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Paying for healthcare reform with a 'botax'

November 19, 2009 |  5:07 pm

Botox, plastic surgery, botax, excise taxes, healthcare reform We've seen taxes on death, luxury and sin, and now the Senate is poised to impose one on vanity. To help cover the cost of health insurance subsidies for the working class, the bill cobbled together by Senate Majority Leader Harry Reid (D-Nevada) would create a 5% excise tax on elective cosmetic surgery. "Elective" is the important word here; the new levy wouldn't apply to reconstructive surgery for people who'd been disfigured.

The idea, which some Senate Democrats have been kicking around for months, has already been tried out in New Jersey, where it reportedly brought in a fraction of the expected amount. That's probably true because it's relatively easy to evade a tax levied by only one state; dodging one assessed in all 50 would be a bigger challenge, although hardly an insurmountable one.

If this were a Republican proposal, I'd suspect it was a form of payback to Hollywood liberals. But it's a Democratic idea, a small piece of the party's attempt to make the wealthy pick up as much of the tab for healthcare reform as possible. (Not that cosmetic surgery is only for the rich, but it certainly takes a fair amount of disposable income.)

The biggest problem with this kind of tax is that, as the Tax Foundation points out, it distorts behavior. And unlike smoking or even drinking sugary cola, it's not a behavior that policymakers have a reason to discourage. Elective cosmetic surgeries aren't covered by insurance, and they don't contribute rising healthcare costs or the looming insolvency in Medicare.

No, these procedures are simply an inviting target, as per Russell Long's axiom about taxing the man behind the tree

Along the same lines, Reid's bill would hike the Medicare tax on wages above $200,000 by almost 35%. The change is projected to raise 10 times as much as the tax on plastic surgeries -- $54 billion over 10 years vs. $5 billion. But it violates the spirit of Medicare, which is an insurance program, not a savings plan. The benefits it provides are the same regardless of how much you've paid into the system, and they're no more valuable to a retiree who was a big earner than one who was a low-wage worker bee.

By adding those two taxes to the bill, Reid and company were able to reduce the amount collected through a tax on expensive health insurance plans. Such a tax would distort behavior too, but in a good way -- by encouraging people to obtain insurance plans with higher deductibles and co-payments, which would be less likely to promote overconsumption of healthcare services.

Organized labor bitterly opposes this surcharge, however, because it would affect rank-and-file union members who've bargained for rich insurance plans, not just CEOs with gold-plated benefits. That makes it a tough sell for Democrats, even if it's better policy than simply slapping more taxes on the rich.

-- Jon Healey

Photo credit: Mark Boster / Los Angeles Times

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