How Tariff Policy Undermines Other Tax Policy Goals

By :: June 14th, 2011

As someone who spends her time thinking about how taxes affect low-income families – and ways to make it more rational – I can’t say that I’ve ever gotten my feathers in a ruffle over tariff policy. Why bother, I suppose, when there are so many opportunities for reform in the income tax system?

Apparently, this was a mistake. A recent analysis from Edward Gresser, director of the Progressive Economy project at the GlobalWorks Foundation, shows that some aspects of tariff policy seem misguided in ways that could hurt the poor. Surprisingly, while the tariff on leather dress shoes is 8.5 percent, for trail running shoes it’s 20 percent and for cheap sneakers 48 percent. A cashmere sweater faces a 4 percent tariff, while its wool cousin gets hit with a 17 percent tariff. For their second-cousin, the acrylic sweater, make that 32 percent. All in all, Gresser points out multiple categories of goods that a typical low-income family buys that face higher tariff rates than similar goods designed for higher income families.

Tariff policy joins payroll and excise taxes in imposing a larger burden on lower income families than it does on higher income families. And perhaps that’s why advocates for low-income families ought to take note of them.

Gresser calculates that a typical single-parent faces annual tariffs, hidden in the price of goods, of almost $400 a year. This goes against such policies as the Earned Income Tax Credit and the Child Tax Credit, both of which aim to assist low-income families. Here, one tax policy conflicts with another. In effect, tariffs can claw back a substantial amount of a single parent’s EITC, effectively undermining the EITC’s goal of supplementing wage income.

Senator Ron Wyden (D-OR) is trying to kick-start that discussion with the U.S. OUTDOOR Act. Introduced earlier this year in the Senate, the bill would scrap tariffs on shoes, sneakers, hiking shoes and several types of outdoor clothing – products not often made in the United States, but taxed through the tariff system at rates of 20 to 60 percent.  That should reduce prices on these goods for consumers.

Poverty policy wonks haven’t thought much about tariffs in recent decades, but these burdens on low-income families ought to be in the mix when tax reform finally percolates to the top of the agenda.

6Comments

  1. Len  ::  12:34 pm on June 14th, 2011:

    Elaine, Great post. Thanks. I had not seen that study.

    And I bet Jeff is very enthusiastic about building tariffs into the TPC distribution tables. :-)

  2. Michael Bindner  ::  2:19 pm on June 14th, 2011:

    EITC counters FICA taxes, not all taxes, so it is an apples to organges comparison to mention the two together. What is questionable is leaving a tariff in place after the American industry it is designed to protect has become extinct. If it has not, then the tariff protects jobs of people who would otherwise become poor.

    A VAT could, in effect, replace most tarrifs, although it should not simply be offset with a rebate or prebate, but with a real expansion of tax benefits to families with children – otherwise you are simply shuffling taxes.

  3. Michael Bindner  ::  2:21 pm on June 14th, 2011:

    Also, using percentages for various classes of goods is not necessarily appropriate. A 32% tariff on a $7 sweater is only a few bucks. A 4% tariff on a $200 cashmere sweater still raises more money.

  4. Ralph H  ::  5:56 pm on June 14th, 2011:

    It looks like the tariffa are based on weight or quantity instead of value. Perhaps changing to a % of sale price would be better.

    Instead of dropping tariffs on sneakers, perhaps Senator NIKE should increase tariffs so possibly some of the single parents could WORK making athletic wear. An example of a sham special interest law supporting a lobbiest if I ever saw it!

  5. Elaine Maag  ::  11:41 am on June 15th, 2011:

    That guy needs more work to do.

  6. InformedOne  ::  1:00 pm on June 15th, 2011:

    GREAT ! Do away with all tariffs. Absolutely & completely decimate, destroy,& ruin the chances of any new businesses being able to form & enter the marketplace. Eliminate all American small business. That is what our government has allowed to happen with our big businesses. Now they want to cut off aid to farmers too while subsidising corporate farming mega giants, many of which are owned by foreign stockholders & corporations. America is being defeated from enemies that do not even have to fire a shot and by a complacent society that is too self indulged with their individual selves. Let’s just quit and let the rest of the World take care of us and our needs. Hey, wait a minute, the rest of the World is collapsing too, Oh well, gimmee sum of that free obama money !
    Where is acorn ? Loan me bus fare to the welfare office. Thanks a bunch.