End the Shoe Tax!

In a post yesterday, my Cato colleague Chris Edwards graphically demonstrated that the U.S. tax code is very “progressive,” imposing far higher effective rates on high-income households than on lower-income households. But one area of federal taxation—the U.S. import tariff code—is actually quite regressive.

Even after decades of trade liberalization, some of the highest remaining U.S. tariffs are imposed on imported goods that loom largest in the budgets of low-income families—namely the staple items of food, clothing, and shoes. And the highest tariffs within the categories of shoes and clothing are imposed on the lower-priced varieties that poor families would be most likely to buy.

That is all the more reason to feel good about a movement under way to “end the shoe tax.” According to a story in today’s Chicago Tribune:

Footwear manufacturers and retailers are trying to end a Depression-era federal shoe tax, a move they say could save American consumers hundreds of millions of dollars annually and kick-start relatively flat footwear sales.

Trade associations and their members, such as Payless ShoeSource, Nike Inc. and Columbia Sportswear Co., have been lobbying U.S. lawmakers weekly since the summer to get them to exempt certain categories of footwear, including all children’s shoes, from the import tariffs that can run as high as 67.5 percent a pair.

The groups created a Web site, EndtheShoeTax.org, to raise awareness and encourage constituents to tell their lawmakers to pass the Affordable Footwear Act of 2007.

Repealing the shoe tax would have minimal impact on employment. According to the story, 99 percent of shoes sold in the United States are imported. Americans stopped making low-end shoes years ago. And even if jobs were at stake, it would not justify a cruel tax on such a basic necessity. (The same logic applies to remaining tariffs on t-shirts, as I explained in a recent op-ed.)

The political irony here is that many of the same people who complain the loudest that the rich are not paying their “fair share” of income taxes are the first to oppose any lowering of regressive trade barriers that make it more difficult for poor parents to feed and clothe their children.

I Hope You Like Asparagus

Further to Dan’s post today, some more depressing news today on the farm bill process. A couple of amendments that would have trimmed some excess fat also failed.

Sen. Judd Gregg (R., N.H) has proposed a number of amendments to the farm bill. The two that failed today were designed to strike a couple of almost comic provisions of the farm bill that emerged from the Senate Agriculture Committee. The first, to strike language that establishes a “Farm and Ranch Stress Assistance Network,” a mental health program for farmers, failed 37-58. The other, to strike a new program to provide subsidies for asparagus producers, failed 39-56. (Roll call records are not yet available)

Now, I am willing to concede that farming might be stressful at times (although Mencken would disagree). I certainly wouldn’t like getting out of bed at dawn to milk cows. And I am sure it is a tough business, rearing asparagus. But I once saw a stockbroker outside the NYSE smoking two cigarettes at once, and looking decidedly harried. And I bet he earned less than some farmers. Where’s his taxpayer-funded “stress assistance network?”

This is a further sign of the truly staggering resistance to reform U.S. agricultural policy. Tom Harkin (D., IA), Chairman of the Senate Agriculture Committee, said that the proposed reforms of the Lugar-Lautenberg amendment were “too far too fast.”

Too fast? These programs have been with us for over 70 years, Senator.

CBO’s Orszag on Waste in Medicine

In today’s Wall Street Journal, Congressional Budget Office Director Peter Orszag writes [$]:

Some academic research suggests that national costs for health care can be reduced by perhaps 30% without harming quality.

In the September 2007 issue of Cato Unbound, Robin Hanson sees Orszag’s 30 percent and raises him another 20 percent.

Who Pays

The Congressional Budget Office released new data yesterday on the burden of federal taxes. The data answers the question: What share of earnings do households at different income levels pay in federal taxes?

The CBO data is useful because it not only includes individual income taxes, but also corporate income taxes, payroll taxes, and excise taxes. Those four taxes account for virtually all federal revenues. The data is for 2005 and is based on a definition of “income” that is broader than AGI reported on income tax returns.

The chart shows that households with higher incomes pay a much larger share of their income in federal taxes, on average, than do households with middle and lower incomes. Clearly, there are gross inequities in federal taxation. But few people will find out because none of the major newspapers reported on the CBO data, as far as I could tell.

Changes in Federal Sentencing

The U.S. Sentencing Commission is going to give thousands of drug offenders an opportunity to reduce their sentences.   Yesterday’s move is in reaction to the disparate manner in which federal law handles persons dealing in powder cocaine vis-a-vis persons dealing in crack cocaine.  This is a modest step in the right direction.  The drug war represents a gross misallocation of limited resources (police, courts, jails) and it should be ended immediately.

For Cato work on the drug war, go here.  For Cato work on federal sentencing, go here.  For more information on yesterday’s development, go to Families Against Mandatory Minimums

Our Depressingly Bipartisan Farm Policy

When Democrats regained control of Congress after the 2006 election, they promised to pursue fiscal discipline and bring the curtain down on “business as usual” and the “culture of corruption” in Washington. Apparently U.S. agricultural programs were exempted from any of those promises.

