Tuesday, December 8, 2009

MY TURN TO TALK FULLER LIPS, LARGER BREASTS, SLIMMER THIGHS, AND HR 3590

Those of you who follow the BUZZ every Wednesday and Saturday are aware of an online debate between tax bloggers Stacie Clifford Kitts of STACIE’S MORE TAX TIPS and Mary O’Keefe of BED BUFFALOES IN YOUR TAX CODE regarding the proposed tax on cosmetic surgery in the health care reform bill.

Stacie is a CPA and practicing tax preparer and Mary is a Public Policy Economist, college professor, and the coordinator of the Union College/Schenectady Department of Social Service VITA volunteer tax preparation program.

It all began with Stacie’s post “Let's Talk Fuller Lips, Larger Breasts, Slimmer Thighs, and H.R. 3590 (Patient Protection and Affordable Care Act.)

Stacie’s initial post quoted from the bill –

“(a) In General- There is hereby imposed on any cosmetic surgery and medical procedure a tax equal to 5 percent of the amount paid for such procedure (determined without regard to this section), whether paid by insurance or otherwise.

(b) Cosmetic Surgery and Medical Procedure- For purposes of this section, the term `cosmetic surgery and medical procedure' means any cosmetic surgery (as defined in section 213(d)(9)(B)) or other similar procedure which—

(1) is performed by a licensed medical professional, and

(2) is not necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or disfiguring disease
.”

This treatment follow the way cosmetic surgery is treated as a medical tax deduction – it is not deductible unless it is “necessary to ameliorate a deformity, etc”.

So we are talking about a tax on what is basically an unnecessary indulgence. The individuals who will be subject to this tax will for the most part, due to the high cost, be able to afford it.

Stacie says –

I can't say that I am totally opposed to taxing behavior. That is, I agree with sin taxes. Taxes on cigarettes and alcohol for instance do provide a certain amount of good since these products have been shown to cause harm to the public welfare. Likewise, the cost of treating people who have made themselves sick by indulging in unhealthy activities or behaviors must be considered - I get that - and if a tax on so called unhealthy products helps to relieve the public burden, then so be it.”

But opposes the tax on cosmetic surgery –

But is cosmetic surgery really sinful? Personally, I fail to see how it is. Maybe our lawmakers can explain to me how slimmer hips, larger breasts, or plumper lips harms the public welfare or places a financial burden on the government.”

Her main concern is –

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 responded to Stacie’s post with “Taxing Cosmetic Surgery?”.

She begins by telling us –

At the moment, Congress is ‘digging into the sofa cushions’ to find money to keep deficits from becoming even more unmanageable than they already are. Current deficits are not sustainable for the long-term. Something has got to give.

She goes on to use her background as an Economist to “justify” the tax on cosmetic surgery.

From a public policy point of view, there's a strong argument for taxing cosmetic surgery which does NOT apply to the other products Stacie mentioned.

The government provides large subsidies for the education of physicians. Yes, med students 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
.”

Mary feels that because doctors providing unnecessary plastic surgery to the wealthy are not practicing medicine in a way that benefits society, as those in other specialties are, the government, and the American Public, is not getting a proper “return on investment” for the subsidies provided for such doctors’ education. Therefore it is appropriate to tax such frivolous plastic surgery procedures.

This is not to say that doctors who practice plastic surgery are all money-hungry pigs. I am sure Mary will agree with me that there is much work done in the area or plastic, or reconstructive, surgery that truly benefits society a whole, and more specifically accident and burn victims, those with abnormalities caused by birth defects or illness, and others.

Stacie responded to Mary’s response with “Still Talking About Fuller Lips, Larger Breasts, Slimmer Thighs, And H.R. 3590”.

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
.”

She ends with –

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?


Mary returned with “More on Taxing Cosmetic Surgery, Subsidies, and Tax Simplification”.

She makes some very good points and gets to the real issue –

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 money on.”

And -

Indeed there are hundreds of thousands of government subsidies all over the place, and an important ‘sofa cushion’ for our government to look under is to re-examine the public justification for each of those major subsidies.

In many cases, what makes the most sense is just to ELIMINATE the subsidy in the first place rather than continuing the subsidy and then excise taxing the subsidized product to undo the subsidy
.”

She then “gets on her favorite soapbox” –

Many times those subsidies we should consider eliminating are delivered through the tax code, so eliminating the subsidy just means eliminating a special interest tax break (what I call a "bed buffalo"). . . . .It's high time the government took a careful look at whether there are better uses for much of the money it spends on subsidizing this, that, and the other thing.”

She hits the nail on the head with –

There are no easy answers here, but simplifying the tax code to eliminate a lot of bed buffaloes would reduce the kinds of such intrusive questions the IRS needs to ask.”

But Mary still supports the tax on cosmetic surgery, ending her post with –

I don't think that air travel is "sinful," but I think there's a case for making sure that airline passengers are not subsidized by the general taxpaying public.

