Special Tax for Wal-mart

Wednesday, February 16, 2005
Before I start, let me tell people who do not normally read my blog this: I do not shop at Wal-mart. I'm not a particular fan of their policies and hiring practices. I hate their stores because they are warehouse like and often very dark and dirty. But I choose to combat Wal-mart in the best possible way, I don't shop there.

But now there is a bill in Montana to tax retailers who do more than $20 Million in sales. Basically, the more successful you are the more you are going to have to pay. It takes aim squarely at Wal-mart, and to some extent Target and Costco, whose critics complain that they pay their workers so little that it is up to the public to subsidize the workers' meager wages.

Now my first take, two wrongs don't make a right. The real problem is that you expect everybody else to subsidize lower paid workers. If there is no social welfare then there is no problem. However, this is a very long topic in and of itself and I don't really wish to argue this point right now.

OK, so lets just take social welfare programs as a given. Is it a good idea to tax Wal-mart? The impetus behind this is to presumably help those who Wal-mart is underpaying. Does it really? Any economist will tell you that in truth, the effect is unknown. Take this scenario.

Faced with higher taxes Wal-mart does what any business does, it tries to maximize profit. Taxes always have some effect on behavior because it changes the relative cost of doing business. It will probably either

a) cut costs, most likely through wages and benefits since this is most businesses biggest and most flexible expense.
b) raise prices

Neither is good for the people the tax is trying to help. For those who hate Wal-mart and believe it is the devil, have you actually shopped at one? Do you see the people who go there? Most are struggling families who go to Wal-mart because its prices are so low it allows them to stretch their dollar that much farther. Raise prices and you directly hurt those who need it the most.

I am sure there will now be arguments that Wal-mart created this class in the first place by paying their workers so little that they can only afford to shop at their stores. Take a good look. Wal-mart is huge; millions and millions of people shop there, much more than are employed by Wal-mart. But that isn't even the point. Even if Wal-mart created this class I have less of a problem with that than the government fixing the problem through taxation. I have to agree with the Wal-Mart spokesman, government should not pick winners and losers in business. If you allow government to pick on the biggest kid on the block, what is next? What is to stop them from taxing the 2nd biggest kid, and then the 3rd? As soon as #1 is taxed into oblivion and #2 becomes #1 what happens then?

So lets stop Wal-mart the right way. STOP SHOPPING THERE! Tell your friends, spread the word. Evangelisize Target. Lets just not do it by having government do the dirty work.


Ryan said...

cut costs, most likely through wages and benefits since this is most businesses biggest and most flexible expense.On the contrary, it is neither.

Biggest. Far from it. Let's examine for as second. We are talking where about Walmarts hourly employees of which they have over a million worldwide. Most of the overseas employees earn peanuts, but I'll be generous and calculate them all as earning US wages. Most of these people earn $6/hour. They work on average 30-40 hours a week but I'll assume they all work 40. So, we have $6 x 40 hours/week x 52 week/year = $12480/year. Multiply by a million employees and we get $12 billion. Remeber, this number is an over-estimate. In 2003 Walmart's sales were over $250 billion. How much is their markup from the product cost? 30%, 50%, 100%, 200%? Just to go for overkill let's play with the idea that they mark up every product to 5 times the original cost. So, a $200 TV at Walmart only cost the store $40. And, a $15 pair of pants was bought from the manufacturer for only $3. Surely, these material costs are on the low side. Our extremely conservative estimate puts Walmart's material costs at $50 billion which still dwarfs the over-estimated wage costs for hourly employees. And the material costs are likely much higher than that when you count in shipping, storage, lost/stolen goods, and their inventory control system. Relatively, hourly wage costs are quite small.

Flexible. Walmart's employees everywhere are payed just barely above minimum wage. They already have the lowest starting salary of any nation-wide retail store. They have a much lower retention rate than most other retailers. The only way they could pay employees less is to hire illegal aliens for less than minimum wage which they have been caught doing. So, no the pay to hourly employees is not flexible. Benefits? What benefits? Walmart gives little or no vacation time to employees unless they make a career out of the store. They don't give health benefits until you've worked there for a year and even then they make you pay for a hefty chunk of the health coverage costs. Thus, the great majority of hourly employees have no benefits at all. Walmart can't cut back what isn't even there to begin with.

In fact, Walmart can't make significant cuts to most it's costs. If it's total revenue were decreased they would merely have a smaller profit margin than the vast one they enjoy now. That might mean that the CEO doesn't get his bonus. Boo freakin' hoo. They are still highly profitable, they aren't about to massively close stores, they aren't about to cut wages. If you want to argue about the morality of taxation in principle then fine. But, don't claim that taxation would be bad for the little guys. It wouldn't. The hourly employees would benefit from such taxation and the negative consequences are few and unlikely.

Ryan said...

Having said all that I completely agree that targetting a company with a specific tax is unfair regardless of the reason. Fixing unfair treatment or social inequality through taxes is unjust. If Montana's politicians really wanted to help out Walmart's uninsured employees they could make health coverage mandatory for employers of Walmart's status or extend certain welfare benefits to such employees. Or even create a state-subsidised health plan that low-income workers could afford. But, instead they are just trying to increase revenue under the pretense of benevolence.

T said...

Ryan, I think you misunderstood me. I was not implying that Wal-Mart's largest cost are the wages it pays. I was trying to say, and admittedly not clearly, that it is the largest cost they have direct control over.

Lowering its cost of goods is difficult, though not impossible as many estimate that Wal-mart is largely responsible for the low inflation the US has enjoyed over the last few years.

But that being said, for most non-wal-mart companies, wages is the largest cost that a company has direct control over.

Kat said...

i hate walmart. tax them thar varmints.