No, government isn’t subsidizing Wal-Mart

From James Pethokoukis of Cato.

"Democrats, unions and left-wing activists frequently argue that government (actually taxpayers) subsidizes Wal-Mart and other companies that employ low-wage workers since many of those workers receive government welfare benefits such as food stamps and Medicaid. And the mainstream media pretty much accept this reasoning. Here is CBS News: “Walmart’s highly publicized pay hike is a victory of sorts for its 1.3 million employees, but American taxpayers will foot the bill for the large subsidies that will still be needed to compensate for the discount retailer’s low wages.”

So, goes the theory, if Wal-Mart would pay its workers a “decent wage” — like a minimum of $10 an hour or $15 an hour (or more) — the retailer could get off the dole! The television show “House of Cards“ recently had a fictional presidential candidate bash Wal-Mart with this reasoning: “The starting salary for an employee at Walmart is below the poverty line. Now, the American government subsidizes Walmart to the tune of $7.8 billion a year by issuing food stamps to over one in ten of its workers.”

Well, that’s one way to look at it. Here is AEI’s Michael Strain, a fan of the Earned Income Tax Credit,  yesterday at the Peterson Institute for International Economics addressing the “government subsidizes Wal-Mart” issue after it was raised by an audience member:

 … we have to recognize that different agents in society have different responsibilities. Imagine you have workers, firms, and the government. …  It it is simply unrealistic to expect that a firm that is ostensibly trying to maximize profits, although perhaps imperfectly, will take someone who can bring in five or seven dollars an hour in revenue and pay them two to three times that amount of money. It will be losing five or ten dollars an hour on every hour that person is working. That is just unrealistic to expect a firm to do in a market economy.

So then the question becomes, who is responsible for making sure that the employees of these organizations have adequate food, adequate shelter, adequate health care and who can meet a baseline level of material standing, especially given that we live in a society where we have a lot of billionaires. And to me, that answer is government through all of society. I don’t want those workers to be poor, and I don’t want those workers to not have enough food, and I don’t want those workers to have to deal with the cognitive load [from being poor].

But I want more than McDonalds and more than Wal-Mart to be responsible for making sure that those outcomes happen. I want the Koch brothers to be responsible. I want the Walton family to be responsible. I want me to be responsible, even though I don’t employ low wage workers. And so the way to do that is to tax people who have a lot of money and to redistribute it to people who are working hard and playing by the rules and who aren’t earning what we deem socially as an adequate standard of living. So you seem to want Wal-Mart and McDonalds to bear the entire brunt of that, and that’s implicit in the argument that somehow the government is subsidizing Wal-Mart and McDonalds, and I just fundamentally disagree with that framing.

Economist Justin Wolfers also had a response as to how the issue is framed: “You could say all these guys who work at Wal-Mart are on food stamps, and if they weren’t being paid a low wage, they wouldn’t be on food stamps. So therefore implicitly we are subsidizing the hell out of Wal-Mart. [But as Wal-Mart might see it], if they weren’t working at Wal-Mart at a low wage, they wouldn’t be working at all. The food stamp [cost] would be even bigger.”

Finally, economist Jacob Funk Kirkegaard points out that according to the “government subsidizes Wal-Mart” logic, nationalized healthcare — which many on the left might like — would be one massive subsidy to business: “I mean, if you take other countries where you have essentially a single payer public funded system, you could then say, ‘Well on the one hand, that implies that the subsidy provided by the public sector to the entire corporate world is 100%,’ right? Because no firm needs to take any direct cost for health care. It’s just basically taken care of, if you like.”"