Taxpayers finance motorists

In the canton of St.Gallen, an increase in the commuter allowance was approved on November 24, 2024. Why such a tax break can be problematic has been researched by HSG researcher Adrian Rinscheid and his co-author Marius R. Busemeyer from the University of Konstanz. They compiled the results in a policy paper entitled “The sacred cow of German tax law: how the distorted image of the commuting allowance could be corrected“.

In an experiment, they determined whether respondents would change their assessment of the current regulation and various reform options if they were given correct information about distributional and environmental impacts. The results suggest that the majority of the population is unaware of the effects of the commuter allowance. Information about the effects of the regulation leads to a lower acceptance of the current regulation and increases the willingness to support a reform.

Flat rate as the sacred cow of German tax law: key findings of the study

In political debates on the commuting allowance, participants are often under the impression that the regulation benefits lower income families. “However, this is not the case. The main beneficiaries of the commuting allowance in Germany are high-income groups, whose tax burden can be reduced by up to 2,000 euros,” says Adrian Rinscheid. Furthermore, the regulation has adverse effects on environmental and climate protection: in the long term, it promotes the growth of traffic volume and the trend towards long commutes, since the costs of long commuting distances are partially offset. The German Environment Agency has also determined that the commuting allowance leads to greenhouse gas emissions of 4 million tons of CO₂-eq. per year. “Our results can be condensed into two central points,” says Rinscheid, summarizing the research work:

1. Finding: “Firstly, our data show majority of the population misperceive or at least underestimate the actual impact of the commuter allowance on the environment and economic inequality.” A majority of those surveyed do not consider the distributional and environmental impacts of the allowance to be problematic, although the negative effects of the current regulation are well documented. 
   Why is that the case? The authors  see an explanation for this in the long history of the commuter allowance, whose predecessors go back to the German Reich. Thus, for many, it has become a cherished instrument for reducing their own tax burden. The perception that the commuter allowance particularly benefits recipients of small and medium incomes is fostered by the complexity of the regulation and the communication of political actors for whom environmental protection and reducing income inequality are not a priority. 
   A second possible explanation for the gap between perceptions and reality could be that a far-reaching reform of the regulation has repeatedly proved difficult to implement politically, so that there has been no real discourse on possible alternatives. Not least a 2008 ruling by the Federal Constitutional Court, which obliged the legislature to reintroduce the regulation that had previously been briefly abolished, may contribute to a reform of the commuter allowance meeting political and legal resistance. “It is therefore not surprising that the allowance was once described by a professor of administrative law as a sacred cow of German tax law,” emphasizes Rinscheid.
2. Finding: The study also suggests that public opinion on the commuter allowance is not set in stone. If citizens are better informed about the tendentially negative effects of the current regulation on the environment and inequality, their support for alternative models increases. And this is for models that counter the negative effects, such as the inequality-reducing mobility allowance or the more environmentally friendly Scandinavian model. Support for the current regulation or its expansion decreases when the information is provided.

Recommendations: Clearly communicate negative effects, discuss alternatives

According to the results of the study, the commuter allowance tends to increase income inequality. And it contributes to an increase in environmental pollution. Consequently, the authors of the study recommend:

1. Improve information and communication on the actual effects of the commuter deduction. The results show that more information can certainly influence patterns of public opinion. The widespread misperceptions about the effects of the deduction can only be corrected if solid evidence of the actual effects is provided. In particular, providing information on the distributional effects of the commuter deduction would be an effective lever. The gap between the widespread perception of the allowance as a tax policy instrument to support the “little people from the countryside” and its actual impact, which tends to favour the rich, is particularly wide here. At the same time, as other studies show, there is strong general support in Germany for redistributive policies aimed at reducing inequality – as there is in Switzerland, too.
2. Bring alternatives to the current commuter allowance into the discussion. Alongside the information and communication policy mentioned above, an attempt should be made to broaden the scope for discussing possible alternatives to the commuter allowance. Currently, many reform discussions focus on the question of whether the flat-rate amount should be increased or decreased. However, it would be more constructive to discuss alternative models that aim for more far-reaching changes The addition of the so-called mobility premium to the commuting allowance, which some low-wage earners have been able to use since 2021, shows that financial compensation for job-related mobility can take greater account of aspects of distributive justice. However, more far-reaching reforms are needed to effectively counteract the problematic effects of the commuting allowance.

Conclusion: Time for a forward-looking discussion

An increasing number of scientific studies consider the indirect subsidization of motorized private transport to be no longer appropriate. The points of criticism range from distributional issues to the negative effects on urban sprawl, air pollution, noise and the loss of biodiversity. At the same time, there are legitimate concerns about the professional participation of commuters, especially in rural areas “A modern fiscal policy that combines social and ecological goals could take more creative approaches than simply increasing the commuter deduction across the board,” says Adrian Rinscheid, with the St. Gallen vote in mind.

International examples show alternatives: In France, for example, the Forfait Mobilités Durables promotes more sustainable means of transport such as e-bikes and car sharing through tax breaks Scandinavian countries, support for car commuters is subject to conditions – such as proof that no suitable public transport is available. Another idea would be a mobility allowance that is not income-dependent, which would not only ensure equal treatment of all means of transport but could also eliminate the tax disadvantage faced by less affluent commuters.

Adrian Rinscheid summarizes: “I would welcome a broad discussion about the future of the commuter tax deduction. The aim should be to replace the existing subsidies in the medium term with a system that meets the ecological challenges of our time and promotes the mobility of the future.”

Image: Adobe Stock / Spitzi-Foto