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Tax-Subsidized Corporations? Tucker Carlson and Bernie Sanders Get It Wrong

September 6, 2018 in Economics

By Ryan Bourne

Ryan Bourne

It’s remarkable to see a conservative and a democratic socialist
unite in condemning major American companies. Both Senator Bernie
Sanders and Fox News host Tucker Carlson have recently slammed
Amazon, Walmart, Uber, and other large companies for paying workers
and contractors too little. In a withering monologue last week, Carlson
claimed that the companies are all effectively subsidized by the
taxpayer because many of their employees’ incomes are
supplemented by various federal welfare benefits, such as food
stamps. Sanders agrees. Yesterday, he introduced legislation (the
so-called Stop BEZOS Act) to tax large corporations one dollar for
every dollar their workers receive in government food stamps or
health-care benefits.

If nothing else, it is amusing that neither Sanders nor Carlson
fully acknowledges the logical implications of their position. If
Sanders is right that programs such as food stamps modestly
subsidize employers who pay low wages, then his hugely expensive
Medicare-for-all and free-college-tuition proposals would
constitute a massive subsidy to low-wage employers. If
Carlson truly believes that large firms have the power to suppress
wages below competitive rates, then he should support raising the
minimum wage to combat that power — something that he has, in
the past, sensibly advocated against.

Snark aside, the pair are simply wrong on the economics of the
matter, and shortsighted to boot. An employer’s
responsibility is to pay employees for the work they do, not to
ensure that they have some societally agreed-upon level of livable
household income. Indeed, it is a peculiar worldview that suggests
that, when setting wages, a company employing low-skilled workers
should ignore the value of the tasks the employee actually
undertakes for them.

In competitive labor markets, we usually assume that firms pay
workers according to their productivity, the marginal revenue
product of their labor. Market wages are determined by where this
demand interacts with the supply of workers. Firms can’t
underpay workers without losing the best to rivals. Nor can they
routinely pay employees for more than they add to company revenue
without losing capital to rivals at home and abroad and risking
going out of business. There is no evidence that Amazon, Walmart,
or Uber have high-enough degrees of labor-market power that they
are the single hirer of workers in any one geographical area. For
Carlson to imply that their pay rates are evidence purely of
corporate greed is the worst form of populism.

There is a basic conundrum hanging over this debate: In a world
with no minimum-wage laws, no out-of-work benefits, and no in-work
benefits, some workers with low productivity levels would obtain
work but find it difficult to live comfortable lives on market
income. The real questions then are: …read more

Source: OP-EDS

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