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Thursday, November 29, 2007

The Sock Tariff

“The Congress shall have the power to lay and collect taxes, duties, imposts and excises...”
On 19 December 2007 a new tariff will be imposed on all imported socks. The tariff was part of an agreement to pass CAFTA during a deadlock in congress. Congressman Robert Aderholt struck a deal that he would vote for the agreement so long as the congress included language to reverse its position of duty free imports coming from Honduras. The expected effects of the tariff is that the price of socks will increase by around 13% the imposition of the tariff. The major reason behind this push is a small town Fort Payne the United States sock capital. Since 2005, the passing of CAFTA, the town lost a majority of its sock industry; however, most, if not all, of the losses have been replaced by new and different industries. (NRP: World Sock Capital Suffers From Duty-Free Imports http://www.npr.org/templates/story/story.php?storyId=16661333)
The entire purpose of the tariff, in 2005, was to save an industry from destruction within the United States. During the two years that CAFTA has been in operation the town did lose a majority of its sock industry, but that industry was replaced by several different industries. The town and people may have suffered in the short run and this may be regrettable, but they are doing as well today, no better. Today, that town now has a more diverse working environment and outsiders see the town as a possible place to invest. What effects does it have on those whom buy socks (presumably everyone)?
The tariff is placed upon imported socks the first response for the industry would be to charge the price pervious plus the tariff. However, consumers will lower their purchases of the goods, thus lowering the quantity demanded from manufactures. Manufactures will respond to the change lowering their price. The lower price will result in less goods brought to market, a larger price for each sock to the consumer, and a lower price to the producers. Therefore, consumers will be worse off because they will pay a higher price than they would otherwise, the producers (Imports) will be worse off because they will receive a lower price per unit and have less units produced and sold. The tax incidence is now shared by both the producer (imports) and the consumer.

“...to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States”
The constitution grants the power to tax, but that tax is to go for the common defense and general welfare of the United States. Was the action taken during that deal really for the better meant of the general welfare of the people? Yes the foreign producers are not bound to the rights or duties of the constitution, however, citizens purchasing the goods with the tariff are worse off. The the general welfare better off supporting a dying industry in Fort Payne or the millions of consumers within the United States? The current ruling is that the people of Fort Payne are more important than the rest of the country.

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