The Laffer Curve (shown below) states that the amount of revenue a government receives from taxes follows a bell curve with tax rates on the x-axis and tax revenue on the y-axis. This is intuitively simple to grasp – governments that charge 0% tax rate will get zero tax revenue and governments that charge 100% tax rate will also get zero revenue because people will choose not to work. Why would you work when all the money goes to the government?
New Jersey passed a new law in 2005 that added a 6% tax on cosmetic surgery and it was aimed at the super rich and was seen as a quick way to increase tax revenues. The merits of this law were explained in the following quote from the NPR article:
“Back in 2005, New Jersey Assemblyman Joseph Cryan explained the rationale for the tax on CBS’s The Early Show.
“This is an income situation where people are able to afford elective surgery, they’re not medical necessities,” Cryan said. “Clearly, reconstructive surgery would not be part of it. So it’s optional surgery designed to enhance one’s appearance, as opposed to the necessity or quality of one’s life.”
But as Liberals consistently do, they forget that economics is always about motivations and people just went to neighboring states to have their plastic surgery performed. Another quote from the NPR article:
“Dr. Christopher Godek of the Personal Enhancement Center in Toms River, N.J., is one plastic surgeon who has been working hard to eliminate the tax.
Because New Jersey is one of the only states in the Northeast with the tax, Godek says patients go into other states without the tax to have their procedures performed to save that 6 percent.
Godek is also president of the New Jersey Society of Plastic Surgeons, which commissioned an economic study that suggests New Jersey is actually losing revenues because of the tax, not gaining them.
“When someone has plastic surgery, they’re not only coming to a plastic surgeon,” Godek says, “they’re utilizing a hospital or a surgery center; they’re staying in local hotels; their family is eating in local restaurants; they’re utilizing pharmacies to fill their prescriptions. So all of that revenue is lost.”
For Conservatives, this result was to be expected and sure enough the New Jersey State Legislature has approved a repeal of this law and it is on the Governor’s desk for signature.
Let this be a lesson to those who say we need to tax our way out of our current economic malaise.