Taking a Deep Breath on D.C.’s “Yoga Tax”
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Jason Juffras
October 19, 2018
As D.C. government leaders prepared their annual budget in the spring of 2010, they faced a sudden backlash over a tax proposal that none of them had proposed or even discussed. After social-service advocates drafted budget options to protect safety-net programs during a severe fiscal crisis, one item on the list—applying the sales tax to fitness services—grabbed media attention and triggered protests against what was dubbed the “yoga tax.“
D.C.’s elected officials quickly disavowed the idea, and the flurry of protest ebbed. But four years later, after the D.C. Tax Revision Commission (TRC) included the tax in a larger reform package, it became law despite continued resistance from gym owners and members. The tax (hereafter called the “health-club” tax for greater precision) is still in effect.
Some lessons from D.C.’s tempest over the health-club tax are outlined below.
First, tax increases are unlikely to move forward without extensive preparatory work to explain the rationale and build a winning coalition. Because the health-club tax moved quickly from trial balloon to the glare of media attention, this policy spadework had not been done. Although advocates had proposed taxing a range of services from carpet cleaning to taxidermy, the media’s focus on the health-club tax created an impression that one industry was being unfairly targeted. Opponents were able to skewer the idea of taxing a healthful activity, arguing it would worsen a growing obesity crisis by making fitness services more expensive, particularly for low- and moderate-income residents.
By contrast, when the health-club tax was enacted in 2014, it was embedded in a set of appealing policy goals. The TRC, chaired by highly-respected former Mayor Tony Williams, proposed a tax package including income tax cuts for moderate-income households, business tax cuts, and sales taxation of additional services. D.C. Fiscal Policy Institute executive director Ed Lazere, who served on the TRC and supported the health-club tax, notes that the package “had a lot of good things in it,” and that the health-club tax (projected to raise $5 million annually) helped pay for those items. Lazere adds that, “The tax had the imprimatur of the Commission, and that made it easier for the Council” to adopt the tax.
Broadening the tax base is more likely to succeed when a range of activities are included, spreading the burden and muting any claims of unfair targeting, and when there is some offset through lower tax rates. These factors helped propel the enactment of the federal Tax Reform Act of 1986, which lowered individual and corporate tax rates by curtailing a host of tax breaks and serves as a model for base-broadening efforts.
Despite the health-club tax, D.C.’s fitness industry remains vibrant, belying the dire predictions of opponents. Crossfit gyms are abundant; Barry’s Bootcamp opened in D.C. last year; Soulcycle, which first came to D.C. in 2014, now has four sites; and Orangetheory expanded to Capitol Hill and Foggy Bottom this year.
Unless a tax is extremely onerous and unfair, its effects are likely to be modest. Subjecting fitness clubs to the same tax levied on bicycles, running shorts and yoga mats, all of which are used in exercise, does not seem unreasonable.
Reflecting on four years of D.C.’s health-club tax, Clarence Duhart, the owner of CD Fit, doesn’t see “much of a difference.” Duhart adds that he focuses on providing a good product rather than on things he cannot control, such as taxes.
In the throes of anti-tax sentiment, we may forget the lessons of Economics 101. Duhart notes that the fitness market, like other industries, is highly segmented, ranging from gyms that offer “phenomenally low rates” to expensive boutiques. Duhart believes that those who can afford high-end fitness studios have not been deterred by the health-club tax; in other words, the price elasticity of demand is low.
Gerard Burley, the owner of Sweat DC, agrees, noting that that people who pay hundreds a month for high-priced gyms or trainers are not going to feel pinched by a 5.75 percent sales tax. “I don’t think that the (health-club) tax is really injuring businesses at all,” he concludes.
Burley also points out that for the less affluent, “Health and fitness are also tied to education and income,” and that lower-income individuals who work long hours often lack the time or the energy to join a health club. Moreover, lower-income residents may pursue health and fitness through other means such as recreation centers. Not only do the equity concerns raised by opponents of the health-club tax appear misplaced, but taxing fitness clubs may make the sales tax (a regressive tax) fairer if the services constitute a luxury good.
Fitness services may indeed promote better health, but taxes are based on economic transactions rather than the virtue of any particular activity. Otherwise, we would have a tiny tax base reliant on cigarettes, gambling and, perhaps, alcohol.
D.C.’s “yoga tax” should remind policymakers and the public to inhale deeply and release some of their angst over taxes.
Author: Jason Juffras ([email protected]) has 20 years of experience in public budgeting, policymaking, and program evaluation. He holds a doctorate in public policy and administration from The George Washington University. The views expressed in this article are solely those of the author, and should not be attributed to any organization with which he is affiliated.
