The voices of Tax Policy Center's researchers and staff
Has the Affordable Care Act’s 10 percent tanning excise tax reduced demand for indoor tanning services? A blog posted last week in the journal Health Affairs suggested that it may have, citing data from the Centers for Disease Control (CDC) that artificial tanning by high school students has been cut in half since the law passed in 2010. Given ongoing interest in sin taxes—whether on cigarettes, alcohol, marijuana, or sugary drinks, that’s pretty interesting. But the real story may be more complicated.
The problem is the age-old challenge of teasing out causation and correlation. The evidence seems quite strong that indoor tanning is much less of a thing than in the past. Fewer people report doing it, tanning facilities appear to be closing, and the tax has generated far less revenue than anticipated. But is there any evidence that the tax deserves the credit for this changed behavior (or, if you are in the tanning industry, the blame)? Did the tax help slash demand for indoor tanning or was consumer interest waning anyway?
That’s when matters get hazy. The tax was not the only government move against indoor tanning in recent years. In 2010, the Federal Trade Commission blocked ads that claimed health benefits from indoor tanning. In 2014, the US Surgeon General issued a “call to action” warning of the health risks of tanning. And there has been CDC’s own aggressive anti-tanning PR campaign, including explicit warnings that the activity can cause skin cancer. All these efforts likely would trim demand for indoor tanning.
The decline in indoor tanning may also result from changing fashion. Deep tans go in and out of style and we may simply be in a period where they are out. Or, it might have been industry’s inability to recover from the Great Recession, when many customers reduced or even stopped spending on discretionary goods and services such as visits to the tanning salon.
Let’s look at what we know: Researchers from the CDC reported that the number of high school students who say they artificially tan decreased from 15.6 percent in 2009 to 7.3 percent in 2015. And other research shows that the incidence of indoor tanning by adults also declined over the same period.
Falling demand is putting salons out of business. The industry claims the number of tanning facilities fell from 18,000 in 2009 to somewhere between 9,000 and 12,000 in 2015.
Finally, we know that the ACA’s tanning tax has generated far less revenue than the Joint Committee on Taxation predicted. While JCT estimated the tax would raise about $1 billion over its first five years, it raised less than less than $400 million. But while lower-than-expected revenue may be evidence of reduced demand, it does not prove that the tax itself drove down business.
Still, there is no doubt about what the industry blames for its shrinking business: the ACA tax. But would adding 10 percent to the price really be enough to discourage much tanning?
Are tanners price-sensitive?
According to mytanningtips.com (yes, you can Google anything), “a very basic tan session on a basic tanning bed” costs about $5. The ACA tax would add $0.50. Many customers pay a monthly fee of about $20 for unlimited visits to a tanning facility. They’d pay an extra $2-a-month, assuming firms passed on the full tax. Is that enough to discourage consumption?
We don’t know much about how sensitive indoor tanners are to price changes. We certainly know much less than we do about other goods and services that are subject to excise taxes--such as liquor and cigarettes. And UV rays are thought to be less addictive than, say, nicotine (though this finding is controversial). There also are substitutes for tanning beds, such as spray-on tans, exposure to the actual sun, or remaining pale--all of which are exempt from the tanning tax.
A quick search turned up only a handful of studies on the subject. In a 2012 survey of about 300 tanning salons in Illinois, Northwestern University researchers asked proprietors how customers responded to the tax. Nearly all salons said they passed the tax on to customers and informed them about it. About 80 percent reported that business was down, but roughly the same percentage said that customers “did not seem to care” about the tax.
In a 2016 paper, researchers led by Derek Reed of the University of Kansas found that “recent tanners” would tolerate a tax of $25 on a $30 package (83 percent) and “non-recent tanners” would be willing to pay a 50 percent tax without reducing demand—far higher than the 10 percent ACA tax. Their paper was based on surveys of about 100 female KU undergraduates.
Thus, we are left with this: Since the ACA tax became law in 2010, demand for tanning services has fallen sharply. But when it comes to why, the evidence remains cloudy.
Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Rogelio V. Solis/AP Photo