Left Coast actually is than the rest of the country. And yet, due to our heel-dragging politicians paid by profiteers of coal and gas, CA pays the consequences, as do many other parts of the world.
The light-bulb hasn’t gone off inside our “global leaders” minds yet that we are all interconnected. Our negative consequences don’t just impact us directly. It negatively impacts others. Rising oceans don’t just hurt rich localities like Miami; they devastate islands all across the globe. Many are without the resources to prevent rising oceans.
Even the news/media struggles with rooting for billionaires playing in space while our planet burns. They can’t convey the connections. Yesterday’s IPCC report was dire, yet I heard many news agencies discuss how bad it is in India and China to give us a pass. They don’t understand the interconnectedness of all things.
It’s the arrogance. I even saw the military boasting of new jets and Germany boasting of a new Naval vessel. So what are they going to be fighting over when it’s all burning?
I saw Greta Thunberg and can only imagine the hate and frustration she feels watching world leaders piss away their time on profiteering and competing against one another. Yet, at the same time, we kill off the one planet we inhabit. It’s insanity.
The oil companies get a depletion allowance approaching 50 billion dollars per year.
The tax codes won’t change toward fairness until elections are publicly funded, donor contributions are outlawed and voting becomes a national holiday. Citizens United v. FEC must be overturned. But none of these things will happen as long as the HERD keeps voting in Republicans and some Democrats who live on the grift of politics. We’re no better than any third-world nation in that regard.
Incentives? Really? How about states like mine, Colorado, who had to give away million dollar lotteries if people would only get vaccinated? In Ohio, the incentives were left begging because people refused to get vaccinated. The pregnant question is, of course, why would anyone in their right mind not want a vaccination that would save their lives or wear masks that might save their children’s lives?
So, there must be some other “incentive” that keeps institutionalized ignorance running amok through our society.
Oh. And about those fires… On Saturday, the smoke pollution from the west coast fires reached Denver and created a blanket of dirt that made us the most polluted and unhealthy city IN THE WORLD. My eyes stuck shut, I couldn’t stop sneezing. Visibility was down to barely a mile.
So, will people in America be incentivized to go all in on electric vehicles? Not bloody likely.
Good policy and great essay about it. Tax incentives and disincentives have and should be used more effectively to better manage what economists call externalities – the negative social costs of a good or service that fall on the shoulders of a community or society and are not included in the price of the product.
That’s why carbon markets should be adopted world-wide to essentially add a premium to the price of fossil fuels in order to 1) lower demand for them and increase demand for more eco-friendly alternatives, and 2) raise funds to mitigate the problems caused by using fossil fuels.
Roberta, you ask a legitimate and important question. But the reason it’s not simple is that the definition of what constitutes income is not simple. It’s simple for wage-earners who get a W-2 every year but otherwise it is subject to tens of THOUSANDS of pages of tax code and supporting documentation. Decreasing our reliance on income tax and implementing a national sales tax, which taxes revenue instead of income, is a better path to simplifying taxation.
Anybody who has ever driven in either DC or California knows that you have to be a bit of a masochist to want to drive there. In the case of DC, the Metro for all its faults, provides a decent alternative to driving. That’s not the case in most of California, so the primary option is the car pool.
I would very much like to see more money put into high speed rail systems. Maybe we can stop paying oil companies for extracting more oil and put that money into local and long distance rail systems. We wouldn’t be here today, if it weren’t for that “What’s good for General Motors is good for the country,” attitude that has existed for decades. Charley Wilson thought GM was too big to fail back in the 50s. Now, instead of holding companies responsible for their errors in judgement and leadership, we’ve added many more companies to that rare atmospheric perch. God help us.
Carrots can even attract red rabbits. Think about the states that went for Medicaid expansion because the Federal gov’t picked up the tab…
I don’t get the article. The 2017 tax bill, passed by the Republicans and signed by Trump, eliminated the deduction for employers paying for parking for their employees. My friends with small law firms have been complaining about this as free parking was a major benefit for law firm employees.
