There is a bit of an uproar in Washington D.C. over a City Council proposal to begin requiring consumers to pay sales tax on yoga classes, gym members and similar activities.
Fitness centers, yoga studios and their allies have started a clever campaign decrying the proposed “fitness tax,” or “yoga tax”, arguing that “D.C. residents should [not] be monetarily penalized for being healthy.” Another anti-tax petition complains that “[f]itness activities are already really expensive.”
Here’s why their views are grossly misguided:
The real question is whether yoga and other fitness activities should be given a special tax-free status that is unavailable to most other items purchased by consumers. The proposal also would tax car washes, bowling alleys and billiard parlors. These new sales taxes are part of a broader package of reforms that actually cut taxes for residents while broadening the sales tax base to raise more revenue. Exempting fitness centers from sales taxes shifts the cost of funding public services onto every other small business in Washington D.C., making every other item city residents purchase more expensive in the long run.
The tax reform process began a few months ago after the Washington D.C. Tax Revision Commission recommended a host of changes to virtually all major taxes levied by the city. The D.C. City Council quietly approved many of these changes last week.
The process is not quite complete—the Council will take a second vote on the plan before sending it to Major Vincent Gray for his signature—but most observers think the plan will ultimately be ratified.
The bill will cut city taxes by at least $165 million a year, through a combination of cuts in personal and business income taxes and estate taxes—and the aforementioned expansion of the sales tax base.
The income tax changes include components designed to benefit low- and middle-income families, including expanding the Earned Income Tax Credit and personal exemptions, and reducing the tax rate paid by upper-income families earning less than $1 million.
Of course it is the proposed sales tax changes that are making the most waves. But, as the DC Fiscal Policy Institute’s Ed Lazere notes, the proposed base expansion is a sensible step toward a fairer and more sustainable sales tax: there’s no sound rationale for carving out special tax exemptions for tanning salons, bowling alleys, car washes and health clubs while requiring every other retailer to collect sales taxes.
Wherever you live, the sales tax rate is almost certainly higher than it was 20 years ago, and that’s largely because lawmakers have been forced to hike the rate to make up for the inexorable long-term decline in sales tax yields caused by most states’ unwillingness to tax services. If D.C. lawmakers ultimately approve the proposed base expansions, they will face less long-term pressure to jack up the sales tax rate on everything else to which the tax currently applies.