Outdated Tariff Systems Means the Poor Pay More

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Wednesday, June 02, 2010 at 6:00 am

The Commerce Department tweaked China recently when it slapped a 99 percent tariff on Chinese-made oil field pipes entering the U.S. The move was but the latest volley in a long-running skirmish over a wide variety of imports. To the extent that most people think of tariffs at all, it’s usually in a context like this. Tariffs are perceived as little more than an obscure negotiating tactic for trade disputes. But thanks to the large number of imported goods Americans consume on a regular basis, tariffs actually play much more of a role in average Americans’ lives — and household budgets — than they may realize.

[Economy1] Most people take for granted that they know how much an item will cost them when they look at the price tag and figure in the amount of their local sales tax. But low-income Americans end up paying extra for necessities like clothes and shoes — victims of an outdated, inefficient tariff system that inadvertently penalizes the poor. Even proponents of reform, though, acknowledge that the byzantine nature of the tariff code and the low priority it’s generally assigned by lawmakers makes the prospect of changing this entrenched system unlikely.

Luxury goods have very low tariffs, while cheap clothes, underwear, shoes and household products have much higher rates, said Edward Gresser, trade policy director at the Democratic Leadership Council. “The people who are paying for the tariff system don’t know they’re paying for it,” he said.

“It’s the dirty secret of the U.S. tariff code,” said Daniel Griswold, trade policy expert at the Cato Institute. “It’s our most regressive tax that the federal government imposes.”

The country’s trade policy is a quilt of special interests, trade group bargaining chips and concessions, some pieces of which date back to an era when the manufacture of household goods was a booming part of the domestic economy.

“[It’s] usually for no good reason other than the political influence of a domestic group or for retribution against some other country that placed a high tariff on one of our exports,” said Barry Bosworth, an economist at the Brookings Institution.

The disparities are staggering. In his research, Gresser found that the tariff rate on a cashmere sweater is 4 percent; the rate for one made of much cheaper acrylic is 32 percent. A silk brassiere has a tariff rate of less than 3 percent, but the rate on a polyester one is slightly less than 17 percent. The tariff rate on a snakeskin handbag is just over 5 percent but climbs to 16 percent for one made of canvas. Similar variations occur when it comes to household goods. Drinking glasses that cost more than $5 each have a tariff of 3 percent, while those that cost less than 30 cents each have a rate of 28.5 percent. A silk pillowcase has a rate of 4.5 percent; this goes up to nearly 15 percent for one made of polyester.

Overall, clothes and shoes contributed nearly $10 billion in tariff revenue in 2009, while higher-cost items including audiovisual equipment, computers and even cars added less than $2 billion. Gresser contends that the $10 billion is disproportionately borne by people who can’t afford to buy luxury goods. What’s more, when customers pay sales tax on these products, that amount is also higher than it would otherwise be thanks to the tariff that drives up the retail price.

In spite of this evidence, Gresser has had an uphill battle gaining support for his cause. Trade groups and politicians don’t want to lower a bar to foreign importers without getting some kind of concession in return. From their perspective, dropping a tariff that adds 32 percent to the price of a cheap men’s shirt amounts to giving away a valuable bargaining chip. Other groups — including, it should be noted, some prominent left-leaning think tanks — say dropping tariffs will cost jobs we can ill afford to lose in this economy.

While apparel and footwear manufacturing has largely moved offshore, there are still a few hundred thousand U.S. workers in those industries, according to Robert Scott, an economist with the Economic Policy Institute, who says removing tariffs on cheap clothes and shoes would put these (generally low-income) Americans out of work. He also contends that even the high tariffs aren’t as onerous as they appear.

“If you look at expenditures as a share of total consumer spending for the bottom quintile of Americans, it still ends up being a fairly small number,” only a small fraction of a percentage point more than the average for all Americans, he said. Scott added that the globalization of trade, along with the resulting downward pressure on prices, has hurt low-income Americans more than it has helped them.

Griswold of the Cato Institute says this worry is overblown, sometimes deliberately for political gain. “Less than one-third of one percent of workers make clothing of any kind in the U.S.,” he said. “The self-interest of these producers and trade organizations gets wrapped up in rhetoric about saving jobs, which appeals to public perceptions. It’s much harder to visualize the benefits to families able to buy more affordable shoes.”

For William Marshall, president of the Progressive Policy Institute, the argument that lowering or abolishing tariffs on low-cost products will cost jobs speaks more to the need to invest in training programs for low-skilled American workers. “It’s a challenge to protectionists. It does redistribute the pattern of job creation,” he acknowledged. But the genie is already out of the bottle when it comes to globalization, he said, and companies have already moved the bulk of their labor-intensive production offshore. Leaving high tariffs on cheap imported goods isn’t going to stop them from appearing on discount and dollar-store shelves, it’s just going to penalize the consumers who buy them.

“It’s easy to overlook, easy to ignore because people without political voice or power are the most affected,” he said.

