Sunday, January 22, 2006

More on WalMart

This was written in response to a complaint about Walmart's use of TIFs and skimping on healthcare:

The gifting of land and tax incentives is ubiquitous. You would be hardpressed to find major operations of any corporation that have not been brought to a specific location by the auspices of the local government.

For example, Kansas City TIF (tax increment financing--having the city shoulder some of the company's cost to be recovered down the road in tax revenue generated by the business) expenditures were estimated to be around $40 million in 2004.

But remember that the lauded mom and pop shops pay little in federal income taxes. Tax on the first $50,000 of profits is only 15% and 25% up to $75,000. Walmart, on the other hand, is paying 39% on a fraction of its income and 35% on most of it.

Many mom and pops are not incorporated and are run as sole proprieterships or partnerships with income flowing through to the owners. In Kansas, up to $15,000 brings a rate of only 3.5%--it doubles to 6.45% over $30,000. Clearly big corporations like WalMart have to pay an effective rate of close to that 6.45%, while mom and pops might come out around four or five percent.

That being said, the accusation has the wrong target. The cities that offer bonds or grant land to WalMart are more culpable than the company is. But the city does it because WalMart, even after the municipality's upfront costs, brings an order of magnitude more in revenue and economic activity than the inefficient mom and pop's.

In regards to welfare, 27% of WalMart's employees are either on Medicaid or have SCHIP (for their children) compared to 23% for retailers nationwide. A moderate gap, but not a prodigious one. And again, WalMart deserves blame for taking advantage of corporate welfare policies as much as you or I do for accepting interest-free student loans when we're not struggling to make end's meet.

Meanwhile, Maryland is pointing both barrels at the Arkansas giant, a possible portent of things to come:
Speaking at the National Press Club, [AFL-CIO President] Sweeney said the organization is launching similar health care campaigns in more than 30 states. Maryland's law — approved by the General Assembly over Republican Gov. Robert
Ehrlich's veto objection — is the first in the nation to require large employers, those with at least 10,000 workers, to spend at least 8 percent of their payroll on worker health care. Wal-Mart is the only company in Maryland now affected by the law.
This is antithetical to the idea of HSAs or hiring healthier people (and by extension encouraging people to take better care of themselves for occupational reasons, among others).

I think it inevitable that companies will continue to move against skyrocketing healthcare costs by terminating employees who engage in deleterious behaviors like smoking and throwing rigorous activites into job descriptions to give a leg up to fit applicants. Data mining and even DNA sequencing will provide companies with a wealth of information about prospective and current employees, making it easier for them to pick assets and avoid liabilities. Legislation, driven by union groups, will attempt to resist these trends, of course.

An aside: Labor leaders used to stand against unskilled immigration. Now they've become so tied to the Democratic Party that they can't, or won't. In the story linked to above, the head the country's largest union federation could be excoriating unfettered underclass immigration:
"What are we going to do about the destruction of good jobs in our country, the jobs that for the past half-century helped us create the largest middle class, the most dynamic economy and the strongest democracy in the history of the world?" Sweeney said in announcing the union campaign.

The U.S. poverty rate was up in 2004, Sweeney said, the first time on record that household incomes failed to increase for five years in a row.

America has decided to compete in the global marketplace by degrading work and workers through privatization and de-unionization, rather than competing through innovation and ingenuity, said Sweeney, head of the nation's largest association of labor unions.
But he's targeting WalMart instead. Bringing in people that make less than middle class natives is going to, quite obviously, reduce the size of the middle class. Foreign-born households bring in $6,000 less than native ones, and the wealth gap is greater than that, since foreign-born households tend to be larger. And the corollary to that is the fact that the poverty rate has climbed to 12.7%. Finally, the indefatigable search for ever-cheaper labor inhibits innovations that would be borne out of having to deal with higher labor costs.

It takes only a rudimentary understanding of basic economics to realize that a larger labor supply depresses wages and reduces labor's bargaining power. Instituting a merit immigration system to bring in endowed populations concentrated in high value industries would do more for native workers than any amount of wage and perquisite lobbying ever will.


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