There is a myth perpetuated through liberal thought leaders that illustrates their lack of economic understanding. As the theory goes, the pay for workers at highly profitable companies, like Walmart and Amazon, should not be so low as to qualify them for welfare. Surely if Bezos can afford a $500 million custom-made yacht, he can afford to pay his workers a living wage.
Medicaid is held up as an example of corporate welfare. Purportedly Walmart and Amazon are costing taxpayers billions of dollars annually by paying their workers too little. Food stamps (SNAP program) are sometimes also held up as evidence of corporate welfare. It is, but not how you think. SNAP boosts profits at retail stores that sell food. It does not subsidize wages. The flawed logic of these arguments is that Walmart and Amazon can pay workers less because low-income families have access to welfare benefits. Vox explains why this is wrong:
For one, there is no real basis for the notion that the program subsidizes large companies by allowing them to pay their workers lower wages.
In fact, America just ran a vast, real-world experiment that falsified that hypothesis. In 2014, the Affordable Care Act offered states new Medicaid funding to enroll millions of workers who were previously ineligible. This gave researchers an opportunity to gauge Medicaid’s economic impacts by looking at how conditions changed when various states expanded the program. And none of the resulting case studies found that increasing Medicaid benefits led employers to cut wages.
Further, there is no good reason to expect that public health insurance would reduce wages, even in theory. To the contrary, conventional welfare economics would actually suggest the opposite.
The presence of welfare benefits gives would-be job applicants more leverage because basic welfare meets their basic needs – hunger and medical care. When these needs are met, workers can hold out for better pay, or at least better take-home cash wages. More from Vox:
…[P]rograms like Medicaid and food stamps subsidize workers, not their employers. Suggesting otherwise is both inaccurate and politically hazardous: If you tell people that Medicaid functions as a subsidy to Walmart, they’re liable to think that cutting the program isn’t such a bad idea.
Second, the populist argument validates the notion that workers should get health insurance from their employers, rather than the government — a concept that’s contrary to progressives’ own vision for universal health care.
According to Vox, populist calls to fine companies whose workers rely on welfare programs are gaining ground. New Jersey and Colorado are two examples of states debating such a fine. This would likely harm the workers it was intended to help, by making those workers less desirable. Medicaid eligibility is a function of family size and family income, not worker income. A way around the fine would be to hire single workers rather than those supporting families. Single fathers would become much more desirable than hiring single mothers. Such a policy could also cause some workers to abstain from enrolling in Medicaid to avoid angering their employer.
The Vox writer suggests raising the minimum wage to force companies to share the wealth. Or raising corporate income taxes and taxes on the wealthy to support programs like state Medicaid. Yet, those policy proposals also make workers less desirable and reduce employment.
Vox is correct that taxing companies that employ low wage workers for Medicaid enrollment or food stamp eligibility is a bad idea. It is counterproductive and would harm the very workers intended to help. The same can be said about raising taxes on companies who employ workers. It was Reagan who said that companies do not pay taxes, people do through higher prices. Another way that people bear the cost of corporate taxes is through lower employment and lower wages.
Read more at Vox: Democrats’ latest critique of Walmart is wrong — and dangerous