08/10/2010 09:01 pm ET | Updated May 25, 2011

Wal-Mart's Rotten Hunger Campaign

Turning trash into tax deductions

By Al Norman

The Chronicle of Philanthropy declared this week that Wal-Mart was "the most generous" company in America, having donated more than $288 million in cash in 2009. I'm sure there were 1.4 million company "associates" who would have preferred that Wal-Mart's charity begin at home--but the story got the giant retailer great play in the national media.

Just three months ago Wal-Mart announced that it was going to help "end hunger in America" by donating more than 1.1 billion pounds of food from Wal-Mart stores, distribution centers and Sam's Club locations, valued at $1.75 billion. Wal-Mart and its Foundation dished out a 5 year plan for "Fighting Hunger Together."

At a Capitol Hill press conference, Wal-Mart fed the media with "downloadable event photos" of the announcement, and "press event B-rolls and soundbites." This kind of photo-op philanthropy could be called 'loud giving,' and Wal-Mart is a very loud giver. Representatives from the USDA and the U.S. Senate Hunger Caucus were there for morsels.

Wal-Mart said its cash and in-kind gifts of "fresh produce, meat, dairy and other foods" would provide more than 1 billion meals to needy families. Wal-Mart's Vice Chairman claimed the company would use its "scale and reach" to create a day "where no individual in this country has to go to bed hungry or worry if there will be food to put on the table tomorrow."

Last year, Wal-Mart says it doubled its food donations, providing 81 million more pounds of food than the prior year. Assuming 1.28 pounds of food is equivalent to one meal, Wal-Mart estimates its five-year plan will help U.S. food banks deliver the equivalent of more than 1 billion meals.

It will also harvest a huge tax deduction for Wal-Mart.

In 1976, Congress amended the IRS code to allow certain corporations to earn an "enhanced tax deduction" for donating "wholesome food" that has been properly saved, and donated to an approved agency. The enhanced deduction is equal to one-half of the donated food's appreciated value, as long as the total deduction does not exceed twice the donated food's cost. The incremental tax deduction is calculated on the donated food's fair market value and basis food and labor cost.

Assuming Wal-Mart's donated food is valued at $1.75 billion, and their enhanced deduction is equal to half the donated food's retail value, or $875 million, at a 35% tax rate, Wal-Mart could net a tax deduction of $306 million off their taxable income. Congress may have wanted to encourage donations, but it is the U.S. taxpayer who really loses this income.

But there may be something rotten--literally---in this donation scheme. Where better to look for problems than in the produce department at Wal-Mart?

A Wal-Mart employee who works in a produce department south of the Mason-Dixon line, described for me what he calls Wal-Mart's 'landfill reduction program." He asked not to be identified out of fear of retailiation.

"We used to throw away at least 2 pallets of rotten fruit and vegetables in the compactor every single day," he told me. "Now, instead of throwing away all the rotten stuff we would box up stuff that is just out of date or not so bad and print a label, then give it to food banks, who supposedly could make meals out of this stuff to give away."

"Wal-Mart gets to take a tax write-off on these donations---which used to be just lost to the trash---so they love it. So much so in fact that they have told us to give almost everything to the donations, and throw away nothing. 'If an apple is rotten,' corporate says, 'they can cut off the rotten part and cook the rest.' You see the slippery slope in this program."

"Now we're boxing up stuff a dog couldn't eat and sending it on it's way to the homeless so that Holy Arkansas gets their tax deductions on the billions in wastage we used to throw away. I hope the food banks are throwing this stuff away instead of feeding it to people. I know Wal-Mart got them to sign a waiver in case someone gets sick, but I personally would feel responsible if it happened---waiver be damned."

"I feel like I'm being pressured to poison people who just want a helping hand, and I hate Home Office for taking what could be a good program and making it into something dirty. I'm all for landfill reduction programs and food banks are wonderful things---but corporate doesn't care a damn about either of those, they just want me to box up rotten trash so they can write it off at full price."

This employee told me that only 4 people in his department were allowed to do the donations. "I get the guidelines from above on how picky to be whenever the bosses tell us," he added. "It started out as, 'If you wouldn't eat it then throw it away, just donate stuff if it's is still good but not perfect so we can't sell it'... and within a few weeks that turned into 'they can cut off the rotten parts and eat the rest---send it all.' At first we were still throwing away a pallet of rotten trash a day and donating a pallet every day---but now we only throw away maybe one or two boxes of the totally rotted away things, the rest goes in a box with a label for the food bank to sort."

"These food donations count as a regular donation just like any other good or service a company could donate to charity. It's not considered damaged goods or any other reduced value item. I have heard that much from the managers. I know upper management in my store has directly told my supervisor to donate almost everything, and has used the 'if you get hungry enough you will eat anything' statements when talking to my supervisor."

"So far as exactly how much they make off this program, I do not know. I know at our store we have diverted 2 or 3 pallets per day from going in the compacter to instead now going on a truck to the food bank. About half of that is actually edible material, the rest is utterly rotten. If you multiply that by how many stores Wal-Mart operates you get a huge increase in our donations."

"The program implements waste separation in all Wal-Marts into paper, plastic, organic, and regular trash. It's a good program on the face of it, but the way they are pushing us to increase the organic side of it to donate and get their tax write-offs and reduce the regular trash portion is the problem. Home office is really pushing this thing now, they see it as a perfect program: it reduces landfill waste and gives us good PR. We make lots of cash by reduced cash paid to haul off the full compactors---which now go on a charity truck, and it allows the company to turn 'shrink' into donation. They get a full deduction for everything sent out."

"Labeling rotten trash as good food and getting a full whack off your taxes looks like fraud to me. At this point, I don't see what more we could donate unless we start to do spoiled eggs or meat or something."

Congress intended this tax break to go for "wholesome food." Could it be another government subsidy has turned rotten?

Al Norman is the founder of Sprawl-Busters, and author of the book The Case Against Wal-Mart. He has been fighting big box stores for the past 17 years.