Saturday, December 5, 2009

If you can afford X, you can afford X+Y

A popular argument in favor of the much-debated cosmetic surgery tax is that if you can afford to spend a ridiculous amount on personal upkeep, surely you can afford to spend a bit more for something worthwhile - in this case, health care for others. While the proposal itself does not bother me, the suggestion that if you can pay Amount A, you can also manage Amount A+B, does.

Leave aside for a moment the specific issue of cosmetic surgery. The question here is whether one's intent to pay Amount A should be taken to mean that one could just as well pay A+B, as though B does not change the price and thus the affordability of Unnecessary Item X. My argument is thus not that purchases should never be taxed, but that we should not pretend that taxes have no impact on the affordability of said purchases, even if such purchases could be classified as rich-people-nonsense. If part of the hope with this tax is to discourage consumption of something foolish, fair enough - I'll leave opposition to the more libertarian among us. But it seems the thinking is more, these spoiled, vain fools have money to spare.

Why does any of this matter for those of us not looking for nips and tucks? Because the principle of assuming X's affordability implies X+Y's affordability extends to realms that have nothing to do with taxes, Botox, or spreading the wealth to the less fortunate. Example: at every food store where a per-pound item is selected for you, you have to ask for less than you want to get the amount you're effectively asking for. But if you forget to do this, receive significantly more than you'd asked for, and complain, you will learn that this is just the amount the item comes in, or that it's tough to cut some item (fish, meat, cheese, etc.) to a particular weight (which is plausible in some situations, but does not excuse, say, extra olives, walnuts, etc., and is in any case often used as an excuse to oversell items well beyond the range of error). The store's message: 'If you can afford not to eat only prepackaged foods, you can afford an extra third of a pound of whatever it is you're having.' Only someone cheap would argue over a sliver, or order a quarter of a pound in the first place.

Leaving aside the question of whether cheapness should be penalized (and why wouldn't those on the selling end frown on frugality?), the implication here is that all consumers of X spend a set percentage of their wealth on X, and thus that only those with a particular economic status buy X in the first place. Which, whether X is a nose job or arugula, is false. Different people budget differently. Two people can be said to have a spare $400 to spend on nonsense, but one person's 'spare' $400 might come from his spare $4 million, while another's might be the result of months' worth of lentils in lentil sauce.

So, readers whose knowledge of economics extends beyond what's taught junior year of high school, does any of this make sense?

8 comments:

Miss Self-Important said...

Isn't this basically the principle of sin taxing? You could make the same objection for smokers--just because they're willing to pay X amount for an unnecessary and dangerous product doesn't mean they're willing to pay X+Y. (Indeed, smokers tend to be poorer and even less able than cosmetic surgery consumers to pay extra.) But that's the idea--if they're not willing, they won't buy the cigarettes, and that's good for society b/c smoking is bad, but if they are willing to spend the extra required to cover the tax, the income can then be spent to compensate everyone else for the cost of the smoker's behavior. You could say cosmetic surgery has a less tangible ill-effect on society than smoking or drinking or gambling, but I'm not too uncomfortable lumping it with those sins.

It doesn't seem, in any case, to undermine thrift, since part of thrift would entail not wasting extravagant amounts of money on unnecessary stuff in the first place, including cigarettes and botox. Your objection might be that it's the state deciding what falls under the category of unnecessary or extravagance rather than the consumer.

Phoebe Maltz Bovy said...

My sense is that the Bo-Tax isn't about discouraging cosmetic surgery (i.e. the principle of the cigarette taxes) so much as it's about assuming people willing to shell out $3,000 for vanity will just as easily spend $3,100. Though both apply, I suppose, in both cases, the discourage-unnecessary-dangerous-behavior aspect seems much smaller here than the oh-they're-rich-and-spoiled-anyway-so-they-should-help-the-less-fortunate. As in, the tax, the way some discuss it, may as well be on thousand-dollar handbags, the message being, basically, purchase away, the tax dollars are appreciated.

Where thrift enters into it... it doesn't directly with the Bo-Tax, because obviously the thrifty aren't Botoxing in the first place. But it does in terms of the shaming of the cheap in everyday purchasing situations.

I can't believe when I wrote this post I left out such an obvious example of if you can pay X, you can pay X+Y: the coffee bar tip jar. If you can pay $3 for the occasional latte, you can pay $3.25; that this is not true, and a $3.25 latte means fewer lattes all around, doesn't enter into it. The idea that once you're the sort of person who'd purchase an unnecessary item/service, your cash is basically up for grabs, extends beyond 'sin', except insofar as all spending not necessary to survival is sinful in that it's not charitable donation.

