I will say this about Bernie Sanders: what he lacks in knowledge of economics, he sure makes up for in his fodder that provides me with plenty of material to write about and analyze. From Medicare for All and breaking up the big banks to free college for all, Sanders has no shortage in hair-brained ideas. This brings us to last week when Sanders introduced the Stop Bad Employers by Zeroing Out Subsidies Act (Stop BEZOS Act). Based on the fact that the bill is named after Amazon CEO Jeff Bezos, it is becoming clear that Amazon has replaced Wal-Mart as the archetypical "evil corporation" for those on the Left who are anti-business. Sanders introduced this bill because his mindset is that corporations such as Amazon give really low wages. Because of this low-wage work, it creates a larger amount of Americans on government benefits, which puts strain on the welfare system. From Sanders' point of view, large corporations need to pay "their fair share" in order to keep the system going. Ideally, it would incentivize employers to raise employees' wages high enough so they do not need to be on welfare anymore.
What does the Stop BEZOS Act entail that Sanders thinks he could accomplish his goal? Essentially, the Act is a corporate tax equivalent to 100 percent of a qualified employees' government benefits. As an example, if an employee received $15,000 in food stamps and other government benefits, the employer would have to pay the $15,000 to the government for that employee. Any employer with over 500 employees would be financially responsible for its employees' government benefits. While businesses with over 500 employees account for 0.3 percent of all firms, they account for 46.8 percent of private-sector employees as of Q1 2017 (BLS). What we see with these demographics alone is that it is not going to simply affect the Amazons, the Wal-Marts, or the McDonald's. It would have an impact on thousands of employees. Would that impact be net positive or negative?
It should not take too much brainpower to determine whether the net impact would be positive or negative. The Stop BEZOS Act is asking any employer with over 500 employees to pay for its employees' government benefits. Let us take a look at the cost of some of these benefits. The average food stamp subsidy in 2017 was $254 per month (or $3,048 per year). In 2014, the average spend per enrollee on Medicaid was $6,396. Average Medicaid spend was $17,476 for seniors and $19,033 for disabled individuals. According to the Congressional Budget Office (CBO), the average subsidy for those receiving federal housing subsidies was $7,600 in 2015 (p. 11). School lunch subsidies from the USDA average $447 per child per year. The Left-Leaning Center for Budget and Policy Priorities provides further analysis in this vain. If you were an employer that qualified under the Stop BEZOS Act, you could see how the cost of labor would greatly increase very quickly.
What is the effect of a significant increase in the cost of labor? Sanders thinks that employers will increase employees' wages to something "more livable." The problem here is basic mathematics. If a low-wage worker is only producing $9 worth of revenue per hour but are being paid $15 or $20 an hour, it becomes untenable. You might have some employees that attempt that. If we look at the effects of minimum wage laws as a proxy of "what happens when cost of labor significantly increases," I can give you a few more likely responses if the Stop BEZOS Act would be enacted into law. The cost of the good or service being sold increases. Low-wage workers would be fired and/or less low-wage workers would be hired because workers would become more expensive. Employers could invest in technology to automate what low-wage workers currently do. Depending on the industry, an employer could outsource the labor to a poorer country where cost of labor is cheaper. Alternatively, employers could move their headquarters to a state with less generous benefits since benefits vary from state to state. An employer could also keep employment at 499 employees to avoid the Act, which would be similar to what we see in the French labor market. The point is that that there would be a number of ways to avoid the Stop BEZOS Act.
The Act would be discriminatory against families with children, disabled individuals, minorities, and older individuals. How so? Workers who receive government benefits would become thousands of dollars more expensive to employ. It would disproportionately affect families with children because some benefits are only for families with children (e.g., subsidized school lunches, child tax credit). With the case of food stamps, household size helps determine the subsidy size, which means that employees with children are more likely to qualify for food stamps. This would provide employers greater incentive to higher childless households or married couples over parents or single mothers (more on that below). It would also disproportionately affect disabled individuals. Why? Because those who are on Medicaid now become thousands of dollars more expensive to hire. Since older individuals are more likely to be on Medicaid, this could plausibly increase age discrimination in the workplace.
Also, when looking at Census data on poverty and income, which demographics are more likely to have the lowest median income household? Single mothers and African-Americans, just to name two. How could these demographics be harmed? Under Sanders' Act, employers cannot collect information related to government welfare program eligibility. As we have observed in "ban the box" laws, if the employer has less information, they will use other proxies to guess about an individual's background. In this case, the HR department at Amazon or Wal-Mart could use factors such as gender, age, neighborhood, or race to filter out certain individuals from the hiring process because they are attempting to make an educated guess based on the information available.
Finally, let's point out an inconsistency in Sanders' logic. If government benefits such as food stamps truly acted as subsidies to employers hiring tons of low-wage workers, he would have to acknowledge that his ideas of Medicare for All and "free college tuition for all" are also subsidies to Amazon, Wal-Mart, and the like. More to the point, Sanders' logic on the issue is flawed because employers actually raise wages in response to higher welfare benefits. The reason? Low-income employees are competing with government welfare programs for a potential employee's time. As welfare benefits increase, the value of not working increases. In order to draw employees in, the wage needs to be high enough, certainly higher than working part-time or not at all.
This is another example of "good intentions, bad results" that permeates throughout the Far Left's economic thinking. If implemented, the most likely outcome is that the Stop BEZOS Act would harm the individuals that it is trying to help. Not only would there be more job discrimination against these individuals, but it would increase their dependency on the welfare system because the Stop BEZOS Act reduced job opportunities for low-skilled workers. There would be other unintended consequences, including probable corporate lobbying for cutting government benefits and difficulties with administering the Act, or even the fact that it very well might not raise wages that much because benefit eligibility for government programs is done at the household level, not the income level (CBPP).
While I do not have any expectation that the Stop BEZOS Act to be enacted during this congressional session, I do worry that the Democrats are embracing a nonsensical, dangerous form of economics, much like the Republicans did when they embraced Trump and his protectionism that is harming our economy. I call on Americans to denounce such idiocy or find ways to make low-wage workers more productive so they can make higher wages. But given how appealing a "free" handout is, I don't see this sort of foolishness leaving American politics anytime soon.
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