In Bernie Sanders vs. Amazon's Jeff Bezos, Only Workers Lose

Ryan Bourne

Vermont Sen. Bernie Sanders’ fight against corporate America over low worker pay has progressed in the Stop Bad Employers by Zeroing Out Subsidies Act (aka the Stop BEZOS Act), targeted at Amazon and Walmart. Bernie claims taxpayers subsidize these corporations because many employees receive government welfare through food stamps, school meals, rental assistance or federal contributions to Medicaid. To stop this, his bill would tax companies with 500 employees or more dollar-for-dollar for the value of benefits received by workers.

This is an extraordinarily dangerous policy based upon major economic misunderstandings. In fact, it is difficult to think of a worse way of helping lower income workers.

However much Sanders insists otherwise, in competitive industries, workers’ pay and benefits tend to match the value of the work they’re doing. Firms cannot “underpay,” or else they risk losing employees to other businesses, while “overpaying” would be financial suicide. Yet this bill does not raise workers’ productivity, just the cost of hiring welfare recipients. Sanders’ “Corporate Welfare Tax” threatens welfare recipients’ access to jobs.

Taxing companies who employ welfare recipients might raise pay rates for some workers, but its main effect will be to make large numbers of people unemployable.

The U.S. Census Bureau shows a single-parent household with two children earning $20,000 per year receives (on average) $2,100 in food stamps and $770 in school meal support. The federal government finances about 63 percent of Medicaid spending, too. Add in housing assistance and it’s not inconceivable that households like this receive upward of $10,000 in the benefits Sanders singles out. Under Sanders’ legislation, the cost of employing a single mother in that situation will rise dramatically, through a combination of the tax and/or higher wages. She probably would lose her job, becoming more dependent on federal government benefits as a result.

Making workers unemployable

Despite Sanders’ professed intentions, his bill risks branding millions of workers as too expensive to hire. Even though he plans to outlaw employers asking employees questions about welfare received, companies will engage in significant profiling to weed out workers in receipt of large welfare payments.

Working-age people over 45 cost almost twice as much in Medicaid as younger workers. The tax liability for employees with disabled dependents could be huge and uncertain, whacking companies years after medical care is delivered. Given companies hire people to undertake given tasks, the tax therefore encourages businesses to opt for young men, those available full-time, the childless or machines. Part-time work seekers could be particularly hard hit, given Sanders’ tax charges for dollars received in welfare benefits irrespective of an employee’s hours.

Sanders stems from flawed logic

All this damage is based on an error in thinking, too: the belief that means-tested welfare, such as food stamps, subsidizes employers. In fact, given that the more you earn, the less you obtain in transfers, these programs in isolation actually raise the wages at which people are willing to work, as workers require higher pay to compensate for the loss of government welfare income.

Of course, Sanders is right that wages at major corporations do not always guarantee a decent standard of living, particularly for part-time workers, those with many children, or high rent. But shareholders and customers of companies should not be responsible for every factor of their workers’ lives. Companies pay people for the work they do, and it is unrealistic to expect them to pay people based on the number of children they have, where they live or their medical bills.

A more fruitful strategy to help the less well-off, without jeopardizing opportunities, would be to turn focus away from incomes and onto living costs, which are driven up by damaging regulations at all levels of government. After all, the average poor household spends nearly 60 percent of their money on shelter, food, transport, clothing and footwear, according to the Consumer Expenditure Survey.

My research estimates a program of liberalization in land use planning and zoning laws, child-care regulations, cost-inflating food programs, fuel standards and car dealership laws, tariffs on clothing and footwear and occupational licensing, could directly save poor households anywhere between $830 and $3,500 per year. Yet you won’t hear Sanders criticize any of these regulations – he saves his ire for corporations.

Taxing companies who employ welfare recipients might raise pay rates for some workers, but its main effect will be to make large numbers of people unemployable. There’s a better way to improve incomes and help workers meet the cost of living, if Sanders is willing to look beyond his anti-corporate lens.

Ryan Bourne occupies the R. Evan Scharf Chair for the Public Understanding of Economics at Cato.