Why Paying For Lyft Pre-Tax Is Bad For Public Transit

Taking a Lyft to work using pre-tax dollars may sound like a good deal, but there may be tradeoffs in terms of the public good.

by Corin Faife
Feb 1 2017, 7:00pm

Image: Benoit Daoust/Shutterstock

Lyft and Uber have been in the news over the past few days on account of their differing degrees of opposition to President Trump's's refugee ban. But another piece of news from last week could have a bigger impact on the role they play in our urban transport infrastructure in the long term.

On January 25 Lyft announced that commuters in New York City, Boston, Seattle and Miami would now be able to use pre-tax dollars to catch Lyft Line (the company's carpooling service) rides to and from work, a move that mirrors a system ride-hailing rival Uber has had in place since August of last year. It's a big win for the company and a win for commuters who can take advantage of it too: the figure quoted by Lyft is that savings could amount to up to 40 percent of the cost of the ride. But questions should also be asked about the consequences of incentivizing commuters to use privatized mass transport providers instead of truly public transport.

Paying for something with pre-tax dollars is pretty much what it sounds like: a certain proportion of an employee's gross income is allocated to pay for a product or service, and this amount is deducted from the income total before taxes are calculated, meaning the money used to pay for the service is tax-free. Only select items can be paid for in this way, with the IRS defining what is and isn't included under the rubric of "Fringe Benefits": common examples include paying into health insurance schemes, or buying recreational services that are provided by the employer like cafeteria food or a staff gym. 

Usually pre-tax commuter benefits cover the cost of public transport like buses, trains or subways, but there's also a clause that allows offsets for privately run "commuter highway vehicles"—those with a seating capacity of at least six passengers not including the driver—and this is what Uber and Lyft have been able to take advantage of. Specifically, since the phrasing of the rule doesn't explicitly say that a set number seats must be filled, any eight seater vehicle with shared ridership, e.g. uberPOOL and Lyft Line vehicles, qualifies even if carrying just one passenger to or from work. (A spokesperson from the New York City Department of Consumer Affairs confirmed by email that due to the phrasing of the IRS code there is no obligation for all seats to be filled to receive compensation under the scheme.)

A New York City subway car in Queens. Image: MTA/Flickr

Pre-tax benefits provide a financial incentive to use whatever systems they apply to, so it's reasonable to think that letting privatized transport network companies (TNCs) like Lyft and Uber benefit from such incentives could tempt commuters away from existing public transport operators.

Alicia Trost, a spokesperson for the BART network in San Francisco—one of the cities covered by Uber's pre-tax arrangement but not Lyft's—said she was not aware of the specific benefits deal, but that BART management is looking closely into the impact of TNC's in general, which have been mixed.

"We know that they're helping bring people to our system in the suburbs, but in other areas they're eating into our rider [numbers]. So we're looking for ways to deal with that, which could be discounts or making rides more appetizing for groups," Trost said in a phone call.

Uber, Lyft and other TNC's have clear ambitions to fulfil the same role as public transport, especially with services like Lyft Line and uberPOOL. But when compared to regional transit authorities, profit-seeking transport providers act according to a different set of priorities: For example, there's an expectation that buses will still run on low traffic routes as a service to citizens, but Uber et al. have no requirement to do this.

As Matt Buchanan, former co-editor of The Awl, outlined in a piece titled The Uber Endgame, the problem with the continually expansion of private mass transportation is a slow erosion of the will to fix existing transport systems which are more frequently used by low income people (including those who don't have a smartphone to use a taxi app). Buchanan writes:

"As the wealthy... essentially remove themselves from the problems of existing mass transit infrastructure, the urgency to improve or add to it diminishes. The people left riding public transit become, increasingly, the ones with little or no political weight to demand improvements to the system."

Essentially, although it's tempting to take a subsidized uberPOOL to work rather than ride the L-train, it's also important to recognize that the decision to let pre-tax consumer dollars flow from public to private transport companies may be a regressive step for equity of access to mass transit overall.