Would you engage in more physically taxing activity if it helped lower your taxes? That’s the thinking behind a proposed piece of legislation supporters believe can help people reduce their waistlines by improving their bottom lines.
It’s called the PHIT Act, as in Personal Health Investment Today. It would change the tax code to allow people to use pre-tax medical accounts, such as health savings accounts (HSAs) and flexible spending arrangements (FSAs) to help pay for fitness-related expenses.
“We spend so much money on the back end when it comes to health-care treatment in our country, especially for chronic disease management, obesity-related illnesses,” said Rep. Ron Kind (D-Wis.), the bill’s lead sponsor in the House, along with Rep. Charles W. Boustany Jr. (R-La.). “This legislation kind of flips the tax code and creates tax incentives on the front end to try to encourage people to lead more active lifestyles.”
According to the language of the bill, “the World Health Organization determined that in the United States a $1 investment in physical activity alone (in time and equipment) would reduce medical expenses by $3.20.” The idea here is that, if people know that they’re getting an effective discount on such things as gym memberships and exercise equipment, they’ll be more likely to make those expenditures and, having done so, get some health-improving use out of them.
There are limitations on what would count as “qualified sports and fitness expenses,” and participants could not use more than $1,000 of their pre-tax allotments ($2,000 if filing jointly) toward them. Tom Cove, president and chief executive of the Sports and Fitness Industry Association, which originally helped craft the bill several years ago, outlined what would qualify and what would not make the cut.
“It is exclusively products, services and programs that are for physical activity,” he said, using a football as an example, as well as a canoe (“you can only use a canoe for one thing”) or even golf clubs.
Golf shirts, though, would not be covered, nor would sneakers, which are worn by all sorts of people in all sorts of non-strenuous situations. “You cannot make the case that by buying footwear you’re going to be physically active,” Cove said, although he noted that cleats, or jerseys specifically for team competitions, could be exceptions.
The bill makes a point of not appearing to be a tax break for the country-club set, specifying that a qualified “fitness facility” cannot be “a private club owned and operated by its members” and/or one that offers “golf, hunting, sailing, or riding facilities.”
Roberton Williams, a senior fellow at the Tax Policy Center, expressed some skepticism about the usefulness of the PHIT Act, in particular the way it would allow some fitness-related expenses to be deducted from taxes, as medical expenses can be. But health expenses must account for more than 10 percent of your adjusted gross income for you to deduct them. For most people that’s quite a bit, and as Williams put it, “the people that tend to have that problem are people who are ill or not well. These are the least likely people to go out and do a lot of exercising.”
As far as the bill allowing people to make broader use of pre-tax medical accounts, Williams said, “the problem with health savings accounts is the people who tend to have them are people who have money to put aside and can afford to have a high-deductible health plan. That tends to be good for people with high incomes.”
Cove acknowledged that was a “legitimate” concern about the PHIT Act, saying that “the mechanism isn’t perfect, because some people will be not able to partake in it,” but he pointed to a way it could benefit the many thousands of parents whose children are signing up for sports every year. Those families are already taking huge amounts of money out of their pockets for equipment costs and fees, he said, so if they can use the legislation to get something like a 30 percent savings on their expenses, they will get more out of that than will people who are better off.
To Williams, though, “that kind of subsidy” for athletic pursuits “really defeats the purported purpose of the PHIT Act, which is to get people who are not active to become active.” He noted that an HSA is a “high-deductible health insurance program,” asking, “Do people want to make that trade-off, to save a few dollars on their [fitness] expenses?”
Kind indicated he was aware of the possible drawbacks to the reach of the PHIT Act. “You can means-test all this stuff,” he said. “I don’t have a problem as far as drawing lines, and making sure that it’s getting to people who might otherwise struggle to be able to afford these type of activities.”
The congressman acknowledged the bill might ultimately not be all that effective, but he figures it’s worth a shot, as part of an effort to “think a little creatively” about using the “power of the [tax] code” to encourage exercise.
“This is just another tool that I’ve been working on to try to make the healthy choice be the easy choice in people’s lives,” he said. “All too often, the greatest obstacle to improve individual health is inertia. . . . If this is an incentive that they need, to get them to finally go out and start leading a more active lifestyle, then I think we need more of that in our country. Otherwise the costs are just going to continue to mount on the back end.”
One aspect of the bill both Kind and Cove touted was its unusual bipartisan support; its 89 co-sponsors in the House include 51 Democrats and 38 Republicans. The Senate version, which is being championed by Sen. John Thune (R-S.D.), has the official support of seven Republicans and five Democrats.
“I think it’s something that’s crucial as we move forward, including if Republicans are eager to try to replace the Affordable Care Act,” Kind said. Pre-tax devices such as HSAs and FSAs have been prominent in many “repeal and replace” plans, and while Cove said that the bill’s supporters did not intend for it to become part of that political dynamic, it has worked out that way, and its cross-party appeal makes it an attractive piece of legislation.
“To do this the right way,” Kind said of efforts to address the ACA, “there’s going to have to be some common ground, and some bipartisanship, and this is one example of where there is a lot of overlap of interests between the parties, I feel.
“You can see with the bipartisan numbers that are growing, I haven’t seen much pushback from anyone once they are introduced to the concept of what the PHIT Act is meant to accomplish. So hopefully, we will be able to find the right vehicle to move forward on it sometime this year.”
@DesBieler on Twitter
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