There are obviously better and worse moments, strategically, to present a purchase as guilt-inducing enough to elicit an extra 20%. When Whole Foods asked recently if I wanted to donate to a charity, even though I wasn't buying their pricier items, I felt guilty enough to be at that store in the first place that after refusing to donate, I felt, as intended, like a bad person. But when Duane Reade asked the same question at checkout, it seemed a bit much to suggest the purchase of basic toiletries implies having money to spare for spur-of-the-moment charitable donations.

Britta said...

I once read an article on consumer psychology arguing basically, that once you had committed to spending X amount of dollars on something expensive, slightly more was not going to deter you, and what was a "slight" amount was not thought of in absolute but in relative terms. For example, once people were willing to spend $150,000 on a house, they were also willing to spend $155,000, even if, in the abstract, they thought $5,000 was a lot of money, or if they would pay $400 for a purse, they would also pay $450 for the same purse. These same people, when presented with something cheap, say, $1 gum, were unwilling to pay $2 for the gum, even though they didn't blink at paying up to $5,000 more for a house. I think the idea is once, psychologically, you are will to commit X large sum to something you consider important, you actually (whether you can afford it or not) are fairly willing (or resigned) to paying X+Y to get the same thing, even if normally you you think Y is a lot of money in the abstract. I wouldn't be surprised if a nose job is actually like that. If you are willing to spend X money on permanently altering your appearance, you would probably actually be willing to spend slightly more.

I think cheese and coffee are different, because they are small everyday things where people are more price sensitive, and they are also normally repeated purchases. If I only bought a latte once in my life, or once every ten years, I would be willing to pay $3.25 instead of $3, or $5, or whatever, but if the option is pay $3.25 3x a week instead of $3, then I am not willing to do that because it adds up.
I have to say Phoebe, I am surprised (well, maybe not, since you are in NY) that your cheese slicers would be so cavalier about weight. Maybe it's because I go to a German deli, but they try to get exactly the amount you ask for. I've asked for a half pound, and had them ask me if .52 of a pound was ok, and the person seems more than willing to take off a small sliver.

Finally, people make assumptions about class based on your spending habits, and assume if you buy X, you must have a certain amount of money. For example, eating nice cheese is seen as something "high class," and therefore people who do it are seen as having a lot of money. While, yes, being able to buy $15/lb cheese means you probably aren't on food stamps, it doesn't necessarily mean you have that much money. There are plenty of people with cultural and not economic capital who are willing to commit a high proportion of their budget to nice food, travel, art, etc., who are often mistaken as being economically wealthy as well.

Phoebe Maltz Bovy said...

Britta,

"There are plenty of people with cultural and not economic capital who are willing to commit a high proportion of their budget to nice food, travel, art, etc., who are often mistaken as being economically wealthy as well."

This is really key. There are certain luxury items known as being that-which-poor-people-buy-but-can't-afford (see Alice Waters's infamous "Nike sneakers" remark; plus tanning salons, perhaps cosmetic surgery). No one assumes that someone buying $150 sneakers or $600 heels can afford these shoes; if anything, the presumption is often that these purchases are typically beyond the means of the customer. There are other luxuries (the arts, the local-sustainable-formerly-known-as-'gourmet' groceries) that, as you say, connote level of education and the like, but that get classified as 'rich people stuff', even though... basically, what you said.

I need to find one of these German delis, obviously.

As for big purchases, I don't find it hard to believe that someone spending $2 million would not be thrown off by $2 million and fifty cents, etc. But let's say the millionaire is confronted with a pricey item all of a sudden going up in price, for reasons that have nothing to do with changes in the quality or market value of the item. Does that change things? Isn't there a difference between willingness to pay $2 or $3 million and willingness to pay $3 million for what one assumed would be $2 million?

Miss Self-Important said...

