Building an Economy that Works for Everyone

How our taxes are subsidizing low-wage employers (and how people are fighting back)


If you like the notion of your tax dollars going toward record high profits for dozens of U.S. corporations, you can stop reading here.

Still with me? Thanks. I’d like to introduce you to one of the most succinct, easy-to-understand and real-world explanations of how your tax dollars end up in corporate coffers, courtesy of Vanity Fair’s Kurt Eichenwald:

…if an employee needs $10 for basic necessities and is paid $7, then your taxes will be used to supply that employee the other $3. Saying it the other way, companies reduce their required expenses by $3 by taking the money from you; then they can directly count that $3 as profit.

$3 might sound measly to you, but it sure adds up for these companies, as Schmudget notes:

Nationwide, nearly three-quarters (73 percent) of participants in Medicaid, nutrition assistance, and similar services are from working families, a new report by the UC Berkeley Labor Center shows. Many of those workers are in industries that pay low wages, provide only part-time hours, and offer low benefits, which makes it impossible to meet basic needs or get ahead.

The report showcases the fast-food industry, which is one of the most egregious for paying wages too low to live on and denying employees full-time work or adequate benefits.  Their workers often turn to public assistance so they can feed their families, pay utilities, and afford housing.  In Washington state alone, fast-food workers receive $96 million in assistance annually to make up for what their employers won’t pay in reasonable wages and benefits.

Here’s Eichenwald‘s step by step explanation of how those corporations do it:

Step 1: Corporations have costs. The best managers of the best of them figure out how to hold down those expenses so that they can increase their profits.

Step 2: Human beings have basic needs that they require for their own survival. Food, shelter, health care—all of these cannot simply be denied to people without creating piles of bodies in the streets.

Step 3: All of those needs have to be met by purchasing something. Someone has to receive dollars to provide food or health care; someone has to pay the cost of rent. If it is not the individual, it is someone else.

Step 4: If a company doesn’t provide the people it pays with enough money to meet those needs, then someone else has to do it. Unless, again, we want bodies in the street.

Step 5: If a company holds down its costs by failing to pay its employees a living wage—something that should be a typical expense of running a business—then taxpayers are going to be called upon to pick up the slack through public assistance programs like food stamps, housing credits, and Medicaid.

Which leads us to step 6: We have to increase the minimum wage so that McDonald’s et al are paying for the labor costs of their own businesses, rather than sucking on the teat of the American taxpayer to keep corporate profits high.

In other words, if every employer pays their employees at least a livable wage, demand for government services would decrease drastically, while consumer purchasing power (that is, employees with bigger paychecks) would increase dramatically.

There’s bad news and good news here.

The bad news is that until employers start paying livable wages, you and me, and our neighbors, and all of our fellow citizens — regardless of whether we actually shop on, or get supplies at Office Depot, or eat at McDonald’s, or sleep in a Marriott, or are customers of most other major international corporate giants — are all going to be putting some of our tax dollars straight to the bottom line of those companies’ income statements.

The good news is actually two piece of good news. First: livable wage laws have a toehold in our economy, and those laws are working. That’s enough to hold the door open for more localities – and one day, even the federal government – to take action:

In her essay in a new edited volume, “What Works for Workers?,” Stephanie Luce points out that more than 125 living-wage ordinances have been put into place since Baltimore first implemented one in 1994. While the number of workers directly affected has been relatively small, no ill economic effects have been documented, and the political demonstration aspect of it has been heartening.

The patchwork of local victories has educated voters about the issues, helping explain why a poll conducted by CBS News in mid-January found that 72 percent of Americans favor raising the federal minimum wage to $10.10 an hour. The patchwork also created valuable points of comparison for assessment of economic consequences.

Variations in state policy provided a natural experiment, making it possible to evaluate employment growth among low-wage companies close to state boundaries where the minimum was raised on one side but not the other. The results showed no negative employment impacts. Analysis of the same variations reveals significant reductions in employee turnover in the first nine months after a minimum-wage increase, a factor that increases efficiency and helps compensate for increased costs.

These kinds of laws are still going onto the books today. In fact, the Santa Fe County, NM county commission today voted 5-0 to become the 9th municipality in the country to adopt a local minimum wage.  At $10.66 an hour – including a substantial boost in the tipped wage – it will mean a big raise for many workers there.

The second piece of good news is that “Main Street” business from across the nation are networking and joining forces to support an increase in the federal minimum wage to strengthen our economy. Small business owners in particular recognize that with less buying power than it had in the 1960s, today’s minimum wage impoverishes working families and weakens the consumer demand at the heart of our economy. But with thousands of business owners and representatives making the case, including Costco CEO Jim Sinegal, U.S. Women’s Chamber of Commerce CEO Margot Dorfman, the momentum is shifting toward making livable wages a bedrock of our economy.


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