Wal-Mart and Public Subsidies

I, too, have avoided wading into the Wal-Mart debate, but the discussion here and also on TAPPED (especially Ezra Klein"s post yesterday afternoon), but the questions raised about whether Wal-Mart employees" use of benefits such as Medicaid or Food Stamps should be considered "corporate welfare" to the company raises some issues of long interest to me.

The argument about whether it"s a bad thing that Wal-Mart employees use public programs needs a little perspective: We should recognize the quiet revolution that has taken place in social policy for low-income workers over the last twenty years. Two decades ago, Medicaid was an adjunct of welfare. With some exceptions, the only way to be eligible for Medicaid was to get welfare (AFDC): that meant exclusively non-working single parents and their kids. When families came off welfare, they also lost Medicaid, which was the key fact that made the argument of Charles Murray"s Losing Ground basically true: a parent might well be better off on welfare, with health care, than working at a minimum wage job without it, especially with the added costs of child care. That"s not because welfare was too generous, but because the low-end labor market was too cruel, and the cliff too steep.

Over the course of twenty years, however, Medicaid was slowly expanded into a program for low-income families, not just welfare recipients: First, families with incomes up to 150% of the poverty line were made eligible, then states were allowed to cover families up to 185% of poverty. Families leaving welfare also got additional protections -- a year or more of "transitional Medicaid" to smooth the path into the workforce. The State Child Health Insurance Program created in 1997 goes up to 200% of the poverty line and some states go higher. The Earned Income Tax Credit was expanded several times over that period, and in 2001, the Additional Child Tax Credit added another small subsidy for working families with children. Child care spending rose massively in this period. All this made the blow from welfare reform much softer than it would have been otherwise.

In total, according to the Congressional Budget Office, the difference in spending on poor families with children under these entitlement programs, between 1984 and 1999 and adjusted for both inflation and population,  was $45 billion a year -- about $5 billion under the 1984 programs, and $51 billion in 1999. (I wrote more about this, in the course of a somewhat different argument, here.)

Meanwhile, in all that time, the minimum wage rose from $3.35 to $5.15, the last increase a decade ago, and in real dollars it"s worth fifty cents less than in 1984.

What we have here is a massive decision by the federal government to subsidize low-wage work rather than to force employers to pay more or provide basic benefits. Often the tradeoff was very specific: There was consensus among many Republicans and DLC Democrats that the Earned Income Credit was a "better" way of supporting low-wage workers than a minimum-wage increase, and whenever a minimum-wage increase seemed to gain momentum, Republicans would suddenly become the biggest fans of the Earned Income Credit.

So I sort of agree with Matt that there"s no point in blaming Wal-Mart for employing workers who take advantage of these programs. The entire thrust of social policy over the last two decades, albeit a quiet one, has been to encourage the creation of low-wage jobs by subsidizing them. We made a bipartisan political choice not to impose that responsibility on companies, and to use public subsidies instead.

But having made that choice, we can unmake it, or reconsider it. And we should. And if focusing on Wal-Mart, the world"s biggest company and the country"s biggest employer, helps show the consequences of that choice, that"s all to the good.

Here"s why we should reconsider it (I say, as if I were suddenly the chair of the Senate Finance Committee): First, it"s a very complex and partial system. The refundable tax credits are hugely complicated, forcing many low-income workers to pay for tax prep services that eat up half the benefit. The Medicaid benefits still leave huge gaps. I"d be much more concerned about the Wal-Mart workers who earn too much to qualify for Medicaid but still don"t have real health insurance. That"s a particular problem in the South, where Medicaid eligibility is much narrower, and for people without children, such as workers age 55-65 or women of childbearing age who may never see a doctor until they are pregnant. One might try to extend these programs further, but I would argue that we have reached the limit of what can be done with this cumbersome mix of tax credits and Medicaid expansion, especially when we have to increase taxes just to bring the deficit under control.

Second, supports for workers through subsidies should go hand in hand with internal pressures to support workers within the company. As I pointed out above, Republicans rally behind the Earned Income Credit whenever a real threat to increase the minimum wage arises. If unions were stronger and were fighting cuts in health benefits, employers would be more open to a new national deal on health insurance. That"s why Ezra Klein"s argument that unions over-emphasize the expansion of employer-based benefits at the expense of more generous public benefits is short-sighted. You only get political consensus for public benefits when there"s pressure for employer-based benefits. The union pressure on Wal-Mart is plainly leading it to look for public solutions it can support. And it"s not just politics -- we need both employer-based and public benefits. We need a minimum wage increase and the EITC; otherwise the EITC is just filling the gap between an absurdly low wage and the basic costs of survival for a family.

Health care is a little different, because that is more of an either/or. Except for a "pay or play" option, which doesn"t seem to have much political life anymore, it"s a choice between an employer-based system and an individual-based public system. Either we"ll continue to hope that the anachronistic employer-based system survives a little longer, or we"ll revamp it completely, which will mean much greater public subsidy at all levels of the system. That would be a good thing, even if it resulted in Wal-Mart and other companies getting off the hook on health care costs. But Wal-Mart, the Waltons and the shareholders would have to pay higher taxes for such a system. And that"s a good thing too.