In a perfectly bipartisan vote yesterday, the Senate rejected a modest reform amendment to the 2007 farm bill. Sponsored by Sens. Richard Lugar, R-IN, and Frank Lautenburg, D-NJ, the amendment would have repealed Depression-era farm programs that deliver huge subsidies to a relatively small number of farmers who grow so-called program crops—corn, cotton, rice, wheat and soybeans—and import protection for sugar and dairy.

The amendment would have replaced those programs with a generously subsidized system of insurance. While still far removed from the free market, the proposed alternative would have been less costly and market-distorting than the current system.

Yet even such an incremental step away from our current command-and-control farm policies went down in flames by a 37 to 58 margin (Senate roll call vote no. 417). Voting against the reform were exactly 29 Democrats and 29 Republicans. When it comes to farm programs, neither party represents the majority of Americans who must pay the high cost of U.S. farm programs. [The Center for Trade Policy Studies has documented the cost and proposed a plan to bring U.S. farm programs into the 21st century.]

Not surprisingly, with the Iowa presidential caucuses less than three weeks away, the five senators who were absent from the vote are all busy running for president!

More Cost-Ineffective Security: Criminalizing Tourism

I’ve written in the past about the costliness of the Western Hemisphere Travel Initiative compared to its small security benefit.

Here’s more cost-ineffective security: Fingerprinting visitors to the U.S.

The Department of Homeland Security announced this week that it would begin collecting 10 fingerprints from foreign visitors to the United States, an extension of the US-VISIT program. This looks like another self-injurious overreaction to the threat of terrorism.

I don’t think collecting ten fingerprints in the US-VISIT program violates civil liberties. People have a diminished right against search and seizure at our international borders. But it is a serious privacy concern for visitors to the U.S.

Their biometrics are entered into a U.S. government database and they have no idea what may be done with that information in the future. DHS keeps that data for 75 years. Yes, lawful visitors to this country, who come to snap pictures of the Statue of Liberty and teach their kids about the United States, go into a U.S. government database for the rest of their lives. It’s just insulting to the millions of good people who want to visit us.

With that, let’s do a rough cost-benefit analysis of collecting 10 fingerprints from foreign visitors to the U.S. It appears to be another security program whose costs outweigh its benefits.

On the costs side of the ledger:

- First, it treats international visitors to the U.S. like criminals. This erodes the goodwill that the United States enjoys in the world, meaning we are less able to convince foreign governments to work with us on all kinds of very important issues. That cost is not easily quantified, but it is substantial. If we can’t get cooperation from Russia on Iran’s nuclear program, for example, that could cost us hundreds of billions or more in the next decade or two.

- More easily quantified is the reduction in lawful trade and travel: The findings of a House bill meant to encourage foreign tourism recite a 56,000,000, or 17 percent, drop in international visitors to the U.S. versus what was expected from 2001 to 2006. Let’s say 10% of this is caused by fingerprinting in the US-VISIT program – people don’t want to come here if we insult them on arrival. The Commerce Department estimates that these visitors would have spent $98,000,000,000 (valued in 2007 dollars) in the U.S. Ten percent of that is $9.8 billion in lost revenue – a significant loss to the economy caused by our harsh treatment of visitors.

- Then there are the costs of running the program – I don’t know what they are, but they’re probably in the tens of millions to $100 million+ per year in Americans’ tax dollars.

Is it worth it? Let’s look at the benefits:

The DHS release says that since 2004, collecting fingerprints in the US-VISIT program has been used “to prevent the use of fraudulent documents, protect visitors from identity theft, and stop thousands of criminals and immigration violators from entering the country.” It gives no hard numbers, but it would have said “tens of thousands” if it was in that range, so let’s say it’s 10,000 violators they’ve caught. ($9.8 billion/10,000=$980,000) Each violator would have had to do almost a million dollars in damage for this security measure to be cost-effective. The average document fraudster, ID fraudster, and immigration violator does nothing near that much harm.

But perhaps the program prevented a single terrorist, or a small group of them, from entering the country, people who would have done $10 billion in damage. This could only be true if we knew in advance exactly which terrorists were coming into the country. But terrorists are fungible. A terrorist organization can select people to send to the U.S. that have no prior participation in terrorism, people who can pass through US-VISIT. With two exceptions, this is what Al Qaeda did for the 9/11 attacks – sent people without any history of terrorism.

US-VISIT can’t prevent a terrorist organization from infiltrating the country – at best, it might delay their activities a couple of weeks while they select the right people to send. Delaying a terrorist attack that causes $10 billion in damage by a month is worth about $42 million. Obviously, spending $9.8 billion to avoid $42 million in damage is not cost-effective security.

My conclusion is that US-VISIT does more harm to the country than it prevents. I welcome suggested refinements to these numbers. Again, this is very back-of-envelope.

Now, should we pass the legislation to make people feel better about us? I’m not sure that’s the solution. The Senate version of legislation to improve our esteem in the world costs $1.80 per person in the United States - $5.64 per U.S. family.

Why spend this money to make people feel better about us when we could make people feel better about us by spending less! US-VISIT doesn’t significantly add to our protections. Given its costs, we should drop it.