Walmart is crediting the GOP tax law for its pay hike. This is a shell game.

Increasing worker pay is great! But let's be honest about the reasons.

A rally against Walmart.
(Image credit: Ed Endicott / Alamy Stock Photo)

To much fanfare, Walmart announced a pay hike Thursday for its one-million-plus army of hourly employees. Many observers, and Walmart itself, are crediting the GOP's tax overhaul for the company's newfound generosity.

Don't buy it.

Walmart currently pays $9 per hour for workers in training, with that wage rising to $10 once training is finished. Next month, the starting hourly wage for Walmart workers will rise to $11. The retail giant will also give one-time bonuses to employees, ranging from $200 to $1,000, depending on seniority. Full-time employees will also now receive 10 weeks paid maternity leave and 6 weeks paid parental leave, and can even get $5,000 in benefits for adoption.

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These changes are obviously all very positive. And Walmart president and CEO Doug McMillon was quick to credit the GOP's tax bill, which cut taxes on corporations like Walmart from 35 percent to 21 percent, for them.

"We are early in the stages of assessing the opportunities tax reform creates for us to invest in our customers and associates and to further strengthen our business," McMillon said in a statement. "Some guiding themes are clear and consistent with how we've been investing — lower prices for customers, better wages and training for associates, and investments in the future of our company, including in technology. Tax reform gives us the opportunity to be more competitive globally and to accelerate plans for the U.S."

This is all consistent with Republicans' trickle-down story. But it's nonsense.

Corporate profits after tax are higher than they've been in decades — much higher than they were back when investments and the economy were booming. The idea that burdensome taxes are behind the economy's sluggish performance just doesn't compute.

Walmart's after-tax profits in 2017 were $13.64 billion. Its planned wage hike will cost $300 million annually, and its bonuses will cost $400 million. That's a total of $700 million, or 5 percent of the company's 2017 profit margin. (And remember, the $400 million in bonuses is a one-time thing, not an annual expenditure from now on.)

The idea that Walmart couldn't afford to do this until the GOP cut its taxes is risible.

More likely, Walmart is afraid that if it doesn't boost pay, it will start losing workers to competitors. Target hiked its starting wage to $11 last year, and plans to raise it to $15 by 2020. Other major retail chains like Costco, Whole Foods, and the Gap have also announced pay raises. The economy is still further from full employment than a lot of people think, and wage growth still isn't where it should be. But after years of recovery, the pool of unemployed people still looking for work is falling.

Sooner or later, businesses are going to find that the only way to keep expanding will be to attract workers away from competitors. And that will mean sustained wage hikes. As the biggest private employer in the country, Walmart is likely beginning to feel the pinch.

Movements to hike the minimum wage are also winning more victories. In 2018, 18 states and 20 cities will increase their legal minimums. California is going up to $11 an hour for large employers this year. New York will hit $15 statewide within the next few years. And those two states account for roughly 15 percent of the country all by themselves.

Walmart probably feels it's better to stay in front of these market and regulated changes and just hike its pay voluntarily, rather than let anger simmer and ultimately boil over into more laws forcing even higher increases.

These developments point to the actual forces that drive pay growth: Increased aggregate demand leads to more jobs, depleting the pool of unemployed workers, and forcing businesses to compete with each other for labor. Meanwhile, unions and successful worker movements give employees the leverage to demand higher wages.

The Walmarts and McMillons of the world would much rather you believe that job creation comes from cutting taxes and squashing regulations. But it just ain't so.

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