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Michelle Valencia, and her daughter Audrey, shop at PaylessMichelle Valencia and her daughter Audrey, 8, were checking out the dressy shoes last week at the Payless (PSS) store in Manhattan, a block away from Macy's (M) fabled flagship store on 34th Street.

Audrey was on the hunt for some jazzy new kicks for a talent show, and she was considering a pair of black patent-leather flats.

Valencia, a single mom who also has a 5-month-old son, Avery, finds herself buying footwear for her daughter pretty regularly.

"Her feet grow so fast," says the special education teacher from Manhattan. Also, "she seems to destroy her shoes pretty easily." But like school uniforms, gym clothes, and Audrey's everyday wardrobe, footwear is just one more item to be factored into the Valencia family's tight budget. Which is one good reason to shop at a lower-priced chain like Payless.

But there's a big hidden cost to that choice: People like Valencia, a self-described member of the "working class," are paying a far higher tax rate on their footwear than more affluent shoppers.

Inexpensive canvas and rubber-soled shoes of the types commonly sold at stores like Payless and Walmart (WMT) are taxed at a rate that's at least six times higher than more expensive leather footwear, a tariff that hits the very shoppers who are least likely to be able to afford it.

Today, the tax rate on canvas and rubber-soled shoes ranges from 48% to 67.5%, while the rate on high-end leather footwear and designer shoes is a mere 8%.

These regressive import duties disproportionately jack up the price of kid's shoes, a high frequency, needs-based purchase: Growing children like Audrey require new shoes -- and often.

But there's some potential good news on the horizon: America's biggest footwear retailers and manufacturers are fighting to eliminate that Depression-era "shoe tax" that to this day has low-and-moderate income families footing the bill.

Holdover From The Depression

The footwear tariffs debuted in the Smoot-Hawley Tariff Act of 1930, and were originally intended to protect the then robust U.S. shoe manufacturing base. But, today, 99% of shoes sold in the U.S. are made overseas, making the tax entirely obsolete. And, as the chart below shows, it's more than 100 times the 0.6% tax on a luxury like jewelry, for example.

Tariff rates

Passage of the Affordable Footwear Act will bring about permanent tax relief to lower- and middle-income American families, its proponents say. And unlike certain other contentious tax issues, there's bipartisan support for eliminating the shoe tax, says Matt Priest, president of the Footwear Distributors and Retailers of America, who leads the AFA coalition.

"It's quite possible some shoes could see upwards of a 25% savings if the AFA is passed," he tells DailyFinance.

"For us, it's a fairness issue," Priest says. The tax is "directed toward moms and kids whose feet are growing dramatically."

But the shoe industry isn't backing the AFA solely out of an altruistic impulse: It expects to benefit too.

"This is an opportunity to make our shoes more affordable and accessible for the American family, and we [also] hope to sell more shoes," Michael Massey, CEO of Collective Brands, Payless' parent company, tells DailyFinance.

The AFA is currently being considered by Congress. But the end of the shoe tax, should the bill be passed, isn't likely to occur until after the elections, in 2013, at the earliest, Priest says.

If the footwear tax is eliminated, these $17.99 girl's flats from Payless would drop to about $15.99.

That's none too soon for the footwear industry. Shoe prices have been inching up due to rising production costs, tightening margins for retailers and suppliers, and pinching cash-strapped shoppers, experts say.

A 'Disgusting' Tax

As recently as the 1980s, shoe manufacturing still had a solid footing on U.S. soil. Back then, about 50% of footwear was made domestically, says Greg Tunney, CEO of RG Barry, parent company of Dearfoams, the nation's largest slipper supplier.

From Maine to Boston, the upper Northeast "was a huge area for footwear," home to shoe companies such as G.H. Bass. And in the Midwest, St. Louis was "at one time known as first in booze, baseball and shoes": Manufacturers like Brown Shoe Company, with brands such as Naturalizer, operated factories there, Tunney says.

But today, the protectionist tax is a total anachronism, as most American shoes are made overseas, largely in China, but also countries such as Taiwan, Korea and Brazil. "We're protecting an industry that doesn't exist anymore in the U.S.," he tells DailyFinance.

Yet the tax remains, and the duties are so hefty, there's no option but to pass them along to consumers, industry executives say.

"On a given year," Tunney says, "[Dearfoams] can make $15 million net profit. At the end of the day, we're paying over half of our profits on the duty fee."

"But what tugs at the heart is how it affects low-income consumers, who need the help the most," he says. "So if you're a single mother on a limited income, [you're paying a higher duty rate] on a pair of $20 shoes than someone who's paying $600 for a pair of Christian Louboutins. That's when it gets disgusting."

While nobody really needs a pair of $600 shoes, basic footwear "is not a luxury. If you have kids and you're on a limited income, you still have to have shoes," Tunney says.

Forgoing New Shoes to Make Ends Meet

Although the recession officially ended in 2009, it hasn't for Payless' core shoppers: moms with limited incomes and multiple children, Massey says. With more than 4,500 stores, the discount chain is the largest seller of children's footwear in the U.S.

Even though elementary school kids with ever-growing feet need to replace shoes about four times a year -- and sometimes more often, depending on the child's age -- Massey has observed that parents have been delaying those purchases in the down economy.

