Although the current system is a good concept in theory, it fails from a sheer lack of benefits for the small business owner. Furthermore, it tends to burden the middle class and poor while favoring the rich.
Where the current TransitChek system utterly fails is intrinsically bound to the mode of pre-tax deduction and limitations on the purchasing of materials. The blanket pre-tax system is neither comprehensive nor fair to the majority of the commuting ridership. Although the recent increase in the pre-tax deductible limit from $120 to $230 per month is a valiant start, it has done little to truly address the flaws in the system.
For example, commuters in the NYC MTA region pay a graduated rate for their monthly rail pass based on predefined zones. Zones closer to the city pay less than those further away, and this makes perfect sense. However, the blanket deduction of the TransitChek system does absolutely nothing to address this disparity.
To illustrate this point consider the following cases:
1. Monthly commutation from Zone 10 (Ronkonkoma) to Zone 1 (NYC) currently costs $306. Subtract the $230 pre tax deduction and you are left with a $(76) out-of-pocket additional expense and $(912) annually.
2. Monthly commutation from Zone 7 (Hicksville) to Zone 1 (NYC) currently costs $232. Subtract the $230 pre tax deduction and you are left with a $2 available to place towards your subway fare expenses. That is a net difference of $50 per month and $600 annually
3. Monthly commutation from Zone 4 (Brooklyn) to Zone 1 (NYC) currently costs $204. Subtract the $230 pre tax deduction and you are left with a $26 available to place towards your subway fare expenses. That is a net difference of $74 per month and $888 annually.
At this point you should begin to understand the favoritism inherent in the system. The most insulting part is that the MTA has increased rail fare by double digits, in excess of 20%, and the current Metrocard has been increase to $103 from $80. In the example of commuter number 3, these individuals are able to pay for all of their commutation expenses through a tax free system.
Why is this important? To explain it further, consider at the end of the year when you complete your taxes, the pre tax deduction of $2760 which does not seem like a huge amount can make the difference between tax brackets. However, putting that aside, consider all things being equal and to simplify the math we will set the tax rate at an arbitrary 30%. This means that for every hundred dollars of taxable income you would end up paying $30. While this seems high, it will assist in illustrating the point. An annual pre tax deduction of $2760 actually equates to $3588 as a result of that income not being taxed. In example 3 above, the commuter pays a total of $307 per month for their rail and subway expenses. Of that amount, only $77 per month is an out-of-pocket taxable expense equal to $924 annually. This adds up to $3684 and means that at the end of the year these commuters are paying out of pocket $96.
Commuter 1 would pay $3672 just for their rail pass and of that amount, $912 is out-of-pocket from taxable income. In addition, they are also responsible for the full $103 monthly charge for their subway expenses and additional $1236 annually. Consider the difference between the estimated annual savings of $3588 and this commuter’s expenses of $4908. This individual is paying $(1320) more per year than commuter 3, a net difference $1416 per year.
Unfortunately the situation is worse for riders who work for small companies or are self-employed. Most of these individuals lack the option of enrolling in the current system. It is a management headache that small businesses refuse to endure, thus inhibiting their employees of receiving the skewed benefits. To add insult to injury the New York State bailout of the MTA has placed additional burdens on this group of taxpayers. Consider the commuter in example 1 is a small business owner. Not only does this individual have to pay for his fare to commute to his place of business everyday but now he has the additional burden of paying payroll taxes to help offset the cost of his own commute. Albany now has their hands in both his front and back pockets. It is not wonder that our state government is consider one of the most dysfunctional in the nation.
Considering that some of the goals of the TransitChek system are to offer relief on the costs for monthly commutation expenses while encouraging more mass transit ridership, the later helps reduce traffic and congestion on our nations highways in and around the major cities that have participating mass transit systems. Not to mention the reduction of greenhouse gasses – overall making this a good idea for our country in general. We should have a system that benefits all riders equally not favoring those who can afford to reside in close proximity to the city. Additionally the increase in ridership would certainly be a welcome change to the status quo, as trains that are already traveling to and from the city currently with empty seats will be better utilized. More riders obviously means that more fares are being collected and the system might eventually begin to pay for itself.
My proposal for reform is simple in that we should augment the current system. Offer a post-tax deduction of up to 80% of your annual mass transit commutation expenses. This eliminates the necessity for businesses to manage the pre tax deduction process and the ordering of checks and metro cards. In addition, it eliminates the headaches associated with securely distributing these materials. Finally it opens the door to the small business owners who cannot afford the overhead required to institute the TransitChek system across their entire company.
The advantages of such a simple change are clear and it’s implementation would be far less disruptive than the current solution. Additionally, it will offer these benefits to ALL commuters — small business and self-employed included. Furthermore, employees DO NOT have to rely on their employer to participate in such a plan. Simply save the receipts for all of your rail and subway fares and then at the end of the year enter the total amount in the appropriate field on your state and federal tax forms.
Ultimately, this amounts to the people being responsible for their own savings by extending a short term loan to the government, hopefully allowing things to stabilize and eventually ward off this recession.
Thank you for taking the time to read this and hopefully you will vote Mikel King for New State Assembly in 2010.
© 2009 Mikel King