Just Taxes Blog by ITEP

Walmart’s Minimum Wage Hike: Did the Tax System Make Them Do It?

January 12, 2018

The Walmart corporation announced this week that it will increase its minimum wage to $11 an hour, in a move that the company attributed to the major corporate tax cut signed into law by President Trump last month. The $300 million the company will spend on the wage boost is just a fraction of the more than $2 billion a year ITEP estimates Walmart could net from the corporate tax rate cuts that took effect January 1—but even so, the company felt the need to make the wage boost more affordable by simultaneously closing 63 Sam’s Club stores and laying off thousands of employees. For all the press fanfare surrounding the wage announcement, the quiet layoffs are likely a more meaningful indicator of what awaits the American worker in the wake of the Trump tax cuts.

Walmart’s wage hike follows hard on the heels of the company’s 2016 move to raise its minimum wage to $10, and a  2015 boost to $9. These earlier wage hikes are generally thought to have been the product of widespread pressure from labor unions and social justice advocates to pay its workers a living wage—and, probably more relevant, a perceived need to compete with other retailers that had already increased their minimum wage. Even before the tax cut was enacted, the same pressures seemed to be in play last fall, with Walmart’s competitor Target announcing an $11 minimum wage in September.  All of which is to say that this week’s wage boost was likely due to the same competitive forces and public criticism that forced the company’s hand in 2015 and 2016—not because of the tax cut.

Of course, it’s hardly surprising that Walmart would claim the tax cuts really mattered. President Trump’s self-proclaimed “Christmas present” is among the most unpopular tax changes in recent history—no mean feat for a plan that purports to cut taxes for most American families, at least in the short run. Polls show that Americans believe (correctly) this tax cut was not designed for them, and was instead geared toward highly profitable Fortune 500 corporations like Walmart. The companies benefiting most from the tax plan desperately need to reverse the public tide of antipathy toward Trump’s high-end giveaway—or else face the prospect of losing these tax breaks under a possible Democratic Congress in 2019.

And make no mistake: Walmart will enjoy huge tax breaks from the new corporate tax rate reductions that seem likely to dwarf the $300 million its latest wage boost will cost. Walmart’s otherwise-loquacious press release is comically taciturn on this point, saying only that “the new law will create some financial benefit for the company.” It’s impossible to know just how big this benefit would be until the company’s financial reports for 2018 are filed, but it’s entirely plausible that the company’s annual federal income tax reduction could exceed $2 billion. The company’s pretax U.S. income has averaged almost $18 billion over the past five years, and the 40 percent reduction in statutory tax rates (from 35 to 21) would have reduced the company’s tax bill by $2.2 billion on that income. From that perspective, the real question is: why isn’t Walmart using some of its newfound billions to save the jobs of thousands of Sam’s Club employees?

The most likely answer is a sobering one: no amount of tax cuts was ever going to save those jobs. Thousands, and potentially millions of Americans voted for President Trump because he looked them in the eye and told them that that he would bring the lost jobs back, and would restore America’s industrial might. But Walmart was never a job creator. At its best, it was a job compressor, replacing countless mom and pop storefronts with one mega-store. Sam’s Club represented a step toward a more automated, less human driven retail experience, and the company’s decision today to transform ten of its shuttered stores into warehouse house for its e-commerce branch is a further step toward employing robots instead of people. Self-congratulatory press releases notwithstanding, the company’s Sam’s Club layoffs are likely a far better indicator of the tax plan’s long-term effects on the American workforce than the company’s $1 minimum wage boost. One wonders who the former employees of Sam’s Club will trust next.


Full Archive

All Blog Posts