The U.S. has a Shoe Tax?

June 20, 2011

Well, not technically. But the U.S. does impose a tariff on foreign-made shoes. Today, 99% of shoes purchased in the U.S. are manufactured abroad, so there is a good chance that your favorite pair of sneakers was charged this so-called "shoe tax" upon entry to the country-and you paid the lion's share of the duty.

The tariff was implemented as a protectionist measure in the 1930s, when tariffs and protectionism were all the rage. A mark of diseased intentions (and resembling the arbitrary preferences in today's tax codes), the duties were written to vary drastically by shoe type. While open-toed and high-end leather shoes were largely or altogether exempted, canvas shoes were set to face a duty of 67.5%. Apparently the Congressmen loved their Oxfords and the Congresswomen loved their open-toed heels.

The tariff helped protect a strong domestic footwear industry until the late 1970s, when production began to move offshore. Now only 1% of U.S.-consumed footwear is manufactured domestically, making the tariff an obsolete relic of an obsolete economic theory. Without an industry to protect, the tariff essentially serves as a proxy tax on preference, with up to 40% of a pair's price directly attributable to the tariff.

Footwear retailers and consumer advocates have been active in lobbying against this $2 billion annual import cost since 2007. Two weeks ago a bipartisan coalition in the Senate introduced "The Affordable Footwear Act," which would eliminate the tariff on low-price and children's shoes-roughly half of all duties. Senator Maria Cantwell (D-WA) calls the tariff a "hidden tax" borne by unsuspecting consumers, and the bill is being marketed as a proxy tax cut for low-income households and a correction to a regressive scheme.

Tariffs and taxes have two different purposes. Tariffs exist to inflate the price of foreign goods in order to give domestic industry a comparative advantage in the domestic market; taxes exist to raise revenue for the government's operations. While it is officially considered a tariff, the shoe charge is equivalent to a tax on specific classes of foreign goods, and regardless of its classification it is bad policy. The government should not treat consumption of similar goods in a dissimilar manner. Those who prefer to purchase cheap foreign-made shoes should not be burdened by increased prices that are not imposed on those who prefer to purchase expensive foreign-made shoes. Playing favorites—whether in tax policy or archaic-and-obsolete-tariff policy—violates standards of transparency and neutrality. The Affordable Footwear Act is a fine effort, but one wonders why the bill does not propose to eliminate the shoe tariff in its entirety.

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