“The Tax Cuts and Jobs Act of 2017 (TCJA) generally eliminated employer deductions for expenses incurred to provide employee parking benefits but left intact deductions for expenses associated with parking provided for customers and the general public.”‘
…
Prior to the TCJA, employers were permitted to deduct expenses incurred to provide qualified transportation fringe benefits (QTFBs) to employees. Deductible expenses included qualified parking, transit passes, vanpool benefits, and bicycle commuting reimbursements. “Qualified parking” is parking provided to employees near the employer’s business premises or near a location from which employees commute to work (excluding employees’ residences).
With one exception addressed below, the TCJA generally disallows any employer deduction for providing qualified parking to employees. As updated by the act, Section 274(a)(4) of the Internal Revenue Code now disallows employer deductions for amounts incurred to provide QTFBs, such as qualified parking, to employees. Similarly, for tax-exempt employers, Code Section 512(a)(7) increases unrelated business taxable income (UBTI) for any disallowed deduction for expenses incurred to provide employees with QTFBs.
https://www.natlawreview.com/article/irs-offers-guidance-applying-test-deductibility-parking-expenses
Paul Ogden–these were tweaks to STATE tax codes.
Yellow Taxi by Joni Mitchell
” Don’t you know oh don’t you know that you don’t know what you’ve got till it’s gone,
They paved paradise and put up a parking lot.”
Indiana is not motivating people to drive hybrids. I pay more on my Prius tax than I would a car that guzzles more gasoline. I guess they were worried they would lose revenue because I and other hybrid owners pay less on the gas tax.
For me, this whole issue points back to our highly individualistic culture. Car pool? I wish more coworkers did this. I wish more families would stop buying adolescents a car and make them take the bus to school. I was lucky. My mother drove me to my high school because it was on her way to work. I rode the bus home. I had to buy my own car so I could complete my nursing degree. I was 22. I had to take a course in public health nursing which required me to drive around local communities.
I do like what D.C. and California did. It makes good sense. It also makes good sense to me to start subsidizing solar, wind, alternative energy i.e. electric cars and to stop subsidizing fossil fuel companies.
I wonder sometimes how much carbon we release to pave roads, to build wind towers, and solar panels, to recycle. How much would we release to build a high speed rail? I can’t say I know.
I saw a video about a previous time when the earth warmed significantly. Even the arctic appears to have been covered by rain forests because they have found fossils from the arctic that indicate this. And on the documentary “Fantastic Fungi”, they indicate that scientists discovered a fungi that cleans up oil spills. I really think much of the solution to global warming lies in the earth’s plants. Yes, like Tolkien, I love trees. I wish the world would come together and plant trillions of them for carbon capture. And I wish Indy, would start creating gardens on the tops of our sky scrapers and government buildings to create carbon capture and yes, insulate the buildings so that they use less energy.
Anyone who sneers at me and calls me a tree hugger will find my response to be “Thank you for that wonderful compliment!”
The first comment about a flat tax might have seemed like a reasonable suggestion to a younger me, but now I own an Airbnb unit and for the first time have income that is not reported on a W2. Wow! That case of toilet paper I just bought at the warehouse club is suddenly a “business expense” and I defy the IRS to prove that any of it ended up in the house.
That flat tax could also be incredibly regressive since a person making $40,000 a year has to spend all income on living, vs the guy making $400,000 a year though non W2 reportable income.
Talk about unintended consequences, we subsidize the heck out of roads and rail is left to fend for itself. This leads to a huge trucking fleet that pounds the roads to dust while at the same time spewing carbon.
A conservative estimate says house prices are 20% higher because of the mortgage deduction, plus constantly trading up to bigger and more expensive houses encourages urban sprawl and encourages people to move out to the suburbs and away from smaller more affordable houses with lower environmental footprints.
The real estate tax rules allow developers to purchase properties and let them sit vacant for years because the loss and depreciation are good for the bottom line on their taxes, in the mean time these vacant properties are generating minimal tax revenues and sucking the life out of the communities they are located in.