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Taking a Deep Breath on D.C.’s “Yoga Tax”
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Jason Juffras
October 19, 2018
As D.C. government leaders prepared their annual budget in the spring of 2010, they faced a sudden backlash over a tax proposal that none of them had proposed or even discussed. After social-service advocates drafted budget options to protect safety-net programs during a severe fiscal crisis, one item on the list—applying the sales tax to fitness services—grabbed media attention and triggered protests against what was dubbed the “yoga tax.“
D.C.’s elected officials quickly disavowed the idea, and the flurry of protest ebbed. But four years later, after the D.C. Tax Revision Commission (TRC) included the tax in a larger reform package, it became law despite continued resistance from gym owners and members. The tax (hereafter called the “health-club” tax for greater precision) is still in effect.
Some lessons from D.C.’s tempest over the health-club tax are outlined below.
First, tax increases are unlikely to move forward without extensive preparatory work to explain the rationale and build a winning coalition. Because the health-club tax moved quickly from trial balloon to the glare of media attention, this policy spadework had not been done. Although advocates had proposed taxing a range of services from carpet cleaning to taxidermy, the media’s focus on the health-club tax created an impression that one industry was being unfairly targeted. Opponents were able to skewer the idea of taxing a healthful activity, arguing it would worsen a growing obesity crisis by making fitness services more expensive, particularly for low- and moderate-income residents.
By contrast, when the health-club tax was enacted in 2014, it was embedded in a set of appealing policy goals. The TRC, chaired by highly-respected former Mayor Tony Williams, proposed a tax package including income tax cuts for moderate-income households, business tax cuts, and sales taxation of additional services. D.C. Fiscal Policy Institute executive director Ed Lazere, who served on the TRC and supported the health-club tax, notes that the package “had a lot of good things in it,” and that the health-club tax (projected to raise $5 million annually) helped pay for those items. Lazere adds that, “The tax had the imprimatur of the Commission, and that made it easier for the Council” to adopt the tax.
Broadening the tax base is more likely to succeed when a range of activities are included, spreading the burden and muting any claims of unfair targeting, and when there is some offset through lower tax rates. These factors helped propel the enactment of the federal Tax Reform Act of 1986, which lowered individual and corporate tax rates by curtailing a host of tax breaks and serves as a model for base-broadening efforts.
Despite the health-club tax, D.C.’s fitness industry remains vibrant, belying the dire predictions of opponents. Crossfit gyms are abundant; Barry’s Bootcamp opened in D.C. last year; Soulcycle, which first came to D.C. in 2014, now has four sites; and Orangetheory expanded to Capitol Hill and Foggy Bottom this year.
Unless a tax is extremely onerous and unfair, its effects are likely to be modest. Subjecting fitness clubs to the same tax levied on bicycles, running shorts and yoga mats, all of which are used in exercise, does not seem unreasonable.
Reflecting on four years of D.C.’s health-club tax, Clarence Duhart, the owner of CD Fit, doesn’t see “much of a difference.” Duhart adds that he focuses on providing a good product rather than on things he cannot control, such as taxes.
In the throes of anti-tax sentiment, we may forget the lessons of Economics 101. Duhart notes that the fitness market, like other industries, is highly segmented, ranging from gyms that offer “phenomenally low rates” to expensive boutiques. Duhart believes that those who can afford high-end fitness studios have not been deterred by the health-club tax; in other words, the price elasticity of demand is low.
Gerard Burley, the owner of Sweat DC, agrees, noting that that people who pay hundreds a month for high-priced gyms or trainers are not going to feel pinched by a 5.75 percent sales tax. “I don’t think that the (health-club) tax is really injuring businesses at all,” he concludes.
Burley also points out that for the less affluent, “Health and fitness are also tied to education and income,” and that lower-income individuals who work long hours often lack the time or the energy to join a health club. Moreover, lower-income residents may pursue health and fitness through other means such as recreation centers. Not only do the equity concerns raised by opponents of the health-club tax appear misplaced, but taxing fitness clubs may make the sales tax (a regressive tax) fairer if the services constitute a luxury good.
Fitness services may indeed promote better health, but taxes are based on economic transactions rather than the virtue of any particular activity. Otherwise, we would have a tiny tax base reliant on cigarettes, gambling and, perhaps, alcohol.
D.C.’s “yoga tax” should remind policymakers and the public to inhale deeply and release some of their angst over taxes.
Author: Jason Juffras ([email protected]) has 20 years of experience in public budgeting, policymaking, and program evaluation. He holds a doctorate in public policy and administration from The George Washington University. The views expressed in this article are solely those of the author, and should not be attributed to any organization with which he is affiliated.
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