For decades, Republicans have complained about tax code gimmicks that preference certain types of activity. In the years leading up to the recent tax bill, they often claimed to prefer a simpler, fairer system of taxation with fewer deductions and lower rates. Indeed, some prominent Republicans confidently predicted, the elimination of deductions would allow for lower rates without an overall reduction in federal tax revenue.
In practice, the GOP’s preference for a neutral tax code only goes so far. Last year’s tax law reduced or eliminated some tax breaks, but not enough to offset the reduced revenue from lower rates. And now some Republicans want to add another carveout: a tax break for gym memberships.
On the merits, it’s a weak idea with little supporting evidence. It’s a reminder that Republicans can’t seem to give up on governing through the tax code.
The bill, which is part of a package of reforms to Health Savings Accounts that has already passed the House Ways and Means Committee, would allow individuals who itemize their taxes to write off as much as $500 a year for gym memberships and fitness classes, along with an additional $250 a year for associated fitness safety expenses, as part of the medical expense deduction. Those totals would be doubled for couples and families, letting some households deduct up to $1,000 a year for gym costs.
The motivation here is to provide an incentive for exercise by providing an incentive for gym memberships. This, in theory, results in healthier people and, consequently, less spending on health care. Healthier people, less spending, and a tax break. Of course Republicans are going to love it. (Remember that time Paul Ryan posed for Time in a backwards baseball cap with a set of weights?)
But as millions of Americans with gym memberships know, having a gym membership is not the same as using it. Studies of fitness programs sponsored by health plans aren’t perfectly analogous, but they tend to back up this notion. In one look at individuals who had gym access through their health insurance plans, members averaged just 1.44 visits per week during the first year of the study, and just 1.06 visits during the second year.
That study, along with several others, also found that people who opted into an insurance plan with a gym benefit were more likely to be healthy and active already. And while studies have found that gym benefits are correlated with lower health care spending, the cost to run these programs tends to be larger than the reduction in spending.
A tax break is, of course, not exactly the same as a health insurance benefit, but broadly speaking, we should expect the results to be similar: The benefit will go mostly to healthy people who already pay for gym memberships, and any health care savings will be swamped by the cost of offering the benefit. And while the tax break might, at the margins, encourage more people to join gyms, that doesn’t necessarily mean that they will actually exercise more often, especially as time goes on.
Indeed, that is what gym owners are hoping for. The business model for many gyms revolves around the assumption that many members will sign up, keep paying, but use the gym rarely if ever. Hence the sign-up fees and initial contracts, the New Year’s specials and packed weekday evenings in January that inevitably dwindle into far less crowded after-work gym floors in March and April. Running a gym is really two businesses: The first is maintaining exercise facilities for use by regulars; the second is finding ways to collect revenue from people who for all practical purposes don’t go to the gym.
So it’s no surprise that the biggest and clearest beneficiary of a tax deduction like this would be the fitness industry itself: The stock price for gym chain Planet Fitness jumped 4 percent after the bill passed in committee. It’s a corporate giveaway in the name of lower taxes and good health.
Granted, as GOP tax follies go, this is relatively minor. The bill in question may not even make it through the Senate, which is still firmly focused on its no-agenda agenda. But it also reveals how accustomed Republicans, who have always been more comfortable with tax code tweaks than with more traditional government programs, are to running inducements for favored activities through tax breaks and deductions, which end up functioning as subsidies by another name.
Republicans may truly dream of a cleaner, simpler tax code. But over time, the allure of targeted tax breaks and the day-to-day realities of interest-group politics could make that dream a bigger lift than the party can manage.
If you’ve been to the movies recently and stayed until the very end of the massive list of names that follows the film, you may have noticed the startling number of tax credits and other subsidies being doled out to producers by states and cities. The new Avengers movie received somewhere around $30 million in credits from Georgia. Captain America received some $20 million to shoot in California.
Do you have permit for that? If you want to keep that permit, you’d better do as you’re told. Increasingly, that’s the theme of modern America.
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