Wednesday, July 7, 2010

Who gets "burned" by the 10% Tan Tax that just kicked in? The Owner? The Tanner? The workers who lose their jobs?

     A 10%  "Tan Tax" took effect on July 1st. The tax was part of the health-care reform package that was recently passed into law and was meant to pay for some part of the new health-care mandates.  I wrote about this at the time (click HERE for that blog entry) because Congress WAS deciding whether to tax tans OR elective cosmetic surgery.  Because of interest group pressure from doctors the tax was levied on tanning salons instead. 
     I wrote about the Tan Tax in terms of elasticity, or what would be the change in quantity demanded of tans be in response to the increase in price of tans due to the tax.  Elasticity of Demand is determined by taking the percentage change in Quantity Demanded and DIVIDING by the percentage change in Price (including the tax).  If the result is greater than 1 then the good is considered Price Elastic.  This means consumers/purchasers ARE sensitive to changes in price of the good. 
     The comment below is only an empirical observation by an interested party, but if we take it at face value then we can assume demand for tans is quite elastic (2) to very elastic (3). 

Tanning salons feel burned by 10 percent 'tan tax'

"In 26 years of business this is the worst I've seen it," said Scott Shortnacy, owner of the Arlington Solar Planet as well as six other branches in the Washington area. "Normally for people who tan, it's a part of their lifestyle. They keep doing it even in a recession. But everybody has been looking for ways to cut back on those areas. ... Our sales are down 20 to 30 percent."

If, in fact, tans are Price Elastic, the burden of paying the tax will fall on the business mostly and on the consumer to a lesser extent. This will increase the cost of doing business and "at the margins" some/many operators will reduce/layoff staff (the largest cost of doing business) or close altogether.  Jobs for lower skilled/lower educated workers will become more scarce...Something to think about...
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