How Big Corporations Are Stealing Your Tax Dollars (and Hurting Themselves) by Underpaying Their Employees
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- BUSINESS
BY STAN HONDA/AFP/GETTY IMAGES.
You are paying tax dollars to McDonald’s. And to Walmart. And to untold numbers of other major international corporate giants. And that money coming out of your pocket goes straight to the bottom line of those companies’ income statements.
This is not hyperbole. It is the twisted, truly sick outcome of a system that most Americans don’t understand but that many pump their fists and wave their flags in order to preserve. My bottom line: Americans are being lied to by some of the best prevaricators in the country—corporations, G.O.P. politicians, and economically obtuse pundits—turning many of them against their fellow citizens in order to pump up profits to levels that these corporate managers could not achieve through their own skill and acumen.
The fact that I am being slow in explaining how money goes from your pocket to the corporate coffers is intentional—unwinding an ingrained deception can be challenging. Step-by-step explanations have to be used before the “Oh, I’ve heard of this! The companies tell me . . . ” brainwashing we’ve all been victims of kicks in. So bear with me.
Step one: Corporations have costs. The best managers of the best of them figure out how to hold down those expenses so that they can increase their profits.
Step two: Human beings have basic needs that they require for their own survival. Food, shelter, health care—all of these cannot simply be denied to people without creating piles of bodies in the streets. (That is one of the points I keep making when it comes to Obamacare: when some conservatives grouse about paying insurance subsidies for the poor, they seem to be unaware that those people will be obtaining health-care services no matter what and that, in the past, those costs were paid from our tax dollars and higher premiums.)
Step three: All of those needs have to be met by purchasing something. Someone has to receive dollars to provide food or health care; someone has to pay the cost of rent. If it is not the individual, it is someone else.
Step four: If a company doesn’t provide the people it pays with enough money to meet those needs, then someone else has to do it. Unless, again, we want bodies in the street.
Step five: If a company holds down its costs by failing to pay its employees a living wage—something that should be a typical expense of running a business—then taxpayers are going to be called upon to pick up the slack through public assistance programs like food stamps, housing credits, and Medicaid.
Which leads us to step six: We have to increase the minimum wage so that McDonald’s et al are paying for the labor costs of their own businesses, rather than sucking on the teat of the American taxpayer to keep corporate profits high.
Yes, I am talking about the minimum wage—the obscene, ridiculous, and utterly unlivable minimum wage. Today, the income of a worker on minimum wage is the same as it was in 1950,in constant dollars. These are poverty wages. To give a comparative measure of that—take a C.E.O. of a company who earned on average $14.1 million in 2012; if it were 1965, that same C.E.O. would have earned $807,000 in 2012 dollars. In other words, C.E.O.’s earn on average 17 times what they did in 1965, while their minimum-wage workers make the same amount in 1950. And trust me—modern-day C.E.O.’s are not 17 times better than the ones who held the job in 1965. I know enough of them to say that without hesitation.
Before conservatives start screaming that marshaling these comparative numbers amounts to class warfare (or whatever other Fox News meme is out there now to defend the indefensible), let me stress: I am not bringing up those numbers to suggest that minimum-wage workers should be receiving 17 times what they did in 1965 (although I will say that C.E.O.’s certainly don’t deserve it). I am simply giving a comparison to those who might reflexively dismiss the news that the pay of minimum-wage workers is at 1950 levels.
What does that mean in reality? Put simply, people on minimum wage don’t make enough to live. Take one example: according to the Fiscal Times, renting an average place for a minimum-wage worker “became near impossible” as long ago as 33 years.
If the companies don’t pay enough to their employees to live—but still have to have employees to keep their doors open—what do they do? That’s where you come in. They depend on your tax dollars to make up the difference between their refusal to meet the minimum employment expenses they would have to pay to keep their business in operation and the amount that employees need to survive.