"The tax, the way some discuss it, may as well be on thousand-dollar handbags, the message being, basically, purchase away, the tax dollars are appreciated."
That sounds like an updated incarnation of sumptuary laws, which, like sin taxes, I can get behind. I don't think it makes that much sense to reduce the principle of luxury or sin taxes down to a penalty on any consumption. That's what sales tax is. But in principle, luxury taxes need not be based on any assumptions about what spoiled rich people are willing to pay by virtue of being spoiled. They can just be based on the view that no one needs $1000 handbags or $50000 cosmetic surgery, these products have corrosive effects on our society, and therefore, rather than banning them, we will require consumers to pay back society for purchasing them. They are still free to purchase them at a premium, or, if the premium dissuades them, all the better. (Although, of course, it is the job of statisticians at CBO and GAO to predict how much revenue any federal tax levy will generate, but that revenue is not necessarily the tax's purpose.) Also, Britta is right about the fact of declining price sensitivity at higher prices. This is convenient, but not necessary to justify the tax.

This is not, I think, comparable to the principle behind sales tax, which is simply that the government needs your moneyz to function, and it has to get them somehow, so why not tax everything you buy a little bit? The purpose is of course not to discourage you from buying milk and eggs, but on the contrary, to assume that since you have to buy milk and eggs, you'll shell out the extra 12 cents to do it, regardless of your income.

Of course, the libertarian position is that all consumption is morally neutral, and almost all taxes are bad, so this argument for sin tax doesn't work in that case.

Phoebe Maltz Bovy said...

It could be that the intent of the Bo-Tax is in part to discourage the surgery. But in discussions of it, it seems to be more about what Britta describes - the 'they won't even notice it, the rich bastards' - than about acknowledging that some will notice and will therefore abstain.

The problem here seems to be the ambiguous cases - items that fall between the Hermes handbag and the bulk-bought oats. As in, my groceries from Whole Foods were necessary, because they were things like store-brand eggs and milk (but also this particularly tasty and non-store-brand sugary cereal), but not necessities, because there are cheaper supermarkets (granted not near where I live, land of the super-expensive supermarkets that look like they'd be super-cheap, making Whole Foods the economical option...), and for some purchases, cheaper alternatives at the same store. So the assumption that the Whole Foods shopper could pay X+Y makes frugality more difficult for the moderately cheap.

Miss Self-Important said...

Yes, it seems from the NYT thing that the bo-tax is intended purely to generate revenue, but my point is that you shouldn't see it as akin to a penalty on any consumption. The rationale for a tax on luxury is categorically different from that on all consumer goods, even if in the end, all taxes generate revenue. In alternate schemes, the health bill could call for a tax on, say, all medical procedures costing less than $200, on the grounds that such a tax would be widely-applied, thereby generating a lot of revenue. Or, it could apply a tax only to the most expensive and experimental procedures, thereby burdening those with the most money who could presumably afford a little more. But that isn't what they want--they're singling out the consumers of luxury medical care, which, while a blurry line in some specific cases, is basically easy to distinguish from necessary medical care. It is a moral judgment about consumers of cosmetic surgery.

The Whole Foods example doesn't track this as well--they're just hitting you up for voluntary donations. My regular chain grocery store does that all the time, presumably b/c a grocery store is a well-trafficked place where people are spending money, and so a good place to fund the walk for diabetes or whatever. I don't think their assumption is that everyone who buys eggs at Stop 'N Shop is rich. As far as the taxation goes, your eggs are taxed the same at Whole Foods as at Stop N Shop.

Phoebe Maltz Bovy said...

MSI,

I suppose I wasn't clear enough in the post/comments. So, to be clear: I absolutely see a difference between sumptuary/sin taxes and sales tax, and do not confuse demands for a voluntary donation with taxes. Also, I'm well aware that Whole Foods isn't alone in asking for donations to charity - the same is true, as I pointed out, at the drugstore, and, as I didn't point out, at 'regular' supermarkets I've also shopped at, at times when the snooty one did not also happen to be, as is the case in my neighborhood now, the cheaper one.

What I was getting at, then, was less the tax itself than the way the public support for it is voiced. In this sense, it's all of a piece - taxes, donations (at Whole Foods but not the drugstore), buying that extra quarter pound of whatever because it seems wrong to finagle over such a tiny amount. While, again, agreed that there are differences, what these all have in common is the 'if you can pay X, you can pay X+Y' assumption. But it's more than an assumption - it's more like 'if you can pay X, you not only can pay X+Y, but had best pay X+Y without complaining, which you will, because a rich person like you won't even notice the difference.' Leaving aside whether rich people do notice differences (which gets us back to Britta's point about various large amounts seeming the same), the fact is that not all X-amount purchases are purchased exclusively by those for whom small differences don't matter, and that the 'if X then X+Y' argument attacks frugality with guilt, whether it's about a charity or just a store having sliced too much cheese.