The Welfare Queen Wears Pinstripes: McDonalds, Walmart and the New Era of Corporate Assistance

The image was first popularized by Ronald Reagan. It had a distinct racial and gender bias. And it entered the American national consciousness forever.

But today, the notion of someone or something freeloading off the efforts of the hard working middle class is more likely to conjure up visions of corporate executives than of the poor and unemployed.

McDonalds and Walmart, in particular, have gained notoriety as data has seeped out detailing the degree to which their low prices are funded by underemployed workers who make so little that they have to apply for government food stamps and aid to families with dependent children. In effect, tax payers are giving these two global corporations a subsidy so that they can continue to pay their employees less than a living wage.

This is more subtle than the direct government handouts and tax abatements for which Exxon and other members of the Big Oil fraternity as well as the financial services industry still fight, but it is no less corrosive because it depends, even more directly on the suffering of workers, consumers and taxpayers.

This is not intelligent economic policy. JL

Barry Ritholtz comments in The Big Picture blog:

The new welfare queens are bigger, richer and even less deserving of taxpayer support. The two biggest welfare queens in America today are Wal-Mart and McDonald's.
It seems that welfare queens are back in the news these days. The old stereotype was an inner-city unwed mother -- that’s dog-whistle-speak for black -- having multiple babies to get ever bigger welfare checks (throw in a new Cadillac and the myth is complete). Regardless, welfare reform of the 1990s ended that narrative.
This issue has become more known as we learn just how far some companies have gone in putting their employees on public assistance. According to one study, American fast food workers receive more than $7 billion dollars in public assistance. As it turns out, McDonald's has a “McResource” line that helps employees and their families enroll in various state and local assistance programs. It exploded into the public when a recording of the McResource line advocated that full-time employees sign up for food stamps and welfare.
Wal-Mart, the nation’s largest private sector employer, is also the biggest consumer of taxpayer supported aid. According to Florida Congressman Alan Grayson, in many states, Wal-Mart employees are the largest group of Medicaid recipients. They are also the single biggest group of food stamp recipients. Wal-mart’s "associates" are paid so little, according to Grayson, that they receive $1,000 on average in public assistance. These amount to massive taxpayer subsidies for private companies.
Why are profitable, dividend-paying firms receiving taxpayer subsidies? The short answer is, because they can. The longer answer is more complex and nuanced.
Both McDonald's and Wal-Mart are engaging in perfectly legal behavior. The system was set up long ago in ways that failed to imagine companies doing this. Yes, they are taking advantage of the taxpayer, but they are also operating within the law.
Which means it is time to change those outdated rules.
The simplest solution is to raise the minimum wage. If full-time employees are living below the poverty level -- especially those with children -- its no surprise they are going to need public assistance. Raising the minimum wage over a period of time will eliminate much of this corporate welfare. The costs will be slightly higher prices at fast food restaurants and low end retailers.
The next proposal is more severe: Charge back the amount of public assistance any employee receives to the company he or she works for. It would be separate from tax filings, and simply be a direct penalty charged to the firm. I doubt there is much political will for this proposal, but I can see some people -- especially on the Left -- supporting it.
The most radical idea is bit of pure fantasy: Guarantee every person in America a minimum salary. That is a proposal under discussion today in Switzerland. Its hard to even imagine such a concept gaining traction in the U.S. outside of the Great Depression era.
My politics are pretty middle-of-the-road, and I find myself offended by subsidizing profitable companies this way. As a taxpayer, there are much better things I would like to see my monies go towards. Some rule changes are needed to end this wasteful spending.
We should get corporate welfare queens off of the public teat. Regardless of your politics, it is an issue that politicians on both the Left and the Right can agree upon.