Shot in the Foot
September 6, 2008; Page A10
Trade protectionism is typically defended as a way to protect American jobs, even if it doesn't. But who wins when we impose tariffs even if there are no American jobs to defend?
With the exception of high-end footwear, more than 95% of the shoes Americans wear are produced outside the U.S. Yet the U.S. still imposes a tax on imported shoes that can reach as high as 67%, a legacy (believe it or not) of the Smoot-Hawley tariff of 1930. Shoe tariffs raise more money than auto tariffs, and the tax is applied most heavily on the lowest-priced imported footwear.
"This is the most regressive policy in America today," says Ed Gresser of the Progressive Policy Institute. "The biggest victims are poor, single mothers." He's right. The tariff steals about $5 billion a year from U.S. consumers, and a family that shops at Payless or Wal-Mart typically pays a $5 duty on a $15 pair of sneakers.
As with all tariffs, this one also creates perverse winners. Under current trade law, tariffs on fabric-soled shoes are only about one-third as high as tariffs on rubber-soled shoes. So one company, E.S. Originals of New York, has a patent for a process to imbed fabric into rubber soles. The sole purpose of this process is to get around the higher tariff. Shoe companies spend $40 million a year on royalties to pay for the imbedding technology -- which is an income transfer from low-income Americans to one company. One of the firms lobbying for retaining shoe tariffs is . . . E.S. Originals.
A coalition of retailers and shoe companies has been trying to build support to repeal the shoe tax, and it already has support from 157 U.S. House Members of both parties. The argument for doing so has gained momentum as import prices have climbed more than 20% so far this year thanks to the weak dollar. We hear that Ways and Means Chairman Charlie Rangel would like to repeal the tariff but feels constrained because under Congressional rules he'd have to raise taxes or cut spending by $2 billion a year to replace the lost revenue. Congress could always save the $2 billion by spending less, but it's politically so much easier to reduce the standard of living of working families by keeping an unjust tax.
Democrats in Denver last week talked a lot about burdens facing the working class. Repealing the shoe tariff is one quick way to make that more than just another political slogan.
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