OPED

Subsidizing employer-paid parking clogs streets, boosts emissions and isn’t fair to commuters who can’t use this perk. But there’s an easy way to fix it.

Donald Shoup and Don Pickrell

July 14, 2021, 3:28 PM EDT

The Power of Getting Paid Not to Park at Work

Free parking at the office is a popular work perk. But is it fair?

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.

Adding 22 words to the Internal Revenue Code can benefit almost everyone at almost no cost to anyone.

Compliance with the cash-out law costs employers little because the laws in both California and

D.C. apply only to parking spaces an employer rents from a third party. When a commuter

cashes out a parking space, the money the employer previously spent to rent the parking space

becomes the commuter’s cash allowance, and the firm breaks even. After employers offered

parking cash out in California, their total cost for transportation subsidies increased by only $2

per employee per month.

If commuters can choose between free parking or its cash value, all those who take the cash and

stop driving will be better off (or they wouldn’t choose the cash). Even the remaining solo drivers

will be better off because parking cash out reduces traffic congestion.

While other states and cities could adopt this almost-costless reform, there’s an even more

straightforward solution: Amend the U.S. Internal Revenue Code’s definition of employer-paid

parking that qualifies for a tax exemption.

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 “qualified parking” means parking

provided to an employee on or near the business premises of the employer . . . if the employer

offers the employee the option to receive, in lieu of the parking, the fair market value of the

parking.

Parking cash out is a simple change to a traditional fringe benefit because it merely gives

commuters choices about how to receive this benefit. If an employer offers commuters a fair deal

— free parking or an equivalent benefit — the parking subsidy will continue to qualify as tax-

exempt. Commuters can drive to work and park free, or they can use the parking subsidy’s value

for any other purpose they choose, including a tax-exempt contribution to health insurance or a

pension plan. But if an employer offers commuters an unfair deal — free parking or nothing —

the free parking does not merit a public subsidy, and its cash value should be taxable income.

Tax revenue will increase when a commuter chooses taxable cash instead of tax-exempt free

parking. In California, federal income tax revenue increased by $48 a year per employee offered

parking cash out, because some commuters preferred taxable cash to a tax-exempt parking

subsidy. State income tax revenue increased by $17 a year per employee.

Parking cash out will ensure equity in commuting subsidies, increase transit ridership, reduce

traffic congestion, improve air quality and reduce carbon emissions. It will also increase tax

revenue without raising tax rates, and improve employee benefits without significantly

increasing employers’ costs. Employers who oppose offering cash out will have to defend their

right to subsidize only drivers — at taxpayers’ expense.

Adding 22 words to the Internal Revenue Code can benefit almost everyone at almost no cost to

anyone. Subsidizing people rather than parking will improve tax equity, transportation

efficiency, and economic and social justice.

Donald Shoup is a distinguished research professor of urban planning at the University of

California, Los Angeles Luskin School of Public Affairs and the author of The High Cost of Free

Cities are changing fast.

Don Pickrell is the chief economist at the U.S. Department of Transportation’s Volpe Center and

a lecturer in the department of civil engineering at MIT