"I work in the store a fair amount," he says. "Moms right now in the U.S. are having a tougher time meeting [their budgets]: We see in our stores that people are waiting longer to buy their kids shoes because they have to stretch their budgets."

"Even if she's buying an incredible value shoe for $9.99, if she's buying three pairs of shoes [for three kids, for example], that's $30," which is no small purchase for a family tight on money, he says.

These moms are "disproportionately affected by the economic slowdown. Things haven't picked up in many places in the U.S."

If the footwear tax is eliminated, Payless' $17.99, Avery Jersey Bow girl's flats, for example, would drop to about $15.99, Massey says.

That $2 savings would make a difference to Valencia, she says: In her budget, that equals a subway fare, and every little bit counts. "The way the economy is, you have to stretch every dollar."

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Manny Trejo

Whining about things not being made in the USA is silly. The Brits used to have the same exasperated cries at the beginning of the 20th century. It looks like they are still doing OK.
Also, bringing production back here would only serve to jack the price of these items through the roof. The $8/hr you'd have to pay someone to put shoes together here is about double the MONTHLY salary people in lower standard of living areas are paid to make shoes. There is just no sense in doing that. I have no desire to pay $200 for a pair of lo-top converse all stars.

June 14 2012 at 8:18 PM Report abuse rate up rate down Reply

If AMERICANS would STOP buying shoes or anything else made in china, that only makes crap that would last more than a few wearings; then two things would happen.........Manufacturing would slowly but surely come back to AMERICA, and put AMERICANS back to work, plus the goods we buy AMERICAN made would be much better products and last longer. There are NO jobs in OUR COUNTRY now because WE THE PEOPLE were sold out by the dimwitocrats with allowing manufactures to move their companies out of OUR COUNTRY. IF, it isn't made in AMERICA, don't buy it, put AMERICANS back to work.

June 14 2012 at 7:56 PM Report abuse rate up rate down Reply
Plummer, Joseph

well, what do you expect when Environmental wackos yell about the poor animals being slaughtered to make leather shoes. and then the Government restrictions heaped on , driving the shoe industry outta the U.S.. Cant make shoes that have foreign manufacturers making cheaper shoes while you have to have a high price to help pay for the taxes heaped on by government and industry restrictions and regulations. it's why they moved to Mexico, then to Japan, then to Korea and now in China.. and then we get into the realm of costs driven higher by taxation,etc.

June 14 2012 at 7:48 PM Report abuse rate up rate down Reply

this is what you get when people vote for democrats,they love to tax EVERYBODY and then blame it on republicans,then the democrat voters want to cry about the people's actions that they put in office.

June 14 2012 at 6:47 PM Report abuse +5 rate up rate down Reply

I think parrents should pay a 100% tax on all child size clothing and sugared cereal. In order to help offset the cost of my school taxes!!

June 14 2012 at 6:37 PM Report abuse -1 rate up rate down Reply

One problem I see is parents buying the expensive designer shoes for their kids. The kids grow so fast that they do not fit a few months later. Buy the cheaper ones while they are still little, when they stop growing so fast then go with the better ones.

June 14 2012 at 6:34 PM Report abuse +1 rate up rate down Reply

An insightful piece of information and the comments range from blaming the unions to calling the single mom a slut. No wonder this country can't solve any problems folks get sidetracked so easily with hateful rants. Instead of blaming unions or wondering about someone elses moral integrity why don't you folks write your state senator, I did.

June 14 2012 at 4:57 PM Report abuse +1 rate up rate down Reply

Lots of absurd taxes are being slapped on everything. Car rentals command $45% tax in some areas, Hotel taxes at $24% etc. It is incredible what we as citizens are allowing governments to pull on us. We should be letting our local and state and federal governments know that they have to do what we have to do with our families: learn to live with less until we get the anti-business crowd out of Washington and those in office who want to see business and jobs grow. And to think there are people out there who want to see the high income taxes come back at the end of this year--they actually think it will increase revenues. They do not understand human behavior. It may increase revenues for a little while, then we get wise, learn how to get around them, and revenues plummet. If we want more tax revenues we need to allow the economy to come back up by getting a bazillion terrible regulations off our backs. That's the way to increase revenues--not killing us with one hand and taxing us to death with the other!

June 14 2012 at 3:53 PM Report abuse +1 rate up rate down Reply

Did I miss the part that explains why taxes are higher for cheap shoes than expensive ones? And they talk about 48%+ on rubber and canvas, but eliminating the tariff only drops a pair of $17.99 shoes to $15.99? That's only an 11% drop.

June 14 2012 at 3:42 PM Report abuse +1 rate up rate down Reply

Why is she putting her daughter's feet into cheaply made shoes from Walmart and Payless? Who's going to foot the biil for the medical care from wearing them?

June 14 2012 at 3:12 PM Report abuse -3 rate up rate down Reply
1 reply to BajaBeachie's comment

While I wouldn't recommend them for "high mileage," today's kids aren't on their feet enough to be adversely affected by cheap manufacture unless they're unusually predisposed to foot problems. Likely kids of that age will outgrow them before the important parts have a chance to wear out.

June 14 2012 at 3:44 PM Report abuse +2 rate up rate down Reply