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Senator Bernie Sanders (I-VT) has introduced legislation that would tax companies equivalent to 100 percent of the amount their workers receive in various welfare programs, such as food stamps and Medicaid. The bill, named in an attack on Amazon founder and CEO Jeff Bezos, is targeted at companies like Amazon and Wal-Mart who employ many poor and unskilled workers. Sanders claims the bill would induce companies to pay these workers higher wages. The reality is that such a tax would impose egregious harms on the very people it purports to help.
There are several flaws in the underlying argument for this legislation. I addressed these in a recent blog responding to Fox News host Tucker Carlson’s surprising endorsement of Sanders’s efforts. Click here to read that blog. In this post, I will briefly address the unintended consequences should legislation of this nature become law.
Penalizing companies for hiring workers who qualify for welfare benefits will lead to fewer poor and unskilled workers being hired, not these workers receiving higher pay. As discussed in the blog responding to Carlson, one of the primary determinants of wages is the value an employee creates for the company. Nothing in this bill suddenly increases the value-generation potential of the workers it targets. This means that most, if not all the workers who qualify for welfare benefits will become unprofitable to employ. Wages for the positions they occupy may rise, but companies will simply become more selective in their hiring process or replace the open positions with various forms of automation or other technology. Either way, there will be fewer opportunities available to the most vulnerable members of society.
In addition to disincentivizing the hiring of individuals who only command wages which qualify for welfare assistance, this legislation would also disincentivize some who truly need the assistance from accepting the help. It is truly odd for a champion of the welfare state and self-described Democratic Socialist like Sanders to introduce such legislation. Regardless of their efficacy, these programs are intended to help poor and low skilled workers with the essential costs of living while they build the necessary skills and experience to stand on their own two feet. This bill completely undercuts that principle. In many cases, it may lead to those who qualify for the programs foregoing enrollment to secure employment. In the other cases, individuals will become perpetually dependent on these programs.
There are a great many problems with Sanders’s bill and the economics of its underlying argument, but the above two points ought to be enough for its supporters to reconsider their strategy. Sanders and his supporters claim to care about the poor, but this legislation would only exacerbate the problems they face. Penalizing the employment of individuals who receive welfare benefits doesn’t just increase inequality, it ensures that when the gap between the haves and have-nots expands, the have-nots will not be comprised mostly of people beginning to climb the economic ladder, as it is now, but will rather be dominated by a perpetual pool of individuals who are never able to reach the bottom rung.