Burger King is close to a deal that would acquire Tim Horton’s (Canada’s huