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Wal-Mart's Tax on Us

Wal-Mart's phenomenal growth is the result of sweetheart deals and taxpayer subsidies.
 
 
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Wal-Mart, the Alpha Dog of discount stores, has also become the Alpha Hog at the public trough.

The phenomenal growth of the world's largest corporation has been supported by taxpayers in many states through economic development subsidies. A Wal-Mart official once stated that the company seeks subsidies in about a third of its stores, suggesting that more than 1,100 of its U.S. stores are subsidized. A national survey by Good Jobs First in 2004 looked at 160 stores and all of the company's distribution centers -- and found that more than 90 percent of them have been subsidized. Altogether, 244 subsidized facilities in 35 states received taxpayer deals of more than $1 billion.

The economic impact of these subsidies on small businesses is given a human face in one powerful segment of Robert Greenwald's new documentary, " Wal-Mart: The High Cost of Low Price." The sweetheart deals given to two Wal-Mart Supercenters in Hamilton, Missouri undermined Red Esry's four family-owned grocery stores. Esry watched his sales plunge as soon as the Supercenters opened -- he couldn't compete with Wal-Mart's prices and lost almost half of his business virtually overnight.

In the film, Esry's wife ruefully recounts how her husband went to City Hall to ask for a property tax abatement to match Wal-Mart's subsidy, but was turned down. Esry cut costs, but refused to stop paying his employees a good wage and continued to provide them with full health-care benefits and a pension package. Red Esry's story is being played out in thousands of communities across America.

Wrong-headed Subsidies

Giving subsidies to suburban retailing is bad policy on many levels. The proliferation of far-flung stores contributes to sprawl and its many problems: undermining traditional downtown business districts and worsening traffic jams and air quality. The diversion of tax dollars into the coffers of developers and big retailers takes much-needed revenues away from public schools and other services. The low-wage jobs created in the malls do little to stimulate the economy and actually serve as a drag, given that workers with McJobs need more assistance from taxpayer-financed safety-net programs.

The subsidies Wal-Mart lobbies for run the whole gamut: free or reduced-price land, infrastructure assistance, tax increment financing (TIF), property tax abatements or discounts, state corporate income tax credits, sales tax rebates, enterprise zone tax breaks, job training funds, and low-interest tax-exempt loans. The most deals and dollars were found in Texas (30 deals worth $108 million) and Illinois (29 deals worth $102 million).

And because of poor disclosure in most states, this could be just the tip of the iceberg.

Of course, the real force driving Wal-Mart's site location behavior is its voracious appetite for more market share, not subsidies. The 2004 survey found cases in which the company had sought subsidies, didn't get them, and still built new sites.

In Chula Vista, California, a $1.9 million subsidy deal was successfully challenged in court in 1998, after citizens complained that local redevelopment agencies were awarding state money to big-box retailers for projects with little benefit to the public. The Chula Vista Wal-Mart ended up being built without public assistance.

In 2001, voters in Galena, Illinois rejected a $1.5 million sales tax rebate sought by the company for a planned Supercenter. Immediately after the vote, Wal-Mart said it would drop the plan, but later decided to move forward after getting the private seller of the land to agree to a lower price. Wal-Mart also proceeded with the construction of an unsubsidized Supercenter in Belvedere, Illinois, after its request for a $1.5 million sales tax rebate was opposed by local officials.

Such events are especially controversial in TIF deals, since the governing law often requires that the beneficiary of TIF affirm that the project would not occur "but for" the subsidy.

According to a report by 1000 Friends of Wisconsin, Wal-Mart admitted that the TIF funding provided to a project in Baraboo did not meet that requirement. The report also noted that the supposedly blighted area chosen for the project consisted of a cornfield and an apple orchard.

Public opposition to subsidies for Wal-Mart has played a role in some successful site battles.

In 2000, voters in Olivette, Missouri, rejected a $36 million TIF proposal for an 80-acre shopping center that was to be anchored by a Wal-Mart and a Sam's Club. In 2002, Wal-Mart was rebuffed when it sought an $18 million subsidy in connection with a project that was to be located on the Near South Side of Chicago. According to a press report, Mayor Richard M. Daley "guffawed" when presented with the request. The project was abandoned.

Denver officials dropped plans for a Supercenter project in 2004 that could have involved as much as $25 million in public money. The plan was controversial because of the subsidy and because it would have used eminent domain to displace a group of Asian-American small businesses. In 2004 voters in Scottsdale, Arizona voted resoundingly against a plan to give a developer up to $36 million in sales-tax rebates for a complex that was to include a Supercenter and a Sam's Club.

Costs and benefits ... or costs and costs?

Wal-Mart's reaction to the 2004 survey of its reach into taxpayer subsidies was classic bait and switch. The company responded by saying it couldn't verify the figures, but that if they were correct, then "it looks like offering tax incentives to Wal-Mart is a jackpot investment for local governments."

Specifically, the company claimed that over the past 10 years, it collected $52 billion in sales taxes, remitted $192 million in income taxes, wage withholdings and unemployment insurance, and paid $4 billion in local property taxes. "Do the math and you will see that every dollar invested returned more than thirty," the company summarized.

Of course Wal-Mart "collected" sales taxes; as a retailer, it's required by law to do so. But that's consumers' money, not the company's. Wal-Mart is just a pass-through. And since much of its sales come at the expense of other retailers, any gain is obviously offset by lower sales taxes collected at competing stores -- and by the taxpayer costs of abandoned downtowns and malls.

Of course Wal-Mart "remitted" income and payroll taxes -- it's an employer, and is required to deduct taxes from its workers' paychecks. But income tax is not the company's money; it's money from the workers' meager paychecks. And since Wal-Mart jobs are largely shifted from other retailers and Wal-Mart pays so poorly, any net revenue gain is unclear.

And, of course, Wal-Mart paid some property taxes -- all property owners have to support local services. Unless, of course, they get an abatement; our study found more than 40 such instances. But Wal-Mart offered no disclosure on how much in property taxes it hasn't paid. And as economists point out, companies pass on the cost of property taxes to customers as much as market conditions allow.

So there you have Wal-Mart's version of cost-benefit analysis. Taxpayer costs for economic development are balanced by "benefits" that mostly consist of, well, workers' costs, consumers' costs and taxpayers' costs.

It's ironic that a company which promotes itself as a free enterprise success story is so highly dependent on taxpayers. This fact was conveniently forgotten during the aftermath of Hurricane Katrina, when Wal-Mart garnered widespread accolades for its role in providing emergency supplies to victims of the storm. Those truckloads of supplies should be seen not as corporate charity, but as small bit of payback for the huge sums the company has previously drained from taxpayers of America.