Walmart to Reinvest Tax Savings into Higher Wages and Lower Prices for Consumers


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Author’s Note: Right after I scheduled this post, Wal-Mart announced the closing of 63 of its Sam’s Clubs, which was bad news and bad timing. Some of the locations will be converted to distribution centers, but thousands of workers will lose their jobs or be offered jobs at other Wal-Mart-owned sites.  (Wal-Mart has a long history of making sure workers move into other opportunities.) Although it’s perfectly logical to close underperforming stores or change business strategy, it was a puzzling PR decision to have both actions hit the national media on the same day. I decided to leave this post intact because I believe that the raising of the starting wage is a positive trend and hope the investment in retail workers is picked up by other national chains. 

Tax Reform legislation in December reduced the effective corporate tax rate to 21% from 35%, a move that was often derided as tax relief only for the wealthiest. Many commentators  ridiculed the return of  Reagan-era “trickle-down”  and “supply-side” economic theories, which  advocate reducing taxes on businesses and the wealthy as a means to stimulate business investment in the short term and benefit society at large in the long term.

No less than Pope Francis weighed in on the evils of the theory in 2013:

‘Some people continue to defend the trickle-down theory. This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power.’

Ann Lowery, writing for the Atlantic in December, wrote that one of the “7 Myths of the Tax Reform Legislation” (number 3, in fact), was that “Cutting the corporate tax rate will lead businesses to give raises to regular workers.” She writes: “Plus, of the money going to workers, much of it would flow to managers and executives, not minimum-wage or average employees.”

On Thursday, January 11, Wal-Mart, number one on Forbe’s Fortune 500 with revenues of $485.9 billion, announced that it would raise starting pay to $11 per hour for all its U.S. employees and hand out one-time bonuses. (The current starting wage is $10 an hour.) The retailer employs 1.5 million workers in the U.S.; the raises take effect in February.

Wal-Mart joins a list of over 100 companies that gave bonuses or raises to workers after the legislation was signed on December 20. According to the Washington Examiner, “The number of companies offering employee bonuses, pay hikes, and increases in benefits in reaction to President Trump’s December tax reform victory is now over 100, with thousands of workers impacted and charities too.  Less than a day after Americans for Tax Reform put out an initial list of 40, it jumped to 52 as more company plans poured in.”

From The Wall Street Journal:

“Wal-Mart Stores Inc. said it would raise starting pay to $11 per hour for all its U.S. employees and hand out one-time bonuses as competition for low-wage workers intensifies and new tax legislation will add billions to the retailer’s profits.

The giant retailer is the largest private employer in the world with 2.3 million employees, including around 1.5 million in the U.S. Its current starting salary in the U.S. is $10 an hour after workers take a training course. The new wage increase will take effect in February.

This is the third U.S.-wide minimum wage increase at the company since 2015 as it works to improve its 4,700 U.S. stores while investing heavily to compete with Amazon.com Inc. online.

The company said the salary change would add $300 million to its annual expenses and it expects to take a $400 million charge in the current quarter for the one-time bonus. The amount of the bonus will vary based on length of service, reaching up to $1,000 for an individual with 20 years of service.

The retailer, which had nearly $500 billion in global revenue last year, is expected to get billions in savings from the tax overhaul, which lowers the U.S. corporate rate to 21% from 35%. Retailers have had one of the highest average effective tax rates because much of their operations are U.S.-based. Also, their industry has done little manufacturing or research and development so they don’t benefit from deductions on those activities.

“We are early in the stages of assessing the opportunities tax reform creates for us to invest in our customers and associates and to further strengthen our business,” said Wal-Mart Chief Executive Doug McMillon in a release.

With the additional expected profit, Wal-Mart is considering investments in “lower prices for customers, better wages and training for associates and investments in the future of our company, including in technology,” he said.”

Good news for retail workers, with, I hope, more to come as companies complete their assessments and make financial forecasts based on the new tax rates.

Author’s Note: Right after I scheduled this post, Wal-Mart announced the closing of 63 of its Sam’s Stores, which was bad news and bad timing. Some of the locations will be converted to distribution centers, but thousands of workers will lose their jobs or be offered jobs at other Wal-Mart-owned sites.

 

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One thought on “Walmart to Reinvest Tax Savings into Higher Wages and Lower Prices for Consumers

  1. Is it possible through your local contacts with economists at JU, UNF, and other local economic organizations to examine the 1, 3, and 5 year effect on the Jacksonville area economy? That way we might learn if this is a Wal Mart PR stunt or a real-deal thing, taking Wal Mart employees off Welfare, improving their overall economic and health status, then spreading, boosting the local economy. Also, how about including the economic costs of any local Sam’s Clubs that close. JAGUARS ALL THE WAY!!!

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