Tackling the Tyranny of Wal-Mart

March 9, 2005
By Joel S. Hirschhorn

For its cancerous growth, Wal-Mart has exploited cheap foreign and domestic labor and is now a metaphor for the export of American jobs and prosperity to other nations. Some say Americans have a love-hate relationship with Wal-Mart. Maybe - but the more you know, the more you hate. Some bargains are not what they seem to be.

No other company has faced so much passionate grassroots opposition to its expansion across America. It has been painted as evil incarnate for its destruction of open space, exploitation of workers here and abroad, destruction of domestic manufacturing and its jobs, and ruination of small town America and small, locally owned businesses. Its huge imports have exported our prosperity and given China and other nations some control over our future. Its focus on providing low prices has shaped Wal-Mart's defense: we just give consumers what they want, don't blame us for being better at offering low prices than everyone else.

The logical way to challenge this defense is to invoke what economists call externalization of costs. Wal-Mart shifts health care and other costs to all taxpayers, who subsidize Wal-Mart and its customers, yet receive no benefits. Call it the Wal-Mart tax.

Consider these examples: in Iowa, for example, 845 Wal-Mart workers or members of their families are on Medicaid. In Connecticut, 1,028 Wal-Mart employees are in the state's medical care assistance program, or 11.3 percent of its workers in the state. In Alabama, Wal-Mart employees had 3,864 children on Medicaid. In Georgia, Wal-Mart employees had 10,261 children receiving state medical care assistance. In Tennessee, Wal-Mart had 9,617 employees receiving state health care assistance, nearly 25 percent of the company's entire workforce in the state. Both state and federal taxpayer money is being spent to assist Wal-Mart employees and their families.

Yet it is inconceivable that Wal-Mart can be legally prohibited from continuing its practices. Nor can imports be directly prohibited because of international trade agreements. It is on the consumer demand side that some solution is possible.

Consider this thought experiment. Competitors to Wal-Mart buy products made in the U.S., and give their employees decent wages and good enough benefits to keep them from needing government assistance. American manufacturers also offer good jobs with decent wages and benefits. Competitors offer the same type products, but at higher prices.

Then, consider offsetting Wal-Mart's unfair low cost, low price advantage by taxing sales at Wal-Mart by the cost differential to level the retail playing field. The "offset sales tax" can be split between local and state governments to supplement various social service programs, pay for infrastructure costs, such as more roads and police, required for stores, and assist start-up costs for new decent-wage retail and manufacturing enterprises.

For millions of low income Americans, their survival need for low Wal-Mart prices cannot be ignored. So the social equity question becomes: How to help those Americans who truly require and depend on Wal-Mart's low prices? Only those consumers, not the ones who like those low prices, but can afford higher, unsubsidized prices.

Local or state government can provide to those requesting and qualifying for it a special offset sales tax exemption identification card. Low income individuals or families would present some type of evidence of their status. By using the tax exemption cards at checkout they would still take advantage of the low prices, while others would not. To determine the tax, government authorities could estimate from current databases what fraction of customers would likely qualify, including those receiving Medicaid, food stamps, welfare, unemployment insurance, or supplemental social security benefits. A great many Wal-Mart employees would qualify.

Wal-Mart's unfair competitive advantage would diminish. Over time, those low income people currently in desperate need of low Wal-Mart prices would find more employment opportunities as competitors and their domestic suppliers expanded their operations.

Naturally, it sounds complicated, but this approach does not impose legal restrictions on Wal-Mart, yet serves the greater public interest by not causing taxpayers in general to pay the price for Wal-Mart's low prices. Other retailers would also be put in the same category, based on a determination of their dependence on imports and whether their wage/benefit structure places burdens on government programs.

Special sales taxes have always been used, such as luxury and cigarette sales taxes. The "offset sales tax" would be applied to overall sales, not specific products, and not just Wal-Mart. Interestingly, a bill to levy a special sales tax on Wal-Mart and similar chains has recently been introduced in Montana, exactly for the purpose of offsetting welfare costs for low-paid employees.

Connecticut's House Majority Leader Christopher Donovan said: "Here is the richest retail company in the world, and we, the taxpayers, are subsidizing their [medical] coverage. I think people aren't aware of the extent that we're subsidizing the biggest, richest, most powerful companies. Wal-Mart shoppers need to know there's an extra cost of doing business."

Most Americans know that something needs to be done about the Wal-Martization of our nation and the exporting of our prosperity that is destroying our middle class. Wal-Mart has wiped out the heart and soul of U.S. manufacturing, which in turn has steadily destroyed good jobs here. Nothing illegal, but not patriotic. Not when you understand that what Wal-Mart has itself done, and compelled other retailers to do, has created more demand for its low priced goods by creating more low income Americans. Call it the Wal-Mart squeeze.

Wal-Mart is pouring money into political pockets to protect itself from government action, which Americans must demand. It is not effective to fight Wal-Mart one store expansion at a time, because many more new stores are built than are blocked. Wal-Mart's prosperity is not America's prosperity. Neither is China's prosperity. What's good for Wal-Mart is not good for America, and we do not have to say "in the long run," because the long run has already come.

Joel S. Hirschhorn was formerly with the National Governors Association; his current book is Sprawl Kills – How Blandburbs Steal Your Time, Health and Money. He can be reached through www.sprawlkills.com.