In two days, a mass transit tax provision that Congress has extended in recent years will expire, hurting low-income Americans.
It’s a perfect example of how Congress caters to the needs of the rich and not the poor.
Here’s the story:
Every December, Congress extends dozens of tax provisions as part of a ‘tax extenders’ package, but that will not happen this year as Congress has already left town. Most of those provisions are for businesses and can be retroactively extended in January. Firms will fil out their tax returns as if nothing happened.
But the tax benefit for commuters works differently. It has been in place since 1998 and gives both drivers and mass transit riders a monthly exemption that they can set aside from their pretax income. The exemption for those who drove and parked was larger than the one for transit commuters until 2009 when the stimulus package equalised them.
On January 1 though, that will end as the tax exemption for transit riders will fall from $US245 a month to $US135 while the benefit those who drive and park will rise five dollars to $US250.
Unlike the business tax exemptions, the commuter benefits is difficult to administer retroactively. As Andrew Grossman at the Wall Street Journal explains, “Employers deliver special, prepaid cards to workers each month that are paid for with money diverted from paychecks. That would result in bureaucratic hurdles to retroactively deliver the benefit.”
Why did Congress punt all these extenders past the New Year instead of dealing with them in December as it normally does?
One reason was the backlog of work it left itself towards the end of the year. Majority Leader Harry Reid was determined to confirm numerous nominations before the break and Congress also had to pass the Murray-Ryan budget deal and National Defence Authorization Act. There wasn’t much time on the calendar.
But another reason is that the fiscal cliff deal last year fixed the alternative minimum tax (AMT). Every year along with the tax extenders, Congress patched the AMT from causing millions of middle class families to pay the tax. Thanks to the fiscal cliff deal, that is no longer necessary.
This fix eliminated a vocal constituency (the middle class) that ensured Congress would patch the AMT and take up the tax extenders each year. Since the expiration of business tax exemptions can be retroactively extended and drivers are unaffected, that leaves low-income mass transit commuters as the ones hurt by Congress’s inaction.
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