It seems that welfare queens are back in the news these days. The old stereotype was an inner-city unwed mother — that’s dog-whistle-speak for black — having multiple babies to get ever bigger welfare checks (throw in a new Cadillac and the myth is complete). Regardless, welfare reform of the 1990s ended that narrative.

No, the new welfare queens are even bigger, richer and less deserving of taxpayer support. The two biggest welfare queens in America today are Wal-Mart and McDonald’s.

This issue has become more known as we learn just how far some companies have gone in putting their employees on public assistance. According to one study, American fast food workers receive more than $7 billion dollars in public assistance. As it turns out, McDonald’s has a “McResource” line that helps employees and their families enroll in various state and local assistance programs. It exploded into the public when a recording of the McResource line advocated that full-time employees sign up for food stamps and welfare.

Wal-Mart, the nation’s largest private sector employer, is also the biggest consumer of taxpayer supported aid. According to Florida Congressman Alan Grayson, in many states, Wal-Mart employees are the largest group of Medicaid recipients. They are also the single biggest group of food stamp recipients. Wal-mart’s “associates” are paid so little, according to Grayson, that they receive $1,000 on average in public assistance. These amount to massive taxpayer subsidies for private companies.

Why are profitable, dividend-paying firms receiving taxpayer subsidies? The short answer is, because they can. The longer answer is more complex and nuanced.

Both McDonald’s and Wal-Mart are engaging in perfectly legal behavior. The system was set up long ago in ways that failed to imagine companies doing this. Yes, they are taking advantage of the taxpayer, but they are also operating within the law.

Which means it is time to change those outdated rules.

The simplest solution is to raise the minimum wage. If full-time employees are living below the poverty level — especially those with children — its no surprise they are going to need public assistance. Raising the minimum wage over a period of time will eliminate much of this corporate welfare. The costs will be slightly higher prices at fast food restaurants and low end retailers.

The next proposal is more severe: Charge back the amount of public assistance any employee receives to the company he or she works for. It would be separate from tax filings, and simply be a direct penalty charged to the firm. I doubt there is much political will for this proposal, but I can see some people — especially on the Left — supporting it.

The most radical idea is bit of pure fantasy: Guarantee every person in America a minimum salary. That is a proposal under discussion today in Switzerland. Its hard to even imagine such a concept gaining traction in the U.S. outside of the Great Depression era.

My politics are pretty middle-of-the-road, and I find myself offended by subsidizing profitable companies this way. As a taxpayer, there are much better things I would like to see my monies go towards. Some rule changes are needed to end this wasteful spending.

We should get corporate welfare queens off of the public teat. Regardless of your politics, it is an issue that politicians on both the Left and the Right can agree upon.

 

 

 

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Originally published — plus 643 comments — here

 

Category: Really, really bad calls, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “America’s Corporate Welfare Queens”

  1. ComradeAnon says:

    Let’s take a Fair and Balanced view of this. “Why would you criticize two companies that employ millions of hard working Americans? They’re just trying to help their employees achieve a healthier and more fulfilling life.”

    • willid3 says:

      mainly cause they pay so poorly that even thought their employees are workers, they end up making so little that they can apply for benefits that are usually only for those who aren’t employed? seems like they have figured out that they can let the government pay for the benefits. which sounds like other countries. only there ate least its what expected

  2. Toktora says:

    Looks like you stirred a hornet’s nest over at Bloomberg!

  3. Frilton Miedman says:

    Barbell economy, we in the middle pay for tax breaks at the top and entitlements at the bottom to accommodate the wealth creation for the top who do almost nothing to reciprocate that wealth to us.

    As a small business owner myself, it’d be nice to have a few more customers with disposable incomes instead of full time workers who can’t afford food or shelter – pathetic.

  4. BR–It is misleading to say that a company such as Wal-Mart is “receiving a subsidy.” They are no more directly the recipient of the subsidy than you or me.

    The reversal of that argument is that there are lots of people who receive government aid and who would like to get jobs at Wal-Mart. Every one of these people that Wal-Mart hires then receives less money from the government. So Wal-Mart is actually reducing the tax payer burden.

    No one is being hired by Wal-Mart and then starting to coincidentally receive more government assistance.

    Production agriculture is similar. Most all workers receive unemployment for a few months of the year due to the seasonal nature of the work.

    I agree that the government systems involved are deeply flawed and need to be changed. The argument that Wal-Mart is the recipient of a subsidy more than the rest of us is also deeply flawed.

    • Hahahaha — thats hilarious!

      Less than if they were not working, but more than if they were working at a actual real job that paid a living wage

      • TerryC says:

        The four WalMart superstores in Odessa and Midland, Texas have starting pay of about $15 an hour, about double the current minimum wage, and their employees are not limited to less than thirty hours a week, either. Same goes for McDonalds. There is hardly a business in Midland or Odessa that does not have a help wanted sign out front. Oh, I forgot, we have a booming economy out here, sell a commodity that the world actually wants (petroleum), and it’s a supply and demand sort of thing. Not enough help, so even retail pays $15 an hour.

