Walmart and the Tax Act
When I see something in the news that obfuscates the full set of facts to skew an argument, it gets me wound up. The recent news from Walmart around the benefits of the Tax Act was just one of those moments. To paraphrase the event, Walmart gave away a one-time bonus and raised the minimum wage for new employees because of the windfall from the Tax Act. Republican legislators jumped on this news to tout the success of the Tax Act in benefitting workers and further spurring the economy. Upon a closer look at the facts, that isn’t the real storyline.
Walmart is one of the biggest beneficiaries in changes to the corporate tax rate. With such a large employee base and little-to-no research and development expenses, they were paying an effective rate of 32% on profits or roughly $7 billion per year. With the Tax Act, that tax bill will come down substantially, with around $3.0 billion in savings per year [calculation based on Walmart’s average tax burden for the past eight years]. Keep in mind that unlike the individual tax cuts, the corporate tax cuts are permanent. Over the next ten years alone, this is a $30 billion windfall to Walmart.
In response, Walmart gave a one-time bonus to employees of up to $1,000 per employee and raised the starting minimum wage by a dollar to $11/hour. Using their figures, the total cost to Walmart is $400 million for the one-time bonus and $300 million per year for the higher minimum wage. One could argue that given the tight labor market and the need to compete against Amazon they would have raised the starting wage anyway. But for the sake of argument, let’s assume they implemented the raise ahead of schedule. This generates a total cost of up to $1 billion for these added benefits to employees.
The “Tax Act Windfall” to Walmart employees is somewhere between 2–4% of the total tax savings over the next ten years. So what will happen to the remaining 96% in tax savings, or $29 billion? Given the easy access to cash through cheap debt over the past few years, it is highly unlikely that Walmart is going to suddenly find new investment opportunities. Instead, those funds are likely to go to stockholders in the form of stock buybacks and dividend increases. As we have documented in the past, a small minority of American’s own most of the stock in the U.S., and in the case of Walmart that ownership is even more concentrated given the Walton family holdings [According to investopedia.com, the Walton family owns nearly half of the company stock].
So if we complete the math, the U.S. is taking on $30 billion in debt to fund this tax break for Walmart under the theory it will stimulate further economic growth. Of that money, $14 billion goes to the Walton family, $15 billion to the remaining stockholders, and $1 billion to their employees. Economic theory states that only that last piece will have any lasting economic benefit to the economy, while the new debt will last for a generation.
The second half of my discussion should now look at how much the Walton family donated to Republican Congressmen and PACs [historically they donate the bulk of their political donations to Republicans]. Unfortunately, that information is impossible to obtain thanks to the Citizens United Supreme Court decision allowing companies to donate unlimited amounts to PACs, virtually anonymously. It’s too bad because the return on investment for the Walton family would be an interesting statistic.
This little bit of math is a pristine example of the fundamental flaw with the legislation and the ways in which it will further erode the core of our economy — wealth inequality and debt. Walmart, the largest employer in the U.S. with 2.3 million employees, is paying an extra $435 per employee in total over the next ten years. At the same time, the legislation gives a single family, the Waltons, $14 billion over that same time period. This wealth transfer is being paid for almost entirely with sovereign debt at a time when we already face growing obligations around healthcare, social security, and other important government programs. Between interest and repayment of the debt, we and our children will be paying off that wealth transfer with our future earnings. It is probably wise for all of us to check our savings plans and be sure we are prepared for what is to come.
— DBM