Let me make it even simpler: if an employee needs $10 for basic necessities and is paid $7, then your taxes will be used to supply that employee the other $3. Saying it the other way, companies reduce their required expenses by $3 by taking the money from you; then they can directly count that $3 as profit.
Not outraged yet? Then how about this—companies not only know they are doing this, it is essentially part of their business plan.
For proof, listen to a recording obtained by the online magazine Salon. In it, Nancy Salgado, a 10-year employee of McDonald’s, contacts a counselor at the McResources line, the company’s 1-800 number for employees. In the recording, Salgado explains how she is struggling on the minimum wage. The counselor doesn’t say, “Gee, I have no idea what you can do, because you are being paid enough to survive.” No, instead, the counselor tosses out the company’s advice: turn to the government to make up for your lousy wages.
The McResources staffer offers her a number to “ask about things like food pantries” and tells her she “would most likely be eligible for SNAP benefits” which she explains are “food stamps.” After Salgado asks about “the doctor,” the staffer asks, “Did you try to get on Medicaid?” She notes it’s “health coverage for low income or no income adults and children.
Then, in the Salon piece, Salgado takes the hatchet to McDonald’s:
“It was really, really upsetting,” Salgado told Salon Wednesday, “knowing that McDonald’s knows that they don’t pay us enough, and we have to rely on this.” Noting that McDonald’s was “a billionaire company,” she asked, “how can they not afford to pay us?
Now, I’m picking on McDonald’s here. The company is not responsible for the federal minimum wage, although it and a lot of other corporations have endlessly fought to prevent it from being increased. No, this is a problem that infects all businesses with employees earning the substandard minimum wage.
Whenever this topic comes up, corporate executives and conservative lawmakers all bleat that raising the minimum wage would destroy jobs. In fact, the former C.E.O. of McDonald’s (sorry, but he’s the most recent one I found doing it) recently said flat out that raising the minimum wage would cut back jobs.
To which I say: bull. Before everyone starts trotting out the irrational studies, let me bring up a couple of my own.
But it doesn’t matter what the dueling studies say. Let’s think about it for a second.
Business does not run on lesser expenses—it runs on demand. To take this to a logical extreme, if McDonald’s cut its employee costs to zero, it would not suddenly be making massive profits caused by its lower expenses. No, its profits would drop to nothing because, no matter how many customers came into their restaurants, there would be no one to take their order, drop potatoes in the fryer, or clean the restrooms. McDonald’s would go out of business.
Now, let’s suppose that the demand at McDonald’s requires 1,000 employees to satisfy customer needs. Unless McDonald’s is run terribly—hiring people that are not required—then paying those 1,000 people is simply the cost of doing business. If the minimum wage is raised, and suddenly your wait for a Big Mac triples, the floors are cleaned less often, and the garbage starts piling up in the waste cans, you will stop going to McDonald’s. It’s that simple: a certain level of employees is required to meet customer demand. If McDonald’s is currently hiring some excess level of employees simply to be gracious, then its top management needs to be fired for incompetence. Moreover, if demand picks up, then McDonald’s is going to have to hire morepeople.
And pick up it will. Again, logic. If you are paid $300 a week, you will spend $200 a week (you won’t have enough money to save any of it). If you receive $300 a week, you will spend $300 a week. And if you can figure out how to keep some of the extra money in the bank, then that institution has more cash to give out as loans, which help grow the economy. In other words, when employees have a real income—and aren’t forced to depend on food stamps for their basic purchases because a company counts public assistance as part of the business plan—the extra money will go back to the very businesses paying the minimum wage in increased sales, which will lead the businesses to buy more products from vendors, which will raise incomes at those companies, and on and on.
