America's Stupidest Tax Subsidies: The Parking Subsidy

My vote for stupidest individual tax break would probably go to the tax exclusion for employer reimbursed parking expenses, subsidized by the general public at the cost of around $3 billion a year. (There's also a more sensible exclusion for employer-provided transit passes, but that's capped and comes in at under $400 million.) I haven't seen data, but there's little question that most of the benefits go to well-off taxpayers who need the help the least. In a new working paper, Michael Grubb and Paul Oyer provide a new reason for hating the parking tax break: it ends up raising the costs of parking for those who can least afford it. Here's the abstract, an earlier version of the paper is on Grubb's website:

We use university parking permits to study how firms and employees split the value of employee benefit tax subsidies. Starting in 1998, the IRS allowed employees to pay for parking passes with pre-tax income. This subsidized the parking pass purchases of faculty and staff, but did not affect students. We show that the typical university raised its parking rates by 8-10% extra when it implemented a pre-tax payment system, but that this increase was the same for those affected by the tax change and those that were not affected. We conclude that university employees captured much of the new tax benefit, that faculty and staff that purchase permits benefited relative to those that do not purchase permits, and that students that purchase permits were made worse off relative to those that do not buy permits. We discuss what these results suggest about universities' objectives in setting their parking prices and about the demand for university parking.