Comments

39 Comments

North Capitol Street » Blog Archive » Outdated Tariff Systems Means the Poor Pay More
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Liam Foley
Comment posted June 2, 2010 @ 3:54 pm

This is a full of crap as the “free market” economic theory…all rubbish…why not employ some reporters who understand economics and politics.

Our traiff system is basically gone and designed to provide global capitalists with the cheapest labor around the world. Understand that before publishing junk about expensive and cheap clothes…


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Matthew Yglesias » US Tariff Structure is Highly Regressive
Pingback posted June 3, 2010 @ 1:45 pm

[...] C White has a great piece on the poorly-understood issue of the highly regressive structure of America’s tariffs on imports: Most people take for granted that they know how much an item will cost them when they look at the [...]


Russell
Comment posted June 3, 2010 @ 6:54 pm

This article is disappointing on many levels. The main premise that I disagree with is that there is a problem with a tax that is “regressive” in nature. Let's not forget about the fact that “poor” people get to write off many many many things that those in higher income brackets do not. No to mention that there are progressive income tax brackets. I make about 150K per year and I guarantee that not only do I pay a higher amount of total taxes (yet use no more if not fewer resources) but I also pay more taxes on a percentage of income basis. So enough of the whining about the poor!


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Franklin
Comment posted June 4, 2010 @ 12:21 am

If the goods are being imported by a nation that manipulates its currency — say 25 percent below its free-floating value — any costs imposed by the tariff are likely to be off-set.

If the person making the purchase is a laid-off textile worker who once made $14 an hour and is now making $8 an hour working retail thanks to that currency manipulation, the cheap goods are unlikely to off-set the impact of the lost wage.

As far as Russell's concerns go, world's smallest violin. A person making $150K a year likely uses the roads; odds are they rely on police and fire services; if they have investments they just received a huge support from taxpayers — on top of this they've been receiving a nice back-door tax through the favorable credit terms imposed on borrowers by lenders; never mind that that person has a tax-rate that's been funded on the basis of debt for the past 30 years.


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Pingback posted June 4, 2010 @ 1:57 pm

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Jean powers
Comment posted June 4, 2010 @ 3:20 pm

We need to put the Genie back in the bottle and start making things again.Manufacturing and textiles used to be good jobs and now they are being sent to slave wage countries,destroting jobs and lowering wages.How do we compete with chinese workers?We cant thats the point.You know unless we are willing to work for less than they do.Is that what we want?
Thats what corporations and business's want,but is that what is best for this country?
I dont think so.Many companies would gladly go back to slavery…just look at the Marianna Islands for an example….made in the U.S.A. with vertual slave labor shipped in from china.This is nothing new, they used ti ship chinese workers here when unions were starting up to try to break them.Now companies just leave the country with nice tax breaks to boot.Did you think the china deal was about freedom?I'll leave you with this to ponder.
“Henry C. Carey, adviser to Abraham Lincoln, and perhaps the leading American System economist, wrote extensively exposing the failure of the British free trade approach and demonstrating the success of the American System.

The following comes from Henry Carey's book, The Harmony of Interests, written in 1851.

One looks to underworking the Hindoo, and sinking the rest of the world to his level; the other to raising the standard of man throughout the world to our level.

One looks to pauperism, ignorance, depopulation, and barbarism; the other in increasing wealth, comfort, intelligence, combination of action, and civilization.

One looks towards universal war; the other towards universal peace.

One is the English system; the other we may be proud to call the American system, for it is the only one ever devised the tendency of which was that of elevating while equalizing the condition of man throughout the world.”

Which system do you think we are living under now?
Hint…not the american.


LauraNo
Comment posted June 4, 2010 @ 3:33 pm

It's not even a matter of lower cost shoes. After 3 or 4 purchases, it's the difference between being able to buy some thing else.


Scott van Etten
Comment posted June 5, 2010 @ 5:50 pm

Just curious – is there any correlation after noting the fact that we have troubled trade relations with makers of cheap goods (China, Vietnam, etc) and good trade relations with makers of luxury and high tech goods (European Union, Japan)?

The poor may indirectly be hit with more of burden in this equation – but the tariffs are there for a slew of reasons, little of which has to do with raising tariff revenue.


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How Tariffs Harm The Poor | Free Market Mojo
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[...] White explains some basic economics: In his research, [Edward Gresser, senior fellow and director of trade policy at the Progressive [...]


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Pingback posted June 6, 2010 @ 9:43 am

[...] the excise tariff: In his research, Gresser found that the tariff rate on a cashmere sweater is 4 percent; the rate [...]


YoursTruly
Comment posted June 7, 2010 @ 7:02 am

So, you are a free trader, or perhaps better termed free traitor? Or should I just come out and call it like it is and call you a Tory?

