Ori Gorfine is chief operating officer and Mark Crick is chief executive officer of Balance Gym.
Balance Gym offered a one-day special on June 25: Join today and receive $25 off one month’s dues. Such specials probably are recognizable to anyone who has passed or entered a gym. Specials and discounts are a fixture of an industry that learned through decades of trial and error the pricing necessary to compel someone to invest time and money in exercise.
But fitness enthusiasts were surprised and outraged when D.C. Council Chairman Phil Mendelson (D) introduced a 5.75 percent sales tax on all wellness services in his $12 billion budget that is set to take effect Jan. 1. The council approved the budget 12 to 1, but Mendelson had released the budget only 18 hours before the vote.
The District didn’t have to tax gym memberships. The budget slashes funding for housing subsidies to senior citizens and includes an array of tax cuts that affect all residents. For example, the budget creates a new tax bracket for residents earning from $40,000 to $60,000 and decreases their income tax rate by roughly 1.5 percent. The budget also increases the standard deduction for single people or married couples while lowering the tax rate for those earning from $350,000 to $1 million.
Also included in the budget was an expansion of the sales tax to several new services — increases, Mendelson argued, that are necessary to expand the District’s tax base, increase revenues and make its tax policy more competitive.
This notion that D.C. must expand its tax base to increase revenues to cut income taxes is erroneous. The District is already one of the most heavily taxed cities in the country. It taxes three times as many services as Virginia and nearly two times as many as Maryland . Mendelson also cherry-picked which services to tax, exempting beauty salons and construction firms . The District has registered back-to-back budget surpluses. It is making more money than it spends. Is increasing taxes on wellness necessary?
The answer is no. The potential risks of taxing wellness far outweigh the $5 million the city is projected to raise. The wellness tax is potentially harmful: It will disproportionately affect small businesses, deter low-income residents from pursuing a healthier lifestyle and undermine the city’s image as the fittest in the country .
Although the District routinely ranks last in the nation in supporting small business, the fitness industry is predominately run by locally owned small businesses. From health clubs to yoga and spin studios to personal trainers, the high cost of operating a fitness business leaves a small profit margin, which deters larger corporations from investing. Small business takes up the slack, providing health and wellness services the city doesn’t. The tax would hurt these small businesses, which anchor neighborhood development and give back to their communities.
While punishing those who pursue a healthier lifestyle, this tax makes wellness less affordable for the thousands of Washingtonians who should be encouraged to be more active, including the 22 percent of residents who are obese. It’s counterintuitive that while our city and nation struggle with a health crisis, the District would increase the costs for those who prioritize their wellness and increase the barrier for those who do not.
When D.C. fitness businesses launched a coalition backed by thousands of Washingtonians to remove this tax, we explained the nuance of our industry and the detrimental impact of this tax. Unfortunately, Mendelson dismissed our concerns.
And when we found champions in council members David Catania (I-At Large) and Jack Evans (D-Ward 2) to introduce a revenue-neutral solution that would have eliminated the wellness tax while maintaining tax relief, Mendelson still opposed our efforts. Catania’s win-win solution would have removed the tax by slowing down the rate of the corporate tax reduction, which would have saved enough revenue to eliminate the wellness tax. Unfortunately, good governance did not win over politics and the amendment failed in a 9 to 4 vote. In the end, the council approved an additional tax that is poor policy at best and potentially life-threatening at worst.
Those who doubt that a $60 annual price increase will have an impact should know that when we offered our one-time $25 membership special, we sold more memberships that day than any other day of the year.