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Bernie Sanders (I-VT) and Ro Khanna (D-CA) just introduced the ‘‘Stop Bad Employers by Zeroing Out Subsidies Act’’ (or Stop-BEZOS) that would punish big companies like Amazon, Walmart, and McDonalds for paying their workers too little. It doesn’t require Amazon to pay its workers more, but instead would make big companies pay an excise tax that is intended to reimburse the government for the cost of federal benefits its workers receive. But the same market forces that depress wages for low-skilled workers would ultimately undermine the Sanders/Khanna bill, harming many of the workers that they want to help.
The name of the bill hints at the problem. Amazon and the other behemoths aren’t being bad or good. Market forces determine wages—at big and small firms alike. For all I know, Amazon CEO Jeff Bezos might like to raise rank-and-file wages, but unless his competitors followed suit, Amazon would lose money. And if that happened, shareholders would likely revolt.
The bill aims to buck those market forces, but it would create a slew of bad incentives. First, affected employers would have a strong incentive to avoid hiring workers who might claim SNAP or Medicaid or other benefits. The bill prohibits employers from directly asking about benefits receipt, but the companies could identify likely recipients without asking. Low-income single parents are most likely to be eligible for SNAP and Medicaid and most of them are women. Employers would be less likely to hire single women of child-bearing age. Amazon might drop its parental leave benefit because it doesn’t want to attract or retain new parents.
The companies will be less likely to open facilities in states that expanded Medicaid coverage under the Affordable Care Act because more of the workers potentially could subject their employers to the Stop-BEZOS penalties.
Part-time workers also are more likely to be eligible for federal benefits than full-time workers, which means part-time low-wage jobs at larger firms could become scarcer. Companies will be more likely to pay overtime rather than expand their work force to deal with seasonal surges in demand because part-year workers are more likely to be eligible for means-tested benefits. For the same reason, companies will be less likely to hire workers who have been out of the work force for much of the year or to take a chance on workers with weak employment histories who they might have to let go.
The bill also creates a giant cliff for employers when they reach 500 employers (based on average payroll for the year) because only those firms are subject to the penalties. A company with a lot of low-wage single parents would face a huge (and somewhat unpredictable) penalty when they hire the 500th worker so they would have a strong incentive to stop at 499.
And the bill could accelerate the pace of automation because robots don’t get federal benefits.
The bottom line is that the most vulnerable households will be harmed by this legislation. If they can’t find work at the big “bad employers,” they might be able to get a job at a small firm exempt from the penalties, but the average small firm pays much lower compensation (including wages and benefits) than the average big one. Small firms are also much more likely to fail than big ones. Presumably, the bill sponsors do not intend to move workers to lower-paid and less secure jobs.
As an aside, the bill appears to impose the penalty excise tax on all large employers, not just corporations (even though the bill text explicitly targets “corporate welfare”). Would the excise apply to LLCs, Subchapter S corporations, non-profits and governments? GAO found that around 23,000 military members used SNAP benefits in 2013; about one in four kids in DoD schools get free or reduced price lunches. Will the federal government tax itself for being a bad employer? Similarly, public school bus drivers, school custodians and even some school teachers have incomes low enough to qualify for SNAP or other means-tested benefits. Cash-strapped schools may have even less ability than profitable Amazon to raise wages to avoid the excise tax.
There are less counterproductive ways to boost worker pay, which Sanders and Khanna also support. A higher minimum wage is a much more direct way to get employers to pay higher compensation, although it doesn’t solve the robot problem. Nonetheless, with unemployment near record lows, this is probably the best time to push the minimum wage back to historic levels (and then automatically adjust it to keep pace with inflation). Another approach would be to enact laws that promote unionization at large employers. An even better approach—one that would actually increase employment—is to expand the earned income tax credit, which Khanna has worked hard for.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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