Transit Commuter Tax Benefit Will Be Slashed Almost In Half January 1

NEW YORK -- Tax breaks used by 2.7 million subway, light rail and bus riders across the country will be slashed next year, dealing struggling mass transit agencies another blow in the midst of deep budget cuts.

Members of both the House and the Senate, most notably Sen. Charles Schumer (D-N.Y.), had been working to keep the federal transit tax exception equal with the one drivers can use on parking.

But Congress -- consumed by its divisive and ultimately inconclusive battle over the payroll tax -- did not act. In 2011, both drivers and mass transit riders received $230 monthly exception. Starting January 1, the tax break for drivers will go up to $240, due to a cost-of-living increase, but transit riders will be forced to make do with $125 per month in pretax money.

"That Congress could close its session without actually dealing with that just tells you that transit has fallen off the table in Washington," said Larry Hanley, president of the Amalgamated Transit Union.

New York City subway riders who pay $104 for unlimited 30-day MetroCards will feel no impact. But anyone who spends more than that -- those transferring from New Jersey Transit, for example, or those who buy monthly passes on the Long Island Rail Road -- will be affected.

Kathleen McMinn, vice-president for marketing at TransitCenter, nonprofit provider of the TransitCheck commuter benefit program, said she uses the tax break to save about 40 percent off her $273 monthly NJ Transit expenses. Now she'll only be able to set aside $125 per month before tax.

"Not just for TransitCheck, but for anyone who uses a commuter benefit, it's a reduction in the amount that people can set aside tax free, that they can save, at a time when all people need to save more," McMinn said.

McMinn said some people will see their tax exceptions automatically adjusted downwards, while others should expect to receive forms from their offices' human resources departments.

The New York City region in particular, with its many transit riders, will feel the pinch. Schumer's office estimates that some 500,000 New Yorkers together save $200 million a year because of the benefit.

The problem in Congress, said Michael Murphy, a spokesperson for the city's non-profit advocacy group Transportation Alternatives, is that mass transit is not widely used throughout the country, so the decrease in benefits will not affect all lawmakers' constituents evenly. "About one third of all transit riders in the nation use the New York City public transit system, so this policy change disproportionately impacts people in our region and carries little or no political cost for lawmakers in other areas," Murphy said.

Urbanists have long bemoaned tax benefits and other breaks for drivers, pointing out in works like "The High Cost of Free Parking," written by UCLA professor Donald Shoup, that they distort market preferences towards the automobile.

It was only in March 2009, after a long legislative struggle, that transit commuters saw their benefits equalized with drivers.

Now those gains will vanish on January 1. Raising the tax exception might be possible by tacking it onto either a surface transportation bill or the full-year payroll tax extension that Congress will take up in February. Passage of either bill could prove divisive, however, and making an increase in the tax exception retroactive to January 1 would also be complicated.

Transit use was up in the third quarter of 2011, from 7.63 billion rides last year to 7.76 billion this year. But even as their services become more useful, transit agencies across the country are cutting lines and increasing fares to make up for budget shortfalls.

"This has been a really horrible two-year period for mass transit in a lot of ways," said Hanley of the transit union.

"On the tax side, transit riders are the only people who have been exempted from this national consensus about taxes," he said. "Apparently people who ride mass transit are not as important as people who drive a car."