Wal-Mart Welfare

How taxpayers subsidize the world's largest retailer.

by Jenna Wright

Dollars and Sense magazine, January/February 2005

Wal-Mart has released its expansion plans for 2005, and Americans can expect up to 230 new supercenters to open in their communities. The company plans to open SO million square feet of retail space this year. President and CEO Lee Scott is confident the expansion will boost Wal-Mart's bottom line. But it takes money to make money, and WalMart is getting a surprising amount of that seed money, along with massive subsidies to its existing operations, from U.S. taxpayers.

A raft of studies show that millions of taxpayer dollars are flowing to new and existing Wal-Mart stores around the country. In many instances, individual Wal-Mart facilities have received either direct or indirect subsidies from states and localities. Last May, Good Jobs First (GJF), a research and advocacy group that seeks to hold corporations accountable when they receive public subsidies, released a report detailing subsidies WalMart has received to build both retail stores and the network of nearly 100 distribution centers the company has created to facilitate its expansion. The group found that over 90% of the company's distribution centers have been subsidized. It also uncovered 91 instances when the retail stores received public funds, and believes "the real total is certainly much higher."

GJF investigators documented 244 Wal-Mart subsidy deals with a total value of $1.008 billion. Taxpayer dollars have helped individual stores and distribution centers with everything from free or cut-price land to general grants. One example: in Sharon Springs, N.Y., a distribution center made a deal with an industrial development agency for the agency to hold the legal title to the facility so the corporation could evade property taxes. Good Jobs First estimates that Wal-Mart will save about $46 million over the life of this one agreement.

Subsidizing Low Wages

Wal-Mart's low-road labor policies give the corporation access to a less obvious taxpayer subsidy: government benefits to its employees. The company's policies by now are notorious: wages at or close to poverty level, managers discouraged from awarding overtime, employees forced to work off the clock without pay and repeatedly denied their right to organize. The result is that many Wal-Mart employees are eligible for myriad forms of public assistance. In other words, by providing financial assistance in various forms to Wal-Mart employees, the federal and state governments are essentially subsidizing the corporation for its substandard wages and benefits.

Health care benefits represent one such subsidy. Wal-Mart's employee health coverage is minimal and expensive; little of the company's vast low-wage workforce is covered. Nationally, two-thirds of workers at large firms get health insurance from their employer. But at WalMart, only 41% to 46% of employees use the company's health insurance, in large part because many of Wal-Mart's low-wage workers simply cannot afford to pay the high premium the company

charges. In 2001, Wal-Mart workers paid 42% of the total cost of the company's health plan. In contrast, the typical large business expects employees to pay only 16% of the total cost for individual coverage, or 25% for family coverage. At discount retailer Costco, which competes directly with Wal-Mart's Sam's Club stores, employees pay less than 10%; as a result, 82% of them are covered through the company.

Instead of providing affordable health insurance, Wal-Mart encourages its employees to sign up for publicly funded programs, dodging its health care costs and passing them on to taxpayers. The company is the poster child for a problem outlined in a 2003 AFL-CIO report on Wal-Mart's role in the health care crisis: "federal, state and local governments" - American taxpayers - must pick up the multi-billion-dollar tab for employees and dependents, especially children, of large and profitable employers who are forced to rely on public hospitals and other public health programs for care and treatment they need but cannot obtain under their employers' health plans."

In Georgia, one of every four WalMart employees has a child in the state's PeachCare health program, according to a recent survey. Over 10,000 of the 166,000 children covered by PeachCare have a parent working for Wal-Mart; no other employer in the state has a comparable share of its employees in the program.

In California, the families of Wal-Mart employees use an estimated 40% more in publicly funded health care than the average for families of employees at other large retail firms, according to an August 2003 study by University of California, Berkeley's Institute for Industrial Relations. Providing health care to Wal-Mart families costs California taxpayers an estimated $32 million annually.

Thanks to their poverty-level wages, Wal-Mart workers are often eligible for other kinds of government assistance as well. The same study found that California Wal-Mart employees and their families utilize an additional $54 million in non-health related federal assistance, including food stamps, the Earned Income Tax Credit, subsidized school lunches, and subsidized housing.

The Democratic staff of the House Committee on Education and the Workforce estimated the breakdown of costs for one 200-employee Wal-Mart store:

* $36,000 a year for free or reduced school lunches, assuming that 50 families of employees qualify.

* $42,000 a year for Section 8 rental assistance, assuming that 3% of the store employees qualify.

* $125,000 a year for federal tax credits and deductions for low-income families, assuming that 50 employees are heads of households with a child, and 50 employees are married with two children.

* $108,000 a year for the additional federal contribution to state children's health insurance programs, assuming

that 30 employees with an average of two children qualify.

* $100,000 a year for additional Title I expenses, assuming 50 families with two children qualify.

* $9,750 a year for the additional costs of low-income energy assistance.

Overall, the committee estimates that one 200-person Wal-Mart store may result in an excess cost of $420,750 a year for federal taxpayers.

The effects of Wal-Mart's free-loader policies radiate beyond Wal-Mart itself; Wal-Mart employees are not the only victims. Firms large and small are forced to cut their own costs in order to compete, creating a "race to the bottom, in which everyone suffers," according to the AFL-CIO report. Employers that provide adequate pay and benefits to their employees are under pressure from companies like Wal-Mart that do not. The result: a growing low-wage sector and ever-greater need for government benefits (funded, incidentally, by an increasingly regressive tax structure).

As an economic power, Wal-Mart is in a class by itself, with over $8 billion in net income last year-it's about five times the size of the second-largest retailer in the United States. Wal-Mart's sheer size means it can drag whole sectors with millions of workers both in the United States and abroad down its low-road path. Taxpayers are feeding this giant corporate monster, and at a very high price.

Jenna Wright was a D&S intern in 2004.

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