PolySciFi Blog

Friday, January 13, 2006


Taxing the poor

From Maryland:

In a stinging defeat for Gov. Robert L. Ehrlich Jr. and a major victory for organized labor, the Maryland General Assembly decided on Thursday overrode the veto of a closely-watched bill that will force Wal-Mart to pay more in health benefits to its employees.

The legislation apparently makes Maryland the first state in the nation to enact such a requirement, and was heavily lobbied by both business and labor. The bill was passed in last year's session of the Legislature and vetoed by Ehrlich, a Republican, in May. Since then, passage of the bill over the governor's veto has been a major priority of the Assembly's Democratic leaders and their labor allies.

The bill does not specifically target Wal-Mart. Known as the Fair Share Health Care Plan, it requires companies employing more than 10,000 people to spend at least eight percent of their payroll on health care benefits. Wal-Mart is the only company of that size in the state that does not already do so, though the giant retailer does offer health insurance to its employees.
How do companies pay taxes? By passing them along in prices.

What's the income demographic of Walmart shoppers? Predominately lower income.

So who's going to be bearing the brunt of this action? The poor.

Way to go Maryland lawmakers - getting the exact opposite result of what you claim you're trying to do.

My bigger beef with the program is that company specific taxes distort the market which is VERY bad for the economy. For example, here are perfectly plausible responses to the new Maryland regulation:
1) Walmart immediately shuts down a few stores to get under 10,000 employees (I believe the current count is 14,000), but otherwise continues business as normal.
2) Walmart passes along the 8% (Walmart runs a profit margin of 3.5% so profits can't absorb the hit) in prices, which other stores don't have to compete with. In the least, customers end up paying more (even if they go elsewhere, Walmart is the lowest priced retailer, so shopping elsewhere still ends up costing the consumer more), and in all likelihood, with Walmart facing higher costs than other retailers, there will be either store closures or layoffs until Walmart is under 10,000 employees.
3) Walmart distributes the cost around the nation (so that you and I are now paying for health care in Maryland, grr...) reducing its competitiveness around the country which will lead to layoffs/store closures, and higher prices paid by everyone. (This would also create a perverse free-rider incentive for other states to do something similar further exacerbating problems. Also note that under this scenario, MD is still effectively taxing the poor, just perhaps the poor in other states.)

Any way you slice it, it's bad for the economy.

As my own little protest, I'll be discussing with my wife tonight permanently excluding Maryland from potential locations for my post-graduation employment (I have a few unofficial offers from companies in the state). Maybe Galt's Gulch is hiring...

In the comments, Matt notes that it's 8% payroll, not 8% revenues (proving that it pays to at least read what you paste in). Also this WaPo article notes that Walmart currently spends between 7 and 8% of payroll on health care, so the effect may be quite small.

However, taxing individual companies remains a market distorting mechanism and I'm afraid that this will set a very bad precedent.

(Side note: according to Tom Paine, there is only one other institution in Maryland that has more than 10,000 employees - Johns Hopkins. However, JHU is not exactly operating in a low margin market...)


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