Transportation

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.

The cost of car insurance can be a major barrier to driving. And we know that people with access to a reliable, affordable car are more likely to be employed, earn more, and work more hours. We also know that low-wage workers drive fewer miles than higher income people, which makes transportation to work a regressive tax on employment. (For much information more on transportation and work, see our resource page on transportation and the labor market.)

Recently, we've been monitoring efforts in a couple states to reduce the cost of car insurance and we found this new article about pay-as-you-drive car insurance in the popular journal Democracy intriguing.

Pay-As-You-Drive Car Insurance
by Jason Bordoff

If you're like most Americans, you eat too much at all-you-can-eat buffets. With auto insurance, it's no different. Drivers who are similar in all respects—age, gender, driving record—pay roughly the same premiums whether they drive 5,000 or 50,000 miles per year, even though the likelihood of a collision increases with each mile. This "all-you-can-drive" pricing scheme imposes significant costs on society: more traffic accidents, congestion, air pollution, greenhouse gas emissions, and dependence on oil. It's also inequitable, as low-mileage drivers, particularly low-income people and women, subsidize high-mileage drivers.

Read More.

We’ve been studying sub-prime car financing for a couple of years. This issue has been largely off the radar in the mainstream media, but we’ve noticed more attention lately, as defaults increase.

From a blog cross-posted at the Reuter’s website:

Fitch Ratings, a credit rating company, reported today that the number of auto loans at least 60 days delinquent has hit a 10-month high in January, jumping 12% from December 2007 and 44% from January 2007. Overall, 0.77% of prime and subprime auto loans in the US were delinquent in January 2008.

Subprime delinquencies (for less-credit-worthy consumers) were 4.03% in January, up 10% from December 2007 and 43% from January 2007. They are at the highest rate since late 1997.

Auto loan delinquencies are on the upswing for many reasons, but among them are the more lenient credit standards in previous years, coupled with the housing slowdown and the possibility of a recession. Hylton Heard of Fitch said other than consumers receiving their tax refunds in the coming months, there appears to be little likelihood of this trend changing in the coming months.

(My emphasis.)

The Annie E. Casey Foundation recently produced a documentary outlining the issue of car financing for low-wage workers. The video is now available online and is accompanied by a discussion guide.

You can find more information about the video, and other resources, on our new car financing page. You’ll also find selected news reports about this issue too.

You probably didn't know.....about these new resources on our site and others.

The Mobility Agenda team researches and develops policy to improve access to private vehicles for workers in need of reliable, flexible, affordable transportation. To be a fully contributing citizen in this country today, almost everyone – especially workers with children – needs a car. To realize the goal of social inclusion in the U.S., ensuring access to a reliable means of getting to work, to worship, to vote, to shops, to school, etc. is a necessity. In most places, for most people - this means buying (and financing) a car.

We collaborate with car ownership initiatives, pursue means to improve access to credit for car loans, and assist local community initiatives with development of license reinstatement efforts and car programs.

For more information, visit our transportation resource page. These materials outline the correlation between reliable, affordable transportation, and a strong economy.


Also, Opportunity Cars has just opened an online location. Opportunity Cars is a network of more than 150 nonprofit organizations dedicated to increasing private automobile ownership for low-wage working families to support their ability to find and retain quality employment.

On that site, you can search for a nonprofit Opportunity Car program by state, zip code, or city. And anyone who wants to donate a car to an Opportunity Car initiative (for which you are likely to get the full market value of the car as a federal income tax deduction!), can find a place to donate on the new website too.

Finally, American for Fairness in Lending has created a great resource for anyone thinking about buying a car. Check out their information on how to avoid problems in car purchase and financing. What’s surprising? These tips are for everyone – if you are buying from a dealer you need to read it. And if you are getting your financing from a dealer….well, STOP! And go to your credit union or bank to see what they offer first.

Just around the bend: A new film about jobs and cars in the USA. Stay tuned.

In an editorial noting that opponents of expanding health insurance coverage to more families are using limitations of the poverty measure to argue that federal funding should be limited to the lowest income households, the San Antonio Express-News highlights the possibility of using a social inclusion measure rather than the current measure of material deprivation.

Plus, the editorial notes that cars are a necessity in almost every household given the way our communities have expanded – thus the cost of car ownership should be part of the formula.

Numbers have a way of obscuring reality.

Such is the case with the federal poverty guidelines, which ostensibly measure who is and isn't "poor." But the calculations have not kept up with changes in society and should be revisited.

The concept was created in 1963 by Mollie Orshansky, an economist with the Social Security Administration. It dovetailed nicely with the need for metrics to fight President Lyndon B. Johnson's so-called War on Poverty.

Orshansky considered two main factors: what a family in 1955 America would need to spend on "nutritionally adequate" meals, and the assumption that a family of three or more spent about a third of its after-tax money on food. The figure for a family of four was $3,165 a year.

Today, that figure is $20,650 for a family of four. The figure, by the way, is the same whether one lives in New York City; Ottumwa, Iowa; or San Antonio. Only Hawaii and Alaska have higher guidelines.

Orshansky presented her findings in a 1965 article as a measure of "income inadequacy," not "income adequacy."

There is nothing wrong with Orshansky's findings, but her work served as a research tool, not a statistic for creating federal poverty policy, according to historians.

Yet today, the federal poverty guidelines are used to determine everything from food stamps, parts of the Medicaid program to the free and reduced lunch program….

Over time, the guidelines have risen to reflect inflation, but they do not reflect changes in the American standard of living. For example, fewer mothers worked outside the home in the 1950s. These days, anyone with a child in day care knows how expensive such services can be.

Changes in society often lead to greater pressures on the poor to acquire "necessities." For example, rising car ownership levels and suburbanization lead to deteriorating public transportation, essentially forcing the poor "to buy cars or hire taxis in order to get places where public transport used to take them," according to an analysis by the Health and Human Services Department.

While it's necessary to have federal measures by which to gauge relative wealth or poverty, such measures should incorporate changes in the American standard of living to better reflect what people can afford in today's world.

One suggested method to more adequately express that change is to tie the poverty line to some percentage of median income, say 50 percent. As the median income goes up, so does the poverty level. Another idea is to adjust the guideline to account for regional cost-of-living differences.

Orshansky died this year at the age of 91. Her contributions to the field of economics provided a necessary framework with which to analyze poverty in this country.

It's time to build on that work and update our notion of what it means to be poor in America.

Note: My emphasis added.