The Hidden Cost of Corporate Consuming

By Peter Van Buren, Reuters

01 August 14

ow expensive are those everyday low prices? How much do things really cost on that fast-food restaurant’s dollar menu? The answer is more than you think, but maybe not for the reason you think.

The Supplemental Nutritional Assistance Program (SNAP, the current name for food stamps) is often thought of as something for the unemployed, though nothing could be further from the truth. Actually, 73 percent of those enrolled in the country’s major public benefits programs are from working families, just stuck in jobs whose paychecks don’t cover life’s basic necessities.

The United States now has the highest proportion of low-wage workers in the developed world, most of whom receive only the minimum wage (the federal standard is $7.25 an hour) and typically are capped by their employers well below 40 hours a week, so they won’t qualify for benefits. Hard work doesn’t always pay off. The math: even full-time work at $7.25 an hour only adds up to $290 a week. How do you live on that?

You don’t. You turn to food stamps and other forms of public assistance to make up the gap between minimum wage and a living wage. Which is just what large minimum-wage employers count on you doing.

Fast food workers claim public assistance at more than twice the rate of other employed people; McDonald’s workers alone receive $1.2 billion in federal assistance each year. About one out of every three retail workers gets public assistance. After analyzing Medicaid data, the Democratically led House Committee on Education and the Workforce estimated a single 300-person Wal-Mart in Wisconsin costs taxpayers $5,815 per associate in public assistance paid. Overall, American taxpayers subsidize the minimum wage with $7 billion in public assistance, which is what makes it possible for huge companies to get away with paying people so little. Add in the taxes you’re paying, and there’s nothing on the dollar menu that actually costs only a dollar.

Why else do many large companies like food stamps? Because poverty is big business.

Public benefits are now a huge part of corporate profits. The CEO of Kraft admitted that the mac n’ cheese maker opposed food-stamp cuts because beneficiaries were “a big part of our audience.” One-sixth of Kraft’s revenues come from food-stamp purchases. Pepsi, Coke, and the grocery chain Kroger also lobbied against SNAP cuts, an indication of how much they rely on the money.

Products eligible for SNAP purchases are supposed to be limited to “healthy foods.” Yet lobbying by the soda industry keeps sugary drinks on the approved list, allowing companies like Coke and Pepsi to pull in $4 billion a year in SNAP money revenues. Yum Brands, the operator of KFC, Taco Bell, and Pizza Hut, tried unsuccessfully to convince lawmakers in several states to allow its restaurants to accept food stamps.

In a January 2014 filing with the Securities and Exchange Commission, Wal-Mart was oddly blunt about what SNAP cuts could do to its bottom line. Wal-Mart’s business risks, the filing said, include: “changes in the amount of payments made under the Supplemental Nutrition Assistance Plan and other public assistance plans, [and] changes in the eligibility requirements of public assistance plans.”

How much profit does Wal-Mart make from public assistance? In one year, nine Wal-Mart Supercenters in Massachusetts received more than $33 million in SNAP dollars, more than four times the SNAP money spent at farmers’ markets nationwide. In two years, Wal-Mart received about half of the $1 billion in SNAP expenditures in Oklahoma. Overall, 18 percent of all food benefits money is spent at Wal-Mart. That’s about $14 billion.

Others also profit well from food stamps. Food stamps are distributed via Electronic Benefits Transfer or EBT (some recipients claim the acronym really means “Eat Better Tonight.”) JPMorgan Chase holds the contracts in half the United States to handle the transactions. In Florida, JPMorgan’s contract is worth $83 million, and in New York, it’s worth more than $112 million. Meanwhile, until recent changes, customer service for the JP Morgan EBT program was done via offshore call centers in India and Mexico who paid far below domestic wages.

So don’t believe anyone who says raising the minimum wage will automatically drive prices up. Whatever you think you are saving at the cash register in Wal-Mart (or at McDonald’s, KFC, Target…), you are paying in taxes to feed the woman ringing you up. If the business paid a living wage, there could a lessening in demand for public assistance. At the same time, give some thought to how much tax money is ultimately finding its way into the hands of a few large corporations via SNAP sales, another form of welfare, albeit the corporate kind.

Higher prices? You’re already paying more than you think.