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  • 05.18.15

Is It Time For Companies To Pay For Not Paying Enough? The “Walmart Tax” Gains Momentum

When employers don’t pay their workers a living wage, taxpayers are forced to pick up the tab in the form of government assistance. Some states are considering telling the poor-paying companies to pick up the tab instead.

Is It Time For Companies To Pay For Not Paying Enough? The “Walmart Tax” Gains Momentum
[Illustrations: Alena Hovorkova via Shutterstock]

Making minimum wage dooms you to a life of hardship and toil. We in the U.S. have accepted or ignored this situation for a long time, while companies make billions of dollars by paying their workers less than enough to survive. But a national discussion about income inequality and the wave of worker protests for livable wages has brought attention to the issue. And now some policymakers want to add to the debate by focusing not just on the poor living conditions that result from low wages, but on the billions of dollars that the low-wage service economy costs every single taxpayer, as we pay for things like food stamps and health care for workers whose companies don’t pay them enough to live on.

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Every year, U.S. taxpayers pay $153 billion in public assistance to working families, according to a recent study conducted by the University of California’s Berkeley Center for Labor Research and Education. This is more than the annual budgets of the U.S. Department of Education and Health and Human Services combined.

Paying low-wage employees more by raising the minimum wage–$15 an hour is what “livable” wage advocates are fighting for–is likely the most direct solution. But barring this, a few Connecticut lawmakers want to be the first in the nation to end what they see as essentially a massive payout to the Walmarts and McDonald’s of their state.


“It’s time for us to stop subsidizing these corporations. It’s time they redesign their business models to pay their employees a wage they can live on,” wrote Democratic state representative Peter Tercyak, a sponsor of the legislation, in an op-ed last year.

Connecticut’s proposed bill would charge large companies a fee of $1 per hour, per worker, for all workers who make less than $15 an hour. Only companies with more than 500 employees would pay, with the money raised going into state programs for early childhood development and social services. Retail, health care, and social assistance, private education services, and food services and accommodation sectors would be the industries most affected.

Proponents say the fee is only fair.

“Fees should be charged on employers that pay wages that are so low that people have to use welfare and food stamps in order to get by,” says Mary Kay Henry, international president of SEIU, a union backing the legislation as well as somewhat similar bills in other states.

According to the advocacy group Americans for Tax Fairness, each Walmart in Connecticut costs taxpayers $1 million in social programs. The bill could raise anywhere from $190 million to $305 million in revenues for the state, according to different estimates. According to the Hartford Courant, one recent study found that the state currently pays $486 million a year in Medicaid benefits and cash assistance for the low-wage employees in the state.

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A recent study from the University of Connecticut and funded by Jobs With Justice even suggested the bill could actually be a net creator of anywhere from around 500 to 1,400 positions, flowing from the increased state revenues. The number depends on whether companies pass the fees on to customers or decide to take the cut in their profits instead.

The bill would certainly help shift the social assistance burden from taxpayers back to their employers But would it actually help workers? That’s less clear.

The UConn study, for example, assumes most companies won’t actually raise their wages in response to the bill. In many cases, the fee’s costs will still be less than bumping employees up to $15 an hour.

“It’s a choice that employers make. Do they decide to pay their employees a more livable wage? Or do they continue to pay lower wages and then rely on the public to pick up some of the costs and services that their won’t employees need? That’s their choice if this legislation gets passed. They are not mandated to raise wages, but they face this fee if they don’t,” says Louise Simmons, a professor at the University of Connecticut School of Social Work and co-author of the study.

It’s not surprising, but the business community is warning that businesses might leave Connecticut. Whether they actually would is up for debate, especially since that warning was heard before when Connecticut was one of the first to pass paid sick time for certain restaurant workers. The companies stayed.

Meanwhile, other states, including Oregon and Colorado, are considering similar ideas. In another tactic, California will soon start publicly shaming companies that have more than 100 employees on Medicaid and publishing how much the firms are costing the state. The Connecticut bill, however, is still considered a long shot, even though more politicians are warming to the idea.

“The state’s going through tough public budgets, from cities to states,” says Simmons. “Potentially, $190 million could come out of something like this. … That’s nothing to sneeze at.”

About the author

Jessica Leber is a staff editor and writer for Fast Company's Co.Exist. Previously, she was a business reporter for MIT’s Technology Review and an environmental reporter at ClimateWire.

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