## Saturday, November 24, 2012

### The baby needs new shoes! Do you want to pay 40% of the purchase price in taxes to do so? Probably not, but you DO. See here why...

Going to buy the baby some new shoes!!

Got this idea from Mark Perry.  Go HERE for more on the subject of Tariffs on imported shoes, which is the crux of this posting.

How much in taxes, that we can actually figure out, goes to purchase a \$10.00 pair of basic rubber sole canvas sneakers for a child.  We HAVE to assume these are imported from China because there is NO domestic producer of this type of shoe.

Well, I have to earn the money first. So the first taxes I encounter of payroll taxes--Social Security, 6.2% of what I make and Medicare, 1.45% of what I make. So a total of  7.65% of my income.

I calculate I would (roughly) have to earn \$10.85 before taxes.

Minus Payroll Taxes (Social Security (6.2%) and Medicare (1.45%) --Total = \$.85 cents

I now have my \$10.00 to purchase my babies shoes, right? Sort of. I assume I am driving to the store.  Assume I am going to need gas. Gotta pay gas taxes, State and Federal on each gallon of gas I buy.

In Texas the State Gas Tax assessed PER gallon (Texas it is \$.20)
Federal Gas Tax assessed PER gallon (18.4 cents---round down to \$.18)

Assume I need half a gallon of gas--Total Gas taxes would be =  \$.19

Texas State Sales Tax---8% (give or take depending on your locality) =  \$.80

Not done yet...Gotta back track a bit.

The shoe was imported.  Imported shoes of the type (cheap!) I want to purchase have a Tariff of 48% (unless it came from Mexico or Canada---NAFTA).  I am going to round to 50% to make the math a little easier.

Assume the shoe had an assessed value of \$4.00 at the point of import at Customs.  The Federal Tariff would be \$2.00 (50% of \$4.00).  The importer of the shoe would now have that shoe for a total cost of \$6.00.  They might add a dollar for good measure and sell it to the retailer you are purchasing it from for \$7.00. They in turn sell it to you for \$10.00.

So, how much in various taxes have you paid on your way to purchasing a \$10.00 pair of shoes.

Tariff----\$2.00
Payroll taxes--\$.85
Gas Taxes--\$.19
Sales Tax---\$.80

Total: \$3.84 in taxes that I had to encounter in order to get the shoes.  That is an effective tax rate of 38.4% on the \$10.00 purchase.  I did not include any Federal Income Tax on the income.  The purchaser could subject to no income tax or a high tax. I just let that go. I also am missing other taxes embedded in the price of the good, other than the tariff, that the retailer pays too. Never ends, it seems.  The effective rate is probably higher.

I am not a math person. Tell me where I am going wrong. I am a willing learner.  Thanks!

The point of this posting is this tariff of nearly 50% is regressive and hurts the poor. There is no domestic industry to protect from foreign competition. Those are LONG gone, but the tariff remains.  If Congress and the President wanted to help the poor, this is easy pickings for repeal.

Why don't they do it???

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