On the Road Again: How Tax Policay Drives Transportation Choice
102 Pages Posted: 28 Jan 2007
In the United States, approximately 80 percent of commuters drive to work alone. Why do United States commuters persist in driving alone when the evidence is clear that they are wasting time and money, exposing themselves to the risk of accidents, polluting their neighborhoods and damaging their health? Many commuters have no other practical choice. Years of government subsidizing a low density, petroleum intensive lifestyle have created this dilemma. Transportation choices are limited because of (1) the federal funding mechanism for transportation projects, (2) disparate treatment of employee fringe benefits for transit versus parking, (3) the home mortgage interest deduction which encourages low density housing, and (4) the preferential tax treatment of the oil and gas industry. Other federal tax provisions, such as expensing rules that encourage purchase of large sport utility vehicles and the deductibility of advertising expenses liberally used by the automotive industry, contribute to the problem. Changes to the federal tax system can help create a solution.
The federal tax system in the United States has pervasive influence over its citizens' lifestyles by creating economic incentives and disincentives for behavior. The federal tax system influences urban transportation choices by failing to account negative externality costs, and in some instances, actually subsidizing choices that result in significant environmental and social cost.
In this article, I will first examine how driving alone became the dominant transportation mode for American commuters. Next, I will explore who bears the full cost of driving. After briefly describing urban transportation alternatives, I will discuss potential solutions, focusing on changes to the federal tax system, but also exploring regulatory alternatives. Finally, I will discuss the challenges such reforms will likely face, and strategies for overcoming those challenges, including comparisons of the solutions tried in other countries.
Keywords: tax, transportation, economic incentives, environment
JEL Classification: K34, K32, R41
Suggested Citation: Suggested Citation