Bernie Sanders billionaire welfare taxation defies all economic logic – AEI – American Enterprise Institute: Freedom, Opportunity, Enterprise10th September 2018
Bernie Sanders has officially introduced legislation in Congress aimed at forcing large companies to reimburse the government for providing public benefits to their employees. Targeting Amazon in particular, the Vermont senator recently tweeted, “All over this country, many Amazon employees, who work for the wealthiest person on Earth, are paid wages so low they can’t make ends meet. The American taxpayer should not be subsidizing Jeff Bezos so he can underpay his employees.”
Not only is this proposal unworkable and likely to harm the small number of people it targets, but it also mischaracterizes companies like Amazon and Walmart as reaping the benefits of lower wages, while the government picks up the tab. This argument fails on basic economic principles and ignores investments that many of these companies make in their entry level workers. Rather than “taxing” major companies for giving jobs to low skilled workers, Congress should find ways to make it easier for them to educate and train their entry level workers.
One of the major problems with the proposed legislation is that it assumes that wages are set by the whims of company executives. But in a competitive labor market, wages are set by the supply and demand for labor, not some arbitrary decision making by executives. As economist Arindrajit Dube argued, research shows that benefit programs like food stamps and housing assistance actually reduce labor supply because they make work less attractive, which drives wages up instead of not down. He writes, “The key point is that it is difficult to imagine how food stamps would lower wages. If they don’t lower wages, they can’t be thought of as subsidies to low wage employers.” For the argument that safety net programs “subsidize” employers to ring true, wages would be higher in their absence, something I doubt proponents believe.
The idea that wages should be based on anything other than market forces is antithetical to the basis of a free market economy. If companies are expected to cover the cost of public benefits for their employees, it turns wage determination into a matter of the size and type of family one has to support, rather than the value the worker brings to the company. It stigmatizes public benefit receipt and makes discrimination against recipients and those with large families much more likely.
Even liberal economist Jared Bernstein fears this legislation “vilifies benefit receipt.” As economist Michael Strain argued, notwithstanding all the ways in which our economy falls short on free market principles, worker productivity “plays a very important role” in determining wages. This is why increasing worker productivity should be the goal for public policy, rather than taxing companies with entry level workers.
Fortunately, companies have already figured this out. Amazon offers a career choice program that covers tuition and fees toward a certificate or degree for hourly workers, developing workers for higher level positions within the company. In pursuit of a similar goal, Walmart offers an academy in which associates are given the opportunity to pursue advanced education and move up in the company. In a competitive market, companies recognize the benefits of training from within to move existing employees into higher and better paying positions. Taxing companies for providing employment to benefit recipients will limit the availability of jobs for such people. It will act as a barrier towards the education and training opportunities that companies offer.
A final concern is that this legislation gives the false impression that many full time workers do not earn enough to make ends meet. To the contrary, only a small share of full time workers earn income that is low enough to qualify for government benefits. According to census data, only 2.2 percent of full time workers were in poverty in 2016, and survey data suggests that only 6.7 percent of full time workers receive a means tested benefit in the average month. Part time employees have higher rates of benefit receipt, but instead of making it less likely that companies will increase hours worked by such employees, efforts to increase their productivity, and thus the value of their labor, should be the focus.
It is time to put to rest the idea that government safety net programs subsidize private sector employers. Instead, Congress should work with companies to reinforce their sense of corporate responsibility, as well as their good business sense, to train and educate their entry level workers. Because the surest way to reduce public benefit costs is to increase employment and the wages of those already working.
Angela Rachidi is a research fellow in poverty studies at the American Enterprise Institute. You can follow her on Twitter @Angela Rachidi.