There was a story on NPR today that validates the much maligned Laffer Curve and this is a problem for Obama and the rest of his tax and spend Liberals.
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.
It’s nice to see someone take the time to discuss key economic principles that are too often ignored in mainstream political discussions.
Thanks for taking the time to read and comment! I fear that we have a whole generation that has grown up without understanding basic economics.
Reblogged this on Things I grab, motley collection and commented:
true no matter the country.
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Do you have any numbers on how much revenue was lost in cosmetic surgery? This really makes the case if we can see the amount of dollars lost out-of-state is greater than the 6% cost.
Though I believe this argument misconstrues the Laffer Curve. My understanding was that the curve represented the amount people will choose to work, more than the likelihood they will go to a competing market. Similar points with similar tax conclusions, but different theories with different tactical applications. Just want to be precise 🙂
Thanks NBDrews to taking the time to stop by and comment. You may be right that the Laffer Curve only deals with people choosing not to work but I have always extrapolated that to causing people to make different choices as well. Thanks for clarifying and adding to the conversation!
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