Walmart Stores Inc. is again increasing its starting wage in the U.S., with chief executive officer Doug McMillon attributing the move to a major cut in corporate taxes from the Trump administration.
President Trump signed tax legislation at the end of December, offering an array of tax reductions including cutting the corporate tax rate to 21 from 35 percent. That’s the lowest level since about 1940.
According to the Committee for a Responsible Budget, a nonpartisan group, the tax proposal is set to add $1.51 trillion to the $666 billion federal deficit, with about $1 trillion stemming from business tax cuts.
McMillon, who will appear at the National Retail Federation’s Big Show this weekend, did not specify how much Walmart expected to save on taxes this year, but said the bill allowed the company to “accelerate a few pieces of our investment plan” and that the wage increase will take effect in mid-February.
On the same day, however, the company abruptly closed 63 Sam’s Club locations. That division on Twitter said the closures came after a “thorough review of our existing portfolio.” The number of employees affected was not detailed and a representative could not be reached for comment. While most of the stores will be closed permanently, 10 will be converted to distribution centers for its growing e-commerce business.
According to a filing with the Securities and Exchange Commission, as of the end of October, Walmart’s effective tax rate was 32.9 percent and it estimated its income tax for the year would be $975 million, leaving its net income then at $8.16 billion for the year. A large portion of that tax, however, was attributed to a $283 million accrual, or settlement, with the SEC over its nearly seven-year investigation of possible bribes that Walmart executives used to clear a path for international expansion. The majority of Walmart’s operations are in the U.S.
But this is not the first time Walmart has increased wages. Walmart last year upped its starting wage for all Walmart and Sam’s Club workers to $10 per hour after announcing a plan in 2015 to start pushing up wages. The first increase came that year, giving 500,000 Walmart workers at least $9 per hour. Moreover, 20 states mandated higher wages at the start of the year, mostly ranging from $10 to $11.
Although a Walmart spokesman admitted that the company has been increasing wages over the last couple of years and that it has looked at things like state wage increases and what competitors are up to, he said there were no plans to up the starting wage again prior to the tax bill being signed.
“We did not have plans to go to $11 across the board, but we give hourly folks raises every year,” the spokesman added.
The retailer has about 1.5 million associates in the U.S. and said the wage boost will add about $300 million in costs to the next fiscal year.
“We plan to continue investing in you, in our customers through lower prices, and in our future — especially in technology to help improve your jobs and the experience for our customers,” McMillon wrote in a Thursday note to employees.
Workers that have been with Walmart for at least 20 years will be eligible for a onetime bonus of $1,000. Other workers that are not expected to benefit from the increase will be eligible for bonuses, as well, based on length of service, starting at $200 but not exceeding $1,000.
“As an associate who’s been with the company more than 25 years, I understand the value of experience and we all appreciate those of you who have helped build this company over the years,” McMillon added.
The executive had a pay package worth $22.4 million in 2016, up 13 percent from the year before.
Last year, Target Corp. raised its starting wage to $11 per hour from $10 and committed to keep moving it up with the goal being $15 by 2020. The retailer has about 323,000 associates in the U.S.
In addition to its moderate wage increase, Walmart is expanding its maternity and paternity leave for full-time workers, to 10 weeks and six weeks, respectively, which will also apply to adoptive parents.
The NRF, an outspoken supporter of the tax bill that counts Walmart as a member, praised Walmart’s move. President and ceo Matthew Shay noted: “As we’ve said all along, a more competitive tax code will boost the economy, lead to better paying jobs and allow businesses, including retailers, to invest here in the U.S.”
David French, a lobbyist with the group, declined to comment on whether he thought it likely that Walmart would increase its wages in the coming years, coinciding with a continued reduction in taxes, but said the $300 million expense, along with the onetime $400 million expense related to the bonuses, “is a pretty significant amount of money.”
“It’s wrong to look at wages like a set of stairs that should increase by fiat,” French said. “There’s a connection to productivity.”
He added that productivity will likely increase with the investments a given retailer will be able to make in their companies because of the expected tax windfall.
“The tax bill has created an environment where retailers are going to be making significant investments in growth, in their futures, and I think you’ll see that investment happen in several different ways,” French said.
Although higher wages for workers is undeniably a positive, Matthew Gardner, a senior fellow with the Institute on Taxation and Economic Policy, a nonprofit, nonpartisan think tank, said the idea that a corporate tax cut is the direct cause of Walmart’s move should be taken “with a grain of salt.”
“First they announced an increase to $9, then to $10, now $11 and that pattern alone tells you Walmart has been belatedly responding to pressure from organizations to move to a living wage,” Gardner said. “They’ve also been responding to competitor pressure for wages. They feel the need to match what others have done.”
He added that attributing a continuation of a pattern to tax reform “could be cynically described as a public relations campaign.”
“This legislation is among the more unpopular tax cuts in recent history, because Americans rightly see it as a not having middle incomes in mind, and it’s not easy to pass something so unpopular, but Congress did it,” Gardner said. “Companies know they have a public relations job in front of them to convince workers they have something to benefit from with this tax bill.”
Walmart’s benefit is clearer. Gardner didn’t want to speculate on exactly how much the company will be saving annually, but he did say, “The $300 million they’re spending is very likely a small fraction of the annual benefit Walmart will receive from the tax bill.”
“This announcement is totally compatible with the belief that the lion’s share of relief from the tax bill will go to corporate shareholders,” Gardner added.
United Food and Commercial Workers, a union working in the U.S. and Canada, said if Walmart’s tax rate is cut to 21 percent, that would equal $2 billion in annual savings “from now on.”
“While pay raises are usually a good thing, this is nothing but another public relations stunt from Walmart to distract from the reality that they are laying off thousands of workers and the ones who remain will continue to receive low wages,” Randy Parraz of UFCW said. “The fact is that Walmart is not permanently investing the estimated $2 billion it will receive annually from Trump’s tax giveaway to its workers — it is keeping almost all of it.”
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