        Of course, Barry, you are not suggesting that everyone just pay their employees $20 an hour for a 40 hour week with great benefits regardless of the business they are in, or their location, are you? If they had to raise their prices, customers would go elsewhere, and they would be out of business. It also might add to inflation. Since you have a business in Manhattan, with sky-high costs of living and housing, do you pay your new help lots of extra because of the cost of living there, or do you pay them what you think they are worth (or the going market rate).

        If you do not pay your own help a Manhattan living wage, with great benefits, then I guess you can save your ha ha’s for the economically illiterate.

    • Frilton Miedman says:

      That’s an economic oxymoron.

      When a full time job can’t afford mere food and shelter, I not only subsidize these workers with tax paid entitlements like food stamps or medicaid, I also lose that disposable income in commerce, my customers, their customers, or their customers’ customers lose that business..

      I found it hilarious the MCD’s website, created to help their workers “learn” how to balance their budget on the MCD salary, suggests applying for food stamps or getting a 2nd job among it’s “helpful” advice.

      .
      .

  5. supercorm says:

    We are afraid of socialism, but allowing companies to pay such low salaries, forcing the employees to look for public assistance of some sort, is just the equivalent of subsidies to corporations … we are, all of us, paying taxes to finance those low wage workers.

    Rising the minimum wages will, more than likely but not proved, raise unemployment, but at least for most of them we are not going to chip in to compensate for low salaries. In other words, its about time we stop subsidizing companies like Wal Mart and McDonalds.

    Empirical evidences suggest that rising the minimum wages help the economy. First, minimum wage jobs aren’t the ones that will move to China. Manufacturing jobs pays way more than $10/hour, so we’re talking cashier clerks and services for most of those jobs, which can’t be moved overseas. In turn, those higher wages encourage spending, which help the economy, etc., etc. The marginal propensity rate of consumption is much higher for those people than the 1% (the 1% that we probably all are here on that post. I won’t consume more with a additional $1 in my pocket, but those people will). Profits won’t even be affected, but if they do we all going to pay less taxes anyhow to offset those (hence even more consumption) as we’ll start paying less for public assistance …

    Just my two cents …

  6. ReductiMat says:

    The commenting over there makes my eyes bleed.

  7. capitalistic says:

    There has and always will be social and corporate welfare. Social welfare benefits society. Corporate welfare benefits the risk takers and society. Both scenarios aren’t fair, but roughly even.

    • Frilton Miedman says:

      While I agree, it has to be a measure of which is beneficial to the whole.

      Corporate welfare yields to offshore tax havens with lower tax revenues & further increases to wealth disparity at a time when globalization and technology is driving labor demand down.

      Individual welfare increases velocity of money supply.

      Have you seen the FRED chart of velocity vs Money supply lately?

  8. bigsteve says:

    I got to be careful. I find myself seeing things the same way as you do Mr. Ritholtz most of the time. One of the keys to creativity is to associate with those not like you. But this analysis of yours like all of them is so right. A lot of people see views like yours as liberal or socialistic. Such minds have limited capacity for imagination and logical analysis. It makes me angry that they tout themselves as rooted in pragmatism and being responsible. Simple logic and a little bit of data manipulation with minor math skills shows how off base they really are. Some are ignorant while others are Flim Flam artists manipulating the rubes with misinformation and tickling their prejudices.

  9. DeDude says:

    It is absolutely corporate welfare. But as with all welfare, one cannot blame those who find it available and use it, regardless of need. I can understand that corporations will pay as little as they can get away with (and still find suitable employees). In some cases you may even be able to make the argument that if they paid more they would end up unable to compete (although Costco may poke holes in this argument). What I do not understand is that we as a society allow the minimum wage to be so low that a person with a full time, minimum wage, job cannot afford to feed their family and instead end up burdening the taxpayers. Now is the time to raise the minimum wage to $12/hour – even if it induced inflation it would be a good thing for society (we need higher inflation at this time).

  10. BDW says:

    Several weeks ago when McD’s was starting to be outed as a leech on society, I looked up the margins they operate under. Right now, their profit margin is 20.8%. I wish we could find out the franchisee’s margins, but notwithstanding, I think the corporation can afford a hit for the betterment of the world. Somehow along the way, “to the benefit of ALL STAKEHOLDERS” lost relevance to corporate governance.

  11. Sorenson says:

    Good stuff, Barry.

    I’m surprised that the NYT article you linked to did not mention that Milton Friedman proposed a guaranteed minimum income as part of his Negative Income Tax program. Here’s Friedman explaining it to William F Buckley Jr. back in 1968:
    http://www.youtube.com/watch?v=xtpgkX588nM

  12. victor says:

    Most of these workers move on as soon as they find better paying jobs (not too abundant these days), some move up the pay scale at the MacDonald’s/Wal-Mart. BR leaves out the savings to millions of Americans who get a decent meal for a few bucks or a Tee shirt for $3.99 plus tax. BTW each meal/tee shirt is taxed to the max before the working stiff even eats it or gets to wear it. Oh, it’s all junk food and cheap stuff? Let them eat cake and shop at Neiman Marcus instead?

  13. BDW says:

    Along w/ earnings showing that Walmart’s customer base could no longer afford to shop at walmart, I found this to add ammo to the fire a bit:

    http://www.nerdwallet.com/blog/2013/ceo-compensation-pension/

    But maybe we should all start a business making widgets.