TEXT AVAILABLE OF WAYS AND MEANS TESTIMONY OF DIRECTOR OF TRANSIT COALITION.

February 6, 1992

Mr. Chairman and Members of the Committee, thank you for holding this important hearing and for allowing America's Coalition for Transit NOW to express its views on the federal tax policy for employer-provided transit benefits. I am Bruce M. Fried, Executive Director of America's Coalition for Transit NOW.

Transit NOW is comprised of over 170 national environmental organizations, corporations, electric utilities, labor unions, transit operators, disability groups, auto insurers, local chambers of commerce and other organizations. The members of Transit NOW have come together to support a major increase in federal finding for public transportation. In addition to the national coalition, Transit NOW affiliates have been organized in many communities across the country.

Let me say at the outset that most of Transit NOW's members support H.R. 1145 which has been introduced by Rep. Matsui. As you know, this bill would raise the level of transit benefits that are free of tax consequence from the current $21 per month to $60 per month.

Our members were very pleased to learn that President Bush's proposed FY 1993 budget support the policy articulated by H.R. 1145. We urge the Committee on Ways and Means to consider H.R. 1145 and to favorably recommend it to the House of Representatives.

There are a number of compelling reasons why the level of transit benefits provided by employers to their employees should be significantly increased. No doubt, you will hear today about the value that middle-income working men and women would derive from such an increase. Given the current state of the economy and the impact it is having on middle-income families, increasing the transit benefit could have an immediate positive effect on family budgets. In my testimony, I would like to focus more intensely on another issue.

Mr. Chairman, tax law should not encourage people to act in ways that are contrary to major national interests. The 1990 Congress must be commended for forging strong new legislation addressing a variety of air pollution problems afflicting this nation. However, there remain inequities in the tax law that may undermine the goals of the Clean Air Act Amendments of 1990. Indisputably, automobile emissions are a significant source of air pollution, particularly in urbanized regions of this country.

According to the General Accounting Office, the transportation sector accounts for two-thirds of emissions of carbon monoxide. ¹ Forty-one areas in the U.S. exceeded EPA's health-based limit on carbon monoxide for 1988-89. ² Over 100 cities exceeded the ozone or smog standard during the same period. To reduce the frequency and severity of dangerous pollution episodes, Congress has mandated areas not attaining the Clean Air Act standards to undertake systematic planning of transportation control measures to reduce emissions contributed by cars and other vehicles. ³

According to the Union of Concerned Scientists, cars and light trucks are the transportation mode with the highest emission levels per passenger mile of nitrogen oxides, carbon monoxide, sulfur oxides and particulates. "In fact, a single-occupancy car emits twice as much NOx, three times as much CO2, 10 times as much hydrocarbon, and 17 times as much CO as mass transit." ⁴ Nevertheless, approximately seventy-five percent of all Americans commute to work alone in cars or light trucks.

Encouraging and supporting ride-sharing, carpools, and transit is a central goal of air quality and energy efficiency planning, at the metropolitan, state and federal level. Nevertheless, our federal tax code continues to encourage people to drive to work. The unequal tax treatment of employer-provided transit passes and parking spaces rewards people for activity which is socially disadvantageous, and perversely discourages people from using buses, subways, rail or carpools which are both less polluting and more energy efficient.

"De minimis" fringe benefits are excluded from gross income. Department of Treasury regulations consider employer-provided public transit tokens, fire cards, and passes as de minimis fringe benefits only if their value is no more than $21 per month. If an employer provides more than $21 per month in a transit pass, the entire value of the pass becomes taxable as income. This level of benefit, while an improvement over the previous $15 per month, is a glaring inequity between the treatment of employer-provided transportation subsidies and employer-provided parking.

The entire value of employer-provided parking located on or near the business premises is excluded from gross income. Current law does not limit the value of parking which employers can provide for employees. In New York City and other large urban areas, the value of parking may be $500 monthly. Consequently, the anomalous treatment of parking versus transit costs in the tax law greatly reduces the apparent cost of commuting to work by automobile. Because the immediate cost of driving is greatly reduced by the valuable parking subsidy, commuters who might otherwise consider using public transit or ride-sharing have a strong incentive to join the three-fourths of the population driving alone to work.

Paradoxically, the tax code's distorting effect on commuting behavior may be especially great in the very areas most plagued with gridlock and dangerous levels of air pollutants. If we can assume that the greater the value of an employer-provided benefit, the more likely are people to take advantage of the benefit, then the current tax treatment of parking and commuting costs is especially problematic for congested urban areas. The tax exemption for employer-provided parking is most valuable, and is therefore most likely to increase single-car commuting, in densely-developed, urban areas, where unsubsidized parking is scarce and therefore costly. Virtually all major metropolitan areas have significant air pollution problems which are exacerbated by motor vehicle traffic and congestion.

There are obviously many ways to ameliorate or eliminate the perverse effects of the different treatment afforded to employer- provided parking and commuting benefits. From an environmental and energy policy perspective, it is exceedingly difficult to justify retaining the tax code exclusion of the employer-providing parking for single-occupancy vehicles, while at the same time states and localities are desperately trying to cajole and induce commuters to share rides or use public transit. Studies have estimated the annual value of the federally subsidized employer-provided parking at $50 billion -- more than double the annual cost of operating all of America's transit systems. ⁵

Transit NOW supports providing a much higher exclusion for employer-provided transit passes, tokens or fire cards. As mentioned above, many Transit NOW members support H.R. 1145, which will raise the level of transit benefits to $60 per month.

Mr. Chairman, Transit NOW commends you for convening this hearing and for allowing Transit NOW to offer these observations. We hope to continue working with all Members of this Committee, with staff, and with the full House to ensure that transportation incentives embodied in the tax code enhance energy conservation and environmental protection. Tax incentives should reward, not discourage, transit use. Transit NOW will be pleased to offer any assistance in supporting legislative reform which encourages shifts in transportation in favor of bus, subway, light rail, carpool, vanpool and other modes of transit.

² Environmental Protection Agency, "National Air Quality and Emissions Trends Report, 1989" p. 4-1.

³ Clean Air Act Amendments of 1990, Pub. L. 101-549, title I section 101(f), 42 U.S.C. section 176.

⁴ Gordon, Deborah, Union of Concerned Scientists, Steering a New Course: Transportation, Energy, and the Environment, 1991, p. 67.

⁵ American Public Transit Association, "Issue Paper: Taxation of Employer Provided Transit Benefits," June 1991.