Thanks a bunch for promoting the sellout of the American middle-class and shipping millions of jobs overseas favoring foreign labor above hard-working Americans. Can you feel the wrath yet? No? Oh, you will. The sleeping giant is raising its weary head.


YoursTruly
Comment posted June 8, 2010 @ 5:03 am

November elections will show the exit to incumbents, and probably more to come in other future elections. I hope President Obama keeps his word and works to create jobs here. Sending jobs overseas has to stop or the wrath will continue to be felt in future elections as more incumbents are voted out. Americans are tired of having their jobs sold out to foreigners just so that rich vultures can take advantage of cheap labor. Americans are tired of politicians not listening to the people who elect them and instead favor corporations and wealthy elites with lobbying funds.


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Washington Independent: Outdated Tariff Systems Means the Poor Pay More | Progressive Fix
Pingback posted June 10, 2010 @ 5:35 pm

[...] the Washington Independent, Will Marshall explains how tariffs on low-cost goods are ineffective in the globalized [...]


Mbtj57
Comment posted June 15, 2010 @ 11:42 pm

I haven't actually heard anyone say anything like this in a long, long time Russell. But since you mention it.
First the poor don't actually 'write off' anything on their taxes. As you're undoubtedly aware, to itemize or write off anything on one's taxes requires expenses the tax code allows for. And those expenses must must a minimum amount of total income. Very few poor people itemize.
Second, while you may pay more taxes in terms of total dollars you almost certainly pay less as a percentage of income. It wasn't for nothing that Warren Buffett noted that he pays less in taxes as a percentage of his income than his secretary does.
Finally, your evident disregard of other people is astounding. Perhaps one day we'll finally elect a government which isn't a wholly owned subsidiary of big business, make the investments necessary to educate and train people for work in the world we live in and the poor can actually earn a decent living. Of course, that means the wealthy are going to pay for it. What a day that will be.


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Pingback posted June 17, 2010 @ 3:05 am

[...] Tariffs hurt the poor more than the rich. The disparities are staggering. In his research, Gresser found that the tariff rate on a cashmere sweater is 4 percent; the rate for one made of much cheaper acrylic is 32 percent. A silk brassiere has a tariff rate of less than 3 percent, but the rate on a polyester one is slightly less than 17 percent. The tariff rate on a snakeskin handbag is just over 5 percent but climbs to 16 percent for one made of canvas. Similar variations occur when it comes to household goods. Drinking glasses that cost more than $5 each have a tariff of 3 percent, while those that cost less than 30 cents each have a rate of 28.5 percent. A silk pillowcase has a rate of 4.5 percent; this goes up to nearly 15 percent for one made of polyester. [...]


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Comment posted July 29, 2010 @ 2:00 pm

The poor may indirectly be hit with more of burden in this equation – but the tariffs are there for a slew of reasons, little of which has to do with raising tariff revenue.


Obama Trade Policy Puts Labor Unions Ahead Of American Consumers | Asian Conservatives
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Matthew Yglesias » Trade, Taxes, and Tea Parties
Pingback posted September 30, 2010 @ 4:28 pm

[...] be to stop talking about deals, stop talking about “free trade,” and just focus on regressive sales taxes: The disparities are staggering. In his research, Gresser found that the tariff rate on a cashmere [...]


Trade, Taxes, and Tea Parties « South Capitol Street
Pingback posted September 30, 2010 @ 4:56 pm

[...] be to stop talking about deals, stop talking about “free trade,” and just focus on regressive sales taxes: The disparities are staggering. In his research, Gresser found that the tariff rate on a cashmere [...]


Trade, Taxes, and Tea Parties
Pingback posted October 4, 2010 @ 6:30 am

[...] be to stop talking about deals, stop talking about “free trade,” and just focus on regressive sales taxes: The disparities are staggering. In his research, Gresser found that the tariff rate on a cashmere [...]


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[...] even worse, politically powerful well-heeled people have generally managed to make it the case that luxury goods are taxed more lightly than things ordinary folks [...]


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[...] even worse, politically powerful well-heeled people have generally managed to make it the case that luxury goods are taxed more lightly than things ordinary folks [...]


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What I'm reading ed. 100617 | The Hermitage 3.0
Pingback posted February 26, 2011 @ 12:57 am

[...] Tariffs hurt the poor more than the rich. The disparities are staggering. In his research, Gresser found that the tariff rate on a cashmere sweater is 4 percent; the rate for one made of much cheaper acrylic is 32 percent. A silk brassiere has a tariff rate of less than 3 percent, but the rate on a polyester one is slightly less than 17 percent. The tariff rate on a snakeskin handbag is just over 5 percent but climbs to 16 percent for one made of canvas. Similar variations occur when it comes to household goods. Drinking glasses that cost more than $5 each have a tariff of 3 percent, while those that cost less than 30 cents each have a rate of 28.5 percent. A silk pillowcase has a rate of 4.5 percent; this goes up to nearly 15 percent for one made of polyester. [...]


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