Sneaky Sneaker Tax

2/18/2013

Today's tight economy is forcing governments at every level to stretch for new revenue, with varying degrees of success. In Washington, the dysfunctional family known as Congress just raised the top income tax rate to 39.6%, and there are new taxes on earned income and investment income as well.  

Most state governments are in fiscal hot water too, and Illinois may be worst off of all. Nearly $100 billion in unfunded pension liability is crushing the state budget. Last week, the bond ratings agency Standard & Poor's downgraded the Land of Lincoln's score to last in the nation. Ratings rival Moodys ranks Illinois at the same level as the African nation of Botswana.  

The cash crunch has left Illinois's discretionary spending programs gasping for funding, so it's no surprise that beleaguered lawmakers are looking for creative ways to protect favored programs. One representative thinks he's found a solution. State Rep. Will Davis (D-Hazel Crest) has proposed a 25 cent tax on athletic shoes, which would raise $3 million per year for Illinois YouthBuild, a nonprofit organization with 16 programs providing job training for disadvantaged youth.  

Targeted taxes are nothing new, of course. The federal gasoline tax raises about $25 billion per year, with most of that dedicated to the Highway Trust Fund. Governments are especially fond of so-called "sin taxes" targeting irresponsible or undesirable behavior. That's why we see cigarette tax revenue going towards lung cancer research, soda taxes targeting obesity, and even a new 10% tax on tanning bed revenue.  

A sneaker tax sounds simple enough – especially compared to, say, the rules for Alternative Minimum Tax net operating loss carryforwards (that's a real thing, by the way, and it's every bit as awful as it sounds). But as is usually the case with taxes, the devil's in the details. Davis' tax would apply to any "shoe designed primarily for sports or other forms of physical activity." Such a definition is rife with interpretation. Does walking count? What about hiking boots, ski boots, or snowshoes? And how do you decide who has to pay it? Will there be refundable credits for sneaker-buying families earning less than the poverty level?  

The other problem, of course, is that Rep. Davis's sneaker tax would surely open the floodgates to imitators. Just consider what other targeted taxes might be next:  

  • A tax on Valentine's Day flowers to support marriage counseling services?
  • A tax on snowplows to support research into global climate change?
  • A tax on "reality TV" shows to support public broadcasting?

While the current economy and state of government call for careful – and even creative – examination of social programs and how to fund them, taxing sneakers is probably not the most logical route. As we continue to navigate these murky waters, it will be interesting to see what lawmakers come up with next.