Most people in the DC area still drive to work. When they get there, most of them find a free parking space. Normally that parking space would be considered a fringe benefit and, as a commuting expense, would be taxable. But, there is an exception for employer-provided parking, so that benefit is actually tax free. In 1997, employers were allowed to offer a cash payout for those who chose not to use parking, but employers weren't required to and that money, if given, is taxed.
In 1998 the Transportation Equity Act for the 21st Century extended the fringe benefit to those who used transit or vanpools. Employers could offer employees free parking tax-free; give them a payout AND allow them to pay for their transit tax-free; or give them a partial payout (including none), and let them use some of their pay to pay for transit with untaxed dollars. This has been a major factor in the rise of transit ridership in the last 12 years.
As part of the Emergency Economic Stabilization Act of 2008 (a.k.a "The Stimulus") the fringe benefit was extended to bike commuters. Employees who receive a bicycle commuter benefit are allowed to have the first $20 per month tax-free as long as they bike enough days during that month. But it doesn't allow them to set aside some of their pay pre-tax as they can do with transit. Very few employers offer a bicycle commuter benefit.
Since it is unlikely that the federal government is going to remove the exemption for the fringe benefits of parking, transit and biking (which would make it all simpler, level the playing field and fit under a previous item in this list), the next best option is to mandate a parking cash-out.
California mandates a parking cash-out. In California, any employer with 50 or more employees, who provides subsidized parking for them and who operates in an area that doesn't comply to state air quality standards must offer employees a cash pay-out equivalent to the parking subsidy if they chose not to drive and park. It doesn't apply to employer owned parking.
It was enacted after studies showed cash allowances in lieu of parking encourage employees to find alternate means of commuting to work, such as public transit, carpooling, vanpooling, bicycling, or walking. Parking cash-out offers the opportunity to improve air quality and reduce traffic congestion by reducing vehicle trips and emissions.
Unsurprisingly offering people money to not drive and park encourages them to pursue other options. A study done a few years after the law passed of companies that fell under these limited requirements showed that
After cashing out, solo driving to work fell by 17 percent. Carpooling increased by 64 percent. Transit ridership increased by 50 percent. Walking and bicycling increased by 33 percent. Commuter parking demand fell by 11 percent.
If the federal government (or local governments) instituted a similar law here - currently there is a voluntary standard - there is no reason to believe that it wouldn't have similar effects. Ideally it would not be limited to areas of poor air quality. Because it only applies to companies who are subsidizing parking out-of-pocket, the only increase in cost to the employer is for the employees who currently are not driving and parking or receiving another subsidy. So this would reduce driving, and all the social costs associated with it while inducing more healthy transportation, without costing employers very much.
If the law were expanded to smaller employers, and those who owned their parking spaces, this would drive up costs to employers (though some would save money by having more parking for customers, fewer needs to expand parking and lower parking maintenance costs). This might require some solution to keep from hurting business. Perhaps the cash out could be capped or some kind of tax break could cover it. Or it could just be mandated anyway. Much of this parking wouldn't be too expensive compared to neighborhood rates (in Ballston, I rent out a parking space at $100/month) and it's likely the cost would be amortized into wages anyway.
Short of that allowing the cash-out benefit to be treated like the parking benefit - in the current situation, tax-free - would also help level the playing field.
Cash-out benefits work best where parking isn't cheap and other options exist. Areas like downtowns. Moving to a parking cash-out system can be expected to increase biking and walking to work by 33% if pursued agressively and the DC area is perfectly suited to it.