One medical study that looked at a program called “Get Active!” that subsidized gym memberships in four YMCAs in the greater Boston area for communities with mostly non-Latino Black and Latino residents found a positive correlation between the frequency of gym visits and health outcomes including significant decreases in weight, BMI, and blood pressure measurements. There are similar health outcomes correlated with gym use among white demographics as well. Importantly, these results show that like the college program, the effects of fully subsidizing gym memberships serve as the most effective means to encourage physical activity in lower-income urban communities.
III. Potential Reforms
Rebates/subsidies eliminate barriers across income brackets and race and are necessary to encourage physical activity. This essay contemplates two solutions: (1) refundable fitness tax credits and (2) expanding section 132’s fringe benefit for athletic facilities. Either or both of these approaches would eliminate a financial hurdle to fitness and make these tax benefits accessible across income and race.
A. Fitness Tax Credit
Implementing a fitness tax credit for both adults and children would allow an equitable distribution of tax benefits that would eliminate the hurdle of utilizing a medical deduction for gym fees. The Personal Health Investment Today bill—pushed by the health industry and passed the House of Representatives in 2018—would have added “sports and fitness” categories to medical deductions, allowing taxpayers to include membership at a gym, participation or instruction in exercise programs, and related equipment as deductible medical expenses. One criticism of that bill was that it would primarily benefit higher income taxpayers and those who already have good health insurance. Batchelder, Goldberg and Orzag noted that deductions and exclusions limit the benefits to high-income taxpayers whereas refundable credits such as the earned income tax credit, the children’s tax credit, and the small insurance health credit help lower-and middle-income taxpayers. They also noted that a uniform refundable tax credit is more efficient in generating positive externalities through the income tax system. Brian Jenn agreed that tax credits are more efficient in achieving policy objectives and that changing deductions to credits would provide benefits to non-itemizers who take the standard deduction, but he noted that tax credits do not fix the issue of higher-income taxpayers utilizing credits.
To effectuate a tax incentive for physical activity, these studies suggest that the government must do so through a refundable tax credit that is accessible to most taxpayers. Simply changing the medical deduction to a credit would not fix all of the distribution problems, but Daniel Reach supported a refundable tax credit to help with the obesity crisis modeled on the Canadian Children’s Fitness Tax Credit (CFTC).
The CFTC, created in 2007 in response to Canadian child obesity concerns, requires a child to be enrolled in an activity that includes “cardio-respiratory endurance and one or more of ... (i) muscular strength, (ii) muscular endurance, (iii) flexibility, and (iv) balance.” The credit had issues when first implemented as a nonrefundable credit, suffering the same upside-down effect as the U.S.’s section 213 medical deductions: a majority of families who took advantage of the credit had an average income of Canadian $130,000 and could incur upfront costs to wait for the end of the taxable year to use the credit. Nonetheless, even critical studies noted that the credit increased participation in physical activity programs for children in low-income families. The success of the credit incentivized local Canadian territories to launch their own children’s tax credits for gym and sports activity too.
Reach’s proposed Americans in Shape Tax Credit (ASTC) addresses the shortcomings of the CFTC and includes both adults and children: it is a refundable credit that would be broadly available for upfront membership fees, sports equipment costs, gym memberships, and exercise classes. Refundability is one element that helps to ensure distribution of the benefit to taxpayers in lower income brackets. As Reach notes, however, implementation of a successful tax credit across income and race requires finding a way to help communities that do not have exercise facilities. Something that could be utilized to fill in the access gap is for the ASTC to include a credit for transit to and from exercise facilities. Although the implementation of an ASTC could suffer a similar upside-down effect to the CFTC, the benefits for overall gym participation among lower-income people and the opportunity for states to follow suit with their own credits should not be overlooked.
B. Expanding the Section 132 On-Premises Athletic Facilities Provision
The expansion of section 132 to include a wider variety of gym-related activities is a simpler approach that could utilize already existing systems of corporate fitness programs and make those feasible even for small businesses to implement. Shepard, for example, advocates including off-premises gym membership fees as a fringe benefit because it is vital to business competitiveness, reduces absenteeism, improves employee morale, increases productivity, and reduces health costs. Shepard notes this would be particularly advantageous to small business employers that comprise about 99% of U.S. employers and employ more than half the private sector U.S. work force.
An alternative, if there is an overriding concern of misuse, would be to treat gym membership fees like the parking facilities fringe benefit. Under section 132(f)(5)(C), qualified parking not only includes employer-owned parking for employees but also covers parking provided “near the business premises of the employer or near a location from which the employee commutes by transportation, in a commuter vehicle or by carpool.” The regulations further specify that parking is provided by an employer if the parking is on the property that the employer owns or leases, the employer pays for the parking; or the employer reimburses the employee for parking expenses. The regulation further provides that if the monthly value of parking exceeds the monthly exclusion (set at $315 for 2024), then the employee must include in income the excess (minus any amount the employee paid). An employer can also provide an employee with a transit pass and/or ride in a commuter highway vehicle for up to $315/month as well, for a potential total of $630 in transit-related expenses in 2024. Applying the requirement that a parking facility “must be near business premises” to a gym membership would allow employers who can afford gym memberships but not an athletic facility to incentivize their employees to utilize nearby facilities. It would appear that the typical $30 membership fee would be insignificant compared to the existing fringe benefits for parking and transit.
This expansion of the fringe for gym memberships (from on-premise to reimbursement for membership fees in nearby facilities) would parallel the earlier modification to provide parity for mass transit benefits with the benefits already allowed for parking. In 2015, Congressman McGovern supported expanding the transportation benefit, noting that it would help employees who used mass transit while resulting in less carbon dioxide emission. There are similar arguments for parity between onsite athletic premises and gym memberships. Whether an expansion includes any off-premises athletic facility or something paralleling the parking benefit, the severity of both the obesity and physical inactivity crisis necessitates a change.