Similarly, I don't think that cosmetic surgery is "sinful," but I think there's a case for making sure that it's not subsidized by the general taxpaying public
.”

Stacie has the last word (until this posting) with her final thoughts on the subject in “Babbling Incisively on About Fuller Lips, Larger Breasts, Slimmer Thighs and H.R.3590”.

She follows Mary’s advice and composes a great letter to “government” to identify what she doesn’t want the government to be spending our money on. Be sure to check it out.

But her basic opposition to the cs tax remains –

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?


I do not look on the proposed tax on cosmetic surgery as a “sin tax” or a “vanity tax” but as a “luxury tax” on the wealthy, similar to the federal luxury tax on higher-end vehicles that ended its 10-year run on January 1, 2003.

I detailed my opinion on “sin taxes” and taxing the wealthy “because they can afford it” in my post “I’m Telling You Now”. In this post I said -

I do believe that the Tax Code can be used to ‘encourage’ behavior that is beneficial to Society and to the Economy in general by ‘rewarding’ such behavior with tax benefits.

I am sure that we can all agree that charitable giving, post-secondary and continuing education, saving for retirement or health emergencies, investing in the stock market, reducing energy consumption, and perhaps even owning a home are all ‘behaviors’ that benefit society and the economy and that should be ‘encouraged’ by providing ‘rewards’ via the Tax Code through deductions, credits and preferred tax rates.

I am against using the Tax Code to ‘punish’ perceived ‘bad’ behavior. We say that smoking and alcohol are ‘bad’, so let’s tax cigarettes and liquor up the arse to make people stop smoking and drinking and, more importantly, raise revenues. Obesity is also ‘bad’, so let’s force everyone to eat properly, and filler government coffers, by excessively taxing junk food.

One of the main reasons I am against ‘sin taxes’ is that I do not want the local, state or federal government to determine what is a ‘sin’ or what is ‘bad’ behavior. I do believe the phrase is “a slippery slope”. What if, God forbid (no pun intended), the extreme religious right comes to power? The possibilities are frightening.

I am also against taxing the rich simply ‘because they can afford it’. Recent studies have shown that the “rich” already pay more than their share of taxes. The Tax Foundation’s TAX POLICY BLOG recently posted “Tax Burden of Top 1% Now Exceeds That of Bottom 95%.

I do not believe in a highly ‘progressive’ tax system that ‘punishes’ such positive behavior as ambition, entrepreneurship and just plain hard work with a higher tax rate
.”

I am against a sin tax, a vanity tax, and a luxury tax. I side with Stacie in opposing a tax on unnecessary plastic surgery, regardless of Mary’s excellent arguments used to try to justify the tax.

I agree with Mary that if the subsidy is wrong it should be corrected or eliminated. I also agree with her that the true problem lies in the mucking fess that the Tax Code has become. Many government programs and subsidies are administered through the Tax Code – and this should not be. The purpose of the Tax Code is to raise revenue. Period.

And here is another point I would like to make. Why must increased taxes, fees and miscellaneous charges always be the only answer to fund a program or to reduce a budget deficit?

When a businessperson faces losses, or reduced income, he/she first looks to reducing costs.

As a tax professional I decide that I do not need to order two tax handbooks, so I get the 1040 Quickfinder only and no longer also order the TaxBook. I am getting everything I need from NATP, so why also belong to NSTP? Instead of traveling to Reno, Nevada for continuing education classes I will take only those offered locally.

If that is not enough I next look at “tightening the belt” with regards to personal indulgences. Dine out less often. Take one less trip or see one less Broadway show.

Raising fees is a last resort, or done in combination with reducing unnecessary costs.

There is plenty of pork, excess entitlements, and unnecessary spending in any government budget (especially that of the State of New Jersey). Cutting the budget does not automatically mean cutting spending on vital social programs and services, other than to trim excesses in their administration. The first step any government entity should take when facing financial issues is to look for and eliminate unnecessary spending.

So there you have my take on the issue. I am sure Stacie and Mary, and others, will have something to say about my comments.

TTFN

4 comments:

Stacie Clifford Kitts said...

Good post - full coverage -

I like your take on ignoring bad behavior and rewarding good. Doctor Spock would approve I'm sure. :-)

I agree that our gov should reduce spending before they increase tax.

I am interested in what you might say in your own letter to the gov about what they are spending our money on.

Stacie

mok said...

I agree with Stacie. You did an excellent job of summarizing our complex and wide-ranging discussion.

Here's a holiday present, a very unusual and fascinating tax court opinion you might enjoy reading, given your interest in musical theater.

http://www.ustaxcourt.gov/InOpHistoric/calarco.sum.WPD.pdf

Robert D Flach said...

S + M -

I am glad you both approved of my summary. It was a good debate.

Thanks to MOK for the court case reference. I will read it when I come up for air.

So what is the next topic of debate?

TWTP

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