By Stacie Clifford Kitts, CPA

Mary O-Keeffe strikes back with another good argument in response to my post Still Talking About Fuller Lips, Larger Breasts, Slimmer Thighs, And H.R. 3590. In her post More on taxing cosmetic surgery, subsidies, and tax simplification Mary is certainly on target when she says:

“If we as taxpayers don’t want more taxes, then we as taxpayers also have
to send a clear signal to our politicians as to what we don’t want the
government to be spending our money on.”

Well Mary, I agree so here goes:

Dear government

I would greatly appreciate your not spending $100 million to buy a vote.
If Louisiana needs the money, base it on that need, not on your need to win.

Also,are you really spending $1.15 million to put a guardrail around a dry lake
in Oklahoma? Because if you are, I would rather that my portion of the tax
coffer not be spent on that – please.

And what’s the deal with giving the SETI Institute $13.8 million in
2008? Did you know they spent $456,312 to search for “signs of intelligent
extraterrestrial life”? (Although that does sound kinda cool, I am
wondering, why can’t we wait until they find us? I mean, let them spend the
money.)

And If even half of the rest of what Senator Coburn said about your
spending habits is right, would you please knock off all of the other
shenanigans, too – The public can’t afford it AND their cosmetic surgery too!

I eagerly await your response.

Very truly yours,

Stacie Clifford Kitts, CPA

Aaanywaaaay.

As Mary pointed out, the cost of “unnecessary” cosmetic surgery is not deductible for tax purposes and cannot be paid with pre-tax or what I’d call “tax efficient” dollars. And the proposed tax does not apply to otherwise deductible cosmetic surgery. So, yep, they do dictate behavior and have done so for quite awhile.

But that’s not the point.

The point is where does it stop? Yes, as Mary pointed out, they already started down this slippery slope, particularly with the [ab?]use of their taxing powers. Yes, the tax code is replete with behavior modifying incentives and disincentives. While this tax may be new, the concept on which it rests certainly is not. This “vanity” tax is merely an example of how far down the slope they’ve slipped.

So what’s next? Maybe congress will decide that having two bathrooms is unnecessary? So levy a tax or limit a deduction on anyone owning, renting, or squatting in a house with more than one?

How many cars per family are acceptable? Isn’t one enough? Why not charge an excise tax on each car purchased after the first?

Ok – so that’s a little dramatic. None of that is likely to happen – at least not before the next election.

So again I ask, why just cosmetic surgery?

Is it, as Mary argues, because it is unfair to subsidize “elective” surgery? Admittedly, I am not well read on medical education subsidies and the resulting economics. And if she is willing, she may help educate us all on the topic.

Remember, I’m pleading ignorance and despite that – or because of it – I’m not yet buying her argument.

First, I don’t understand how the doctor’s get a discount and second I don’t see the logic that explains how that discount gets to the public. From what I can find, most of the subsidies go to the teaching hospitals or schools. Doctors don’t directly benefit.

Oh, there is the “collateral benefit.”

Let’s consider – without the subsidies one of three things can happen: 1) the schools and hospitals can reduce training and research thereby eliminating the costs currently subsidized 2) the schools can raise tuition to compensate for the lost revenue or 3) they can collude with a combination of the two.

Results?

Well – less training and less research means lower quality. Lower quality generally means lower demand, which means poorer health. Poorer health raises the cost of taking care of sick people who shouldn’t be sick – and said cost are then being paid for by the public. This of course does not subsidize medical care. So why go there?

Ok, so subsidies result in lower medical school tuition (thus lowering the barrier to entry) which increases the supply of doctors. Supply pressure then pushes the price of the doc’s services down.

Okay, am I getting this yet?

Or, maybe subsidies result in lower tuition which means lower costs (and lower opportunity cost – threw that in for you economists) which means they can charge a lower fee and still make the same profit margin. This, in theory, means they charge less.

Is this what Mary means?

I suppose this is why I’m an accountant and not an economist ‘cause I know what really happens. Doc hires an accountant who says: “Raise your price as high as possible to accomplish one of two goals.

1) If you raise the price just right, you will maximize your profit margins without losing patients. So you will pocket more money even after my fees.

2) Or, you might lose a few patients (due to your price increase), while maintaining the same level of profit leaving more time to play golf or whatever docs do when they aren’t available.

So what does the doc do? She decides to maximize revenues because no matter the outcome she wins.

In reality – There is no subsidized discounts to the patient, just higher income or more time off for the doc.

Now let’s consider this -why not tax where the money really goes? That is levy the tax on the docs!

Look, assuming the doc has risen rates to accomplish the goals recommended by the accountant – which duh she has, the tax increases the cost to the patient means too much price pressure means lower demand means lower revenues means lower profits means doctor pockets less means accountant pockets less which really sucks!

Speaking of sucks – so does the “vanity tax” and all it represents.

The End

By Stacie Clifford Kitts, CPA

Mary O-Keeffe over at Bed buffaloes in your tax code has responded to my post:

Let’s Talk Fuller Lips, Larger Breasts, Slimmer Thighs, and H.R. 3590 (Patient Protection and Affordable Care Act.).

Her answer to my question is thoughtful and while I do agree with Mary’s point that there is some government subsidizing in the medical profession, I think her argument provides fodder for the slippery slope that this type of public policy inspires.

In my previous post, I say:

“But what is even more perplexing is just how or why cosmetic surgery won the tax lottery. I fear that this type of legislation opens the door for a whole litany of WTF taxes. I mean why not tack on an additional tax for hair coloring, nail salons, or makeup. These are also vanity products. Frankly where does it stop?”

Mary’s answer is this:

“The government provides large subsidies for the education of physicians. Yes,they do pay tuition, often taking out large loans to do so, but their tuition does not cover all the costs of their training. Government subsidies for medical education make up the difference. At the moment, people who purchase cosmetic surgery services are getting it at a discount thanks to the general public’s subsidies of their physicians’ training.”

Read Mary’s entire post.

Given the current economic state, and the need for our government to find revenue sources, I worry what source will be next.

Are we now to accept that any government subsidized product or profession is subject to this excise tax? If this is your position, then be wary, there are hundreds of thousands of government subsidies in all types and forms.

Tell me – are we now to explore the background of every product that we buy and determine if the government ever subsidized research or provided tax breaks? How soon do you think it will be before it becomes “public policy” to tax all of our choices, in products, or services, or lifestyle? Moreover, who gets to decide which items are wicked enough to be taxed first.

So again, I ask, why did cosmetic surgery win the tax lottery, why not the treatment of acne? After all dermatologists went to medical school too, their education was also subsidized. The answer is clear, because taxing little pimple faced teenagers for their acne treatment would tick people off. It doesn’t matter that this procedure is also elective and even vanity driven.

However, people who elect to have cosmetic surgery are perceived as vain, spoiled, overindulged, and sinful.

Do you see how letting our government tax our life choices even when those choices are not harmful to the public welfare creates a morality clause in our tax system by giving lawmakers the power to tax those items or services that they believe are wrong?