That is part of why the Federal Reserve Bank of Chicago found that increasing the minimum wage, so that annual income of those minimum-wage employees rises by about $1,000, increases per-capita spending by about $2,800 a year. And that means real growth in economic activity. As the Chicago Fed found in another stellar study:
Given the number of teen and adult workers who are likely affected by a $1.75 hike in the hourly federal minimum wage (including those earning $9–$10 per hour), we calculate that spending among minimum wage households could add as much as $73 billion to the economy in the year following the hike, which is 0.47% of real GDP and 0.66% of total household consumption in 2012.
Why is that? The answer is obvious: if workers around the country make more, they can afford to go to McDonald’s more often. Or Walmart. Or any other business that depends on the spending of minimum-wage workers. And even some expenses will be cut—when employees are paid more, the costs of employee turnover drops. People working at McDonald’s will know more about what they’re doing, because they have been there longer. The customer experience will be better.
Corporate C.E.O.’s don’t see it that way, at least not today. And one of the greatest business geniuses in American history would almost certainly call them idiots for their short-sightedness. In 1914, Ford decided to pay his employees a rich wage and otherwise improve the working conditions. I’ll let Ford Motor Company explain the reasons why:
In January 1914, (Henry Ford) startled the world by announcing that Ford Motor Company would pay $5 a day to its workers. The pay increase would also be accompanied by a shorter workday (from nine to eight hours). While this rate didn’t automatically apply to every worker, it more than doubled the average autoworker’s wage. While Henry’s primary objective was to reduce worker attrition—labor turnover from monotonous assembly line work was high—newspapers from all over the world reported the story as an extraordinary gesture of goodwill.After Ford’s announcement, thousands of prospective workers showed up at the Ford Motor Company employment office. People surged toward Detroit from the American South and the nations of Europe. As expected, employee turnover diminished. And, by creating an eight-hour day, Ford could run three shifts instead of two, increasing productivity.Henry Ford had reasoned that since it was now possible to build inexpensive cars in volume, more of them could be sold if employees could afford to buy them. The $5 day helped better the lot of all American workers and contributed to the emergence of the American middle class. In the process, Henry Ford had changed manufacturing forever.
I want to stress one part of that. More cars “could be sold if employees could afford to buy them.” People with money buy. McDonald’s employees with higher salaries would make more purchases at McDonald’s and Walmart, etc. And employees who made more at Walmart, etc. would make more purchases, too. The money doesn’t disappear down a rat hole. It is spent—a lot of it at the very businesses that are whining about paying people a livable wage.
Or, as Henry put it, raising wages “has the same effect as throwing a stone in a still pond,” creating an “ever-widening circle of buying” that increases the prosperity of a nation.
Why don’t corporate executives understand this? Part of it, I believe, is that there are just too many of them who, despite their pay, aren’t all that talented. Like I said, I know a lot of them. But there is a more important part: there is absolutely no doubt that, once a minimum-wage increase is put into place, the higher expenses will hit first and the higher sales will come later. Henry Ford didn’t play the “what will my corporate income be next quarter?” game. Instead, he focused on the long-term profits of his company. Too many C.E.O.’s don’t do that anymore. Wall Street demands immediate profits; if those don’t show up in the immediate quarter, then the company stock will probably suffer for a short while.
And when stock prices go down, even for a short time, so does C.E.O. compensation that is tied to share price. That’s a lot of the money C.E.O.’s make every year.
So, am I saying that companies are pushing their employees into poverty, leaving them unable to purchase basic necessities, and forcing taxpayers to pick up the slack so that the C.E.O. can buy another yacht this year? Could be. But it’s much more complicated than that.
Businesses have to earn enough money to pay employees. Companies whose employees don’tearn minimum wage do it, and lots of them have far lower profits than giants like McDonald’s. And the truth is, there is a name for the type of corporate C.E.O. who argues that his business can’t possibly function without turning over the cost of his workforce to the taxpayers: incompetent.
So, C.E.O.’s with minimum-wage workers: stop stealing our money. Pay your employees a livable wage. And if you don’t know how to make that work, I have a suggestion: get out of the executive suite, head off into retirement, and let somebody with some business sense take over.
