In an effort to force corporations to pay higher wages to their lower-income employees, Sen. Bernie Sanders (I-VT) introduced legislation earlier in September that would require employers with 500 employees or more to pay a tax equal to the amount of federal benefits received by their employees. The legislation, titled the “Stop Bad Employers by Zeroing Out Subsidies (BEZOS) Act,” would apply to employers who have employees enrolled in various welfare programs, including Medicaid, the Supplemental Nutrition Assistance Program (SNAP), and the federal free and reduced lunch plan.
For example, if the BEZOS Act were to become law, a large company with an employee enrolled in SNAP, commonly called “food stamps,” would be required to pay a tax to the government to cover the cost of providing the food stamps. The proposal would apply to part-time workers, independent contractors, franchise workers, and full-time employees.
Although Sanders’ stated intention—increasing wages for lower-income workers—is good, his proposal would ultimately hurt lower-income Americans far more than it would help them, because it would make it significantly costlier for businesses to hire lower-income people, including younger workers.
The BEZOS Act tries to avoid this problem by making it illegal for employers to ask prospective and existing employees whether they receive government benefits, but this would do little to deter employers’ efforts. Instead of discriminating against job applicants enrolled in government welfare programs, employers would simply adopt hiring practices that favor employees with more work experience, because the assumption would be that those applicants with lots of work experience, college degrees, etc. are less likely to be welfare recipients.
Why would a business hire a less-skilled, less-experienced employee for the same cost as someone with several years of experience? Under a free-market system, a business might do this because less-experienced employees don’t require high wages and benefits. Over time, those employees eventually earn higher salaries and receive more benefits, but at the beginning of a person’s career, employers are only willing to take a chance on inexperienced job applicants when the costs are relatively low.
Sanders’ plan would flip this basic element of the free market on its head. Under his proposal, businesses would be forced to pay inexperienced and lower-skilled workers just as much as a worker with significantly more experience, education, and skills, thereby reducing the incentive for businesses to hire inexperienced workers.
The BEZOS Act would be disastrous for lower-income workers looking to escape poverty. Study after study shows that the best path out of poverty is regular employment. By making it more difficult for lower-income workers to find employment, Sanders’ plan would trap millions of Americans in poverty. There are currently more than 39 million people receiving SNAP benefits, and more than 73 million are enrolled in Medicaid.
How will any of these individuals be able to work their way out of poverty if employers are incentivized to hire more experienced, higher-educated workers?
The BEZOS Act could also dramatically increase the likelihood of large employers relying more on various forms of technology to replace jobs normally performed by humans. For instance, why would fast-food chains pay more to hire a lower-income person to take orders from customers when they could install a customer kiosk for much less?
Sanders’ proposal wouldn’t only be disastrous for lower-income families, it would also stunt economic growth by forcing many large employers to spend substantially more for a large portion of their employees. And it would likely encourage many businesses to limit their hiring to avoid passing the 500-employee threshold.
Sen. Sanders wants to help lower-income Americans earn more money, but punishing businesses who hire these workers with additional taxes won’t solve this problem—it will make the situation much worse.
Justin Haskins (Jhaskins@heartland.org) is the executive editor and a research fellow at The Heartland Institute, a nonpartisan free-market think tank.