What progressives get wrong about 'corporate welfare'

Attacking Wal-Mart might be popular, but it's bad economics

Bernie Sanders.
(Image credit: Illustrated | Getty Images, iStock)

When Joe Biden finally gains control of the presidential Twitter account, he probably won't use it or his personal account to recklessly attack American companies. That's one reason a Biden presidency will come as a big relief to many in corporate America — even if it also might mean higher taxes and more regulation.

But that's not to say the country's biggest businesses will be free of criticism from Team Biden. For instance: The next U.S. labor secretary will certainly be a progressive, or maybe a self-described socialist if Bernie Sanders is the pick. And even if Sanders stays in the Senate, expect the Biden administration to echo Sanders-esque themes on wages. One in particular: Big business needs to pay more to its lower-wage workers. And in making that case, the new administration might point to a just-released study from the federal Government Accountability Office — undertaken at Sanders' behest — that documents how thousands of employees at some of America's biggest companies are recipients of federal aid programs such as Medicaid and food stamps.

The Washington Post reports: "Walmart was one of the top four employers of SNAP and Medicaid beneficiaries in every state. McDonald's was in the top five of employers with employees receiving federal benefits in at least nine states." And as Sanders told the newspaper: "That is morally obscene. U.S. taxpayers should not be forced to subsidize some of the largest and most profitable corporations in America."

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There is nothing obscene, morally or otherwise, about all aspects of society coming together to bear the burden of making sure lower-skill workers don't live in poverty. I know it seems like a simple and smart critique here in the supposed age of "late capitalism." If only McDonald's and Wal-Mart would pay workers a "decent wage," then the fast food and retailing giants could get off the government dole. Or as socialists like to put it: Capitalists offer socialism for companies and wealthy investors — capitalism for the rest of us. But while activists and left-wing politicians might choose to ignore economics, economics won't be ignored. If workers at a big profitable company only generate $10 an hour of revenue, then the company won't pay them $15 an hour. A company should not be expected to lose money on a worker, especially to hit a wage number pulled out of thin air by politicians.

The left gets the economics exactly backward. Instead of attacking these companies for employing workers at wages that require them to avail themselves of some government aid, the left should recognize that if these folks weren't working at a company for a low wage, their entire subsistence would come from the government — and at a much bigger cost. Then there's this: If Sanders is worried about government subsidizing business, how come he doesn't view nationalized health-care plans such as "Medicare for all" as one massive subsidy for business by totally relieving them of that responsibility toward nearly 160 million Americans? Why are wages the problem of business alone, but health care a societal problem?

Attacking a business for paying a market wage is a relatively cost-free way for politicians to say they're for higher wages without really doing anything. No taxes need to be raised or spending implemented. Just a bit of hectoring or perhaps passing a minimum wage hike that directly costs the government nothing. But dramatic minimum wage hikes might have a cost for workers, even in high-wage regions. A team of economists looking at Seattle's big minimum wage hike in 2015 and 2016 found that although the increase boosted the income of experienced workers in low-wage jobs, it hurt employment opportunities for those trying to break into the job market.

Anyway, while economists will continue to debate the costs and benefits of minimum wages, there is a low-risk alternative: the Earned Income Tax Credit, America's key anti-poverty program for families with children. A recent NBER working paper by my American Enterprise Institute colleague Michael Strain and Diane Whitmore Schanzenbach of Northwestern University confirmed the current economic consensus that the program continues to encourage and reward work "by increasing employment among targeted women, and by successfully raising their annual incomes, lifting millions of families out of poverty." Of course, expanding the EITC costs taxpayer money. It also lacks a catchy slogan like "Fight for 15." And it won't provide the emotional release of attacking business that some on the left apparently crave. All it will do is help people who need help the most.

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