How Your Tax Dollars Subsidize Low-Wage Industries
Policy + Politics

How Your Tax Dollars Subsidize Low-Wage Industries

As U.S. taxpayers grudgingly file their last-minute 1040s today, a recent study from the Center for Labor Research and Education at the University of California, Berkeley gives people yet another reason to grumble about how their money is being spent. 

An assessment of the rate at which working families receive public assistance payments finds that taxpayers deliver a whopping $152.8 billion subsidy to low-wage companies by supplementing their employees’ meager wages. 

“When jobs don’t pay enough, workers turn to public assistance to meet their basic needs,” write authors Ken Jacobs, Ian Perry, and Jenifer MacGillvary. “These programs provide vital support to millions of working families whose employers pay less than a livable wage.” 

Related: Corporate Tax Havens Stiff Taxpayers by $110 Billion a Year 

The researchers went on to say that more than half of the total spending on public assistance programs they looked at, including Medicaid/CHIP (Children’s Health Insurance Program), TANF (Temporary Aid for Needy Families), the Earned Income Tax Credit and food stamps, goes to working families. More than half – or 52 percent – of the $25 billion that states spent annually on public assistance programs between 2009 and 2011 went to individuals and families with at least one member who works. For the federal government, the percentage was even higher, with 56 percent of public assistance money going to working families. 

In other words, it’s not that the recipients are out of work and living off welfare programs. As a result, the authors conclude that “higher wages and increases in employer-provided health insurance would result in significant Medicaid savings that states and the federal government could apply to other programs and priorities.” 

The study cites the well-known fact that for the bottom 70 percent of the income distribution in the U.S., inflation-adjusted earnings either remained stagnant or fell between 2003 and 2013. However, the report takes the unique step of assessing how much the individual states and the federal government spend in order to bring low-wage workers up to a reasonable standard of living. 

To be fair, the study uses a rather expansive definition of working families, characterizing them as “those that have at least one family member who works 27 or more weeks per year and 10 or more hours per week.” 

Using data from 2009 to 2011, the researchers determined that 61 percent of individuals enrolled in Medicaid or CHIP are members of families where at least one member works. Among TANF recipients, the rate was 32 percent. Among Earned Income Tax Credit recipients, 74 percent come from working families, while the same is true for 36 percent of food stamp users. 

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This translates into a de facto subsidy for low-wage employers, many of whose workers would not be able to function without the public assistance funds that keep them fed and healthy. The numbers are particularly high among front-line fast food workers, where 52 percent of employees rely on some form of public assistance, and among childcare and home health care workers, where the rates are 46 percent and 48 percent respectively. 

The study also notes that many public assistance recipients are not in lines of work typically associated with poverty. One in four part-time college faculty members, for example, receive public assistance, the authors wrote. 

Related: Tax Day – Americans Muddle Through a Flawed System 

Of course, businesses that rely on low-cost labor would likely pass the cost of higher payrolls on to their customers, so a portion of the tax dollars not needed for public assistance would be eaten up by higher prices. Yet the upside would be a more efficient system, where businesses cannot rely on invisible subsidies to create artificially low prices. 

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