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

16 Sep 2018

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.

Click here to view the full article which appeared in CATO Journal