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.