Bernie Sanders Picks the Wrong Kind of Fight With Amazon
(Bloomberg Opinion) -- U.S. Senator Bernie Sanders, a leader of the democratic socialist movement, is introducing a bill designed to force companies to pay their workers higher wages. The bill is being touted as an attack on Amazon.com Inc. — its name is the Stop Bad Employers by Zeroing Out Subsidies Act, which spells out “Stop BEZOS.” That would be Amazon chief Jeff Bezos, the richest person in the world, whose company just passed $1 trillion in market capitalization. Sanders’ bill, which would apply to companies with 500 or more employees, would levy a tax equal to 100 percent of certain government benefits (food stamps, housing vouchers, school lunches and Medicaid) received by any workers who earn less than $15 an hour.
To many on the left, Amazon has become a symbol of American inequality, with its owners reaping unprecedented fortunes while its workers often are eligible for means-tested government benefits like food stamps. The median annual compensation of an Amazon worker in the U.S. is $34,123 — above the U.S. median personal income, which stood at a little more than $31,000 in 2016. And since personal income also counts government benefits, the typical Amazon worker is actually probably doing even better relative to the median. So Amazon is not actually too terrible on this score. But entry-level wages of $13 an hour and poor working conditions are not a good look for a company whose warehouse jobs are increasingly regarded as the future of work, and whose search for a location for its second headquarters has local governments scrambling obsequiously to please the online retail giant.
Sanders is capitalizing on those bad optics to make an example out of Bezos and Amazon, and to draw attention to the problem of companies relying on the government to pay their workers’ bills. But his plan seems to be much more about grandstanding and pointing fingers than about actual solutions to help vulnerable American workers. If it actually became law, the Stop BEZOS Act would almost certainly hurt the working poor. Its goals could be achieved much more simply and effectively by a combination of a higher minimum wage and an increased earned income tax credit.
Suppose you’re an employer who pays your workers $13 an hour. The workers also get government benefits that average out to $5 an hour. Under the Stop BEZOS Act, you, the employer, would be charged $5 an hour per employee in tax. How would you respond to this new tax?
One thing you could do is to raise your workers’ wages to $15 an hour, in order to no longer be subject to the tax. That’s obviously the outcome Sanders would like to achieve. But there are other things you can do as well. You could fire workers who use lots of government benefits — for example, single moms with dependent children — and replace them with teenagers, middle-class part-timers or other workers who won’t require you to pay the Sanders tax.
That would hurt vulnerable American workers — the people who need the money the most would be the most likely to be added to the unemployment rolls. It would also make poor Americans unwilling to claim food stamps, Medicaid and other government benefits in the first place, out of fear that they might lose their jobs. Sanders and his allies would obviously try to counter this outcome with vigorous anti-discrimination lawsuits. In practice, this isn’t a workable solution; workers tend to win only a very small percent of such lawsuits.
As an employer, a second thing you could do to reduce your tax burden would be to cut wages. Suppose you cut wages for some workers from $13 to $8, but — because food stamps, Medicaid, and other benefits don’t rise 1-for-1 as income falls — they only use $6 in benefits after their wages go down. Now your total bill for those workers is $14 an hour ($8 in wages plus $6 in Sanders tax). That's even lower than you’d pay if you raised wages to $15. And of course the workers themselves see big drops in their disposable income.
Either one of these responses would be undesirable — firing workers who use lots of benefits, or cutting wages in order to game the system. In contrast, the best possible scenario — companies raise all workers’ wages to at least $15 — would be no different from a $15 minimum wage, which Sanders has already introduced as a separate bill. In other words, the Stop BEZOS Act would either be redundant (if the higher minimum wage were adopted) or be terrible for the welfare of the working poor.
That suggests that Sanders and his allies either haven’t thought through the economics of their bill, or — more likely — don’t really care. It seems like more of a marketing stunt — an attempt to erode the social status of big businesses and their rich owners, by accusing them of taking corporate welfare. But if people realize that Sanders’ measure would harm and potentially stigmatize working poor people who receive government benefits, the move could backfire. Also, Sanders’ attempt to paint government benefits as corporate welfare might ring hollow with voters, given that most of those benefits are already partly paid for via taxes on high earners:
A better approach would be to simply raise the minimum wage to $15, or preferably to a living wage based on the local cost of living. The government should also raise the earned income tax credit, which is essentially a government subsidy encouraging companies to pay their workers higher wages. An expanded EITC — which Sanders ally Congressman Ro Khanna of California supports — might be the kind of thing that Sanders regards as corporate welfare. But in the end, if the dollars are going into the pockets of the poor, the question of how they get there is kind of academic.
Democratic socialists have focused a lot on optics and on high-profile denunciations of the rich. But in the long term, promoting policies that fail on the merits is unlikely to help their cause.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
©2018 Bloomberg L.P.