Once upon a time, not so long ago, the District of Columbia faced a severe revenue shortfall. Balancing the budget — as the District, like virtually all states must — required deep program cuts, unless laws were modified to collect more taxes.
The DC Fiscal Policy Institute and allies recommended, among other things, an expansion of the sales tax to at least some of the services that were perplexingly exempt — fur storage, for example, and homes-away-from-home for fur-bearing pets.
Word got out that the DC Council just might tax some of the exempt services. And next thing you knew, Councilmembers were barraged with e-mails from people who worked out at gyms and/or took for-fee yoga lessons — these orchestrated by the business owners, of course.
For this, as well as other reasons, the Council decided to increase the sales tax rate, but leave services alone.
Now we’re being treated to another round of outrage because a Council majority has voted to apply the sales tax to “health clubs,” as well as five other types of services.
This time, the sales tax expansion would partly offset revenues the District would lose by adopting other recommendations made by the Tax Revision Commission.
Most of these would cut personal income tax liabilities for low and moderate-income filers. But there’d also be a reduction in business franchise taxes — presumably a boon to the unhappy fitness club owners.
Clearly, the tax cuts must be offset. Otherwise, the District would be left with many, many millions less for essential programs and services.
And clearly, the fitness club members will have considerably more money in their pockets to pay the 5.75% tax on their dues — on average, $36.33 a month for those with adjusted gross incomes in the $50,000-$70,000 range, according to Council Chairman Phil Mendelson.
What’s now a $70 a month gym membership would cost an extra $4.01 — less than the cost of two short lattes at Starbucks.
But, says the Yoga Alliance, the District would be “taxing essential healthcare.” A “wellness tax,” one of the several petitions calls it. This makes about as much sense as saying that the sales tax on my daily newspaper is a tax on literacy — or informed citizenship, if you prefer.
We’re asked to worry especially about lower-income residents — people “on the fringe,” as one fitness club owner calls them.
Those folks over in the east part of the city have “ZERO full-service gyms,” exclaims another petition. And the smaller operations there “don’t need another reason to have fewer customers,” especially when obesity and diabetes rates are higher in low-income areas.
Might this have something to do with the fact that many who live there can’t afford a healthful diet, let alone a health club membership? Is there no way to get exercise except at a members-only gym or in a yoga class?
The so-called yoga tax will bring in an estimated $5 million in the first year it’s effective. Where will that $5 million come from if the fitness club folks get their way — or the additional millions in years to come?
From the “record [revenue] surpluses,” Councilmember Jack Evans says — as if we don’t have better uses for the money, e.g., affordable housing for homeless residents. As if the latest recession is the last we’ll ever have.
But it won’t be. Sooner or later, the mayor and the Council will again have a tough time balancing the budget. As always, programs that serve the needs of low-income residents will be especially vulnerable.
So, says Citizens for Tax Justice, will businesses whose goods and services aren’t exempt from the sales tax — and, of course, their customers. But there will be “less pressure to jack up the sales tax rate” if the base is broadened now.
In other words, giving the fitness club owners a free pass will shift the burden to other business owners — and to residents who’ve got no choice but to buy certain taxable items, e.g., toilet paper, soap, diapers.
All this said, I understand how the health club owners could feel picked on. As I said, their services are one of only six types the Council’s plan would tax.
The group seems to me oddly arbitrary — carpet cleaning, home water delivery, car washes, billiards parlors and bowling alleys, storage locker rentals, plus tanning studios, which are lumped together with health clubs.
An expert retained by the Tax Revision Commission identified these — apparently because he thought they’d be difficult for residents to purchase untaxed. But he also recommended two the Council will leave tax-exempt, unless the package changes before the final vote.
Notwithstanding the rationale, I find the choices over-selective. People who have to store their belongings because they’ve lost their homes will pay the sales tax. People who store their fur coats still won’t.
People who have their cars washed will pay the sales tax. People who have their dogs washed still won’t. People who go bowling will pay the sales tax. People who go to the ballet still won’t.
Merely examples from a list that’s perhaps a bit outdated, but still fairly accurate. There are more than eighty tax-exempt services on it.
Seems to me the better approach would have been to begin with the presumption that services would be taxed and then selectively exempt those for which there’s a compelling reason. Health club memberships wouldn’t qualify in my book, but bona fide healthcare would.