Why aren’t we all screaming to get these changed? Because the 20% of tax payers that really benefit from these law have the money to fight like heck to protect these rules, and then a good part of the rest of us are sold on the idea that we should aspire someday to take advantage of these same rules.
Reading the comment about all electric cars made me laugh and cry at the same time. A pickup truck is not a car, it is a truck. I think the same might hold for an SUV. It is not a car it is an SUV. As fuel mileage requirements have made cars smaller and more fuel efficient, I see more and more pickup trucks and SUVs on the road, since the strict new rules are ONLY for cars!
The subsidy for the oil industry is the thing that is still pushing Americans to buy those big fuel hungry pickups and SUVs. When I worked at IPL, my office was on the 4th floor and looked over the employee parking lot. At $3 a gallon the parking lot was more then 50% pickups and SUVs. A few years ago, gas prices got up to $4 a gallon and stayed there for a while and suddenly the parking lot was only about 30% pickups and SUVs. I saw a real and significant change in behavior.
I know this would be a shock to the economy, but gas prices should be pushed to the world market rates (by eliminating the US oil industry subsidies) to closer to the real cost of $8/gallon.
Thanks Dan – of all the industries getting over the top tax breaks, real estate is one of the biggest. Hmmm – how we got “The Former” and his financial antics….
If this were 1913 and we had a Cartesian tabula rasa upon which to start defining and redefining “income” and “deductions” and “credits” for the just passed internal revenue code we could presumably employ the chaos of these intervening years to come up with an internal revenue code that was fair and just for all taxpayers, but we don’t, and as usual, must start from where we are. So where are we?
I have been writing for years that we need a wholesale revision of the internal revenue code, a code for the most part written by corrporate counsel and handed to campaign contribution-hungry members of Congress to throw into the maw of House Ways and Means. My calls for such revision have gone unheeded.
So how in the public intererest can we end such atrocities as Boeing’s recent payment of nothing on 11 billion in income? Or “carried interest” for hedge and equity funds? Averaging income over a period of years for corporations which allow them to manipulate their numbers and go tax free? Keeping corporate billions in profits overseas which cannot be taxed until repatriated? Answer > By a wholesale revision of the internal revenue code (and new tax treaties in this internationalized world of finance where a trillion dollars can cross international boundaries with the click of a computer button ).
This isn’t Kansas anymore, Toto. It’s not just fashioning a statute to foster social goals; it’s also about the brutal reality of collecting sufficient revenues to foster other goals that are important to financing the changes imposed upon us as an organized society on a competitive world stage (e.g., revenues for bullet trains, environmental and pandemic crises etc.).
Conclusion: We have coddled corporations long enough; the new code I envision would end the cozy political connection they now enjoy and provide the means (sans the subsidies we give them via today’s code and its myriad amendments)) for us to compete on the international stage with the likes of China, Germany and emerging others.
Interest is misspelled in the first sentence of the third paragraph of my effort today. Mea culpa.
I am still not sure how electric cars are the answer. It takes electricity to power these electric cars and the source of electricity is power plants for the most part now and the force-able future is fossil fuels.
As far as taxes are concerned I have a friend who is a City Councilor up in northern Indiana. Among the entities not paying property taxes are churches, cemeteries, hospitals and others. My property tax bill here in Marion County includes charges for the County, Health & Hospital, Library, Public Transportation, Schools, etc. The schools is the single biggest item on my bill. I do not mind paying my property taxes. It is irritating in the extreme to find all the entities that do not pay Property Taxes.
I can only imagine all the leaders of the Religious Industry weeping, wailing and gnashing their teeth if it was proposed they pay property taxes. Render unto Caesar the things that are Caesar’s and to God the things that are God’s. I gather the Religious establishment wants to Render Nothing to Caesar today.
I hope you find this comment way down here.
I also hope you’ll do a commentary on the contents of this video.
A wild and crazy ride.
https://youtu.be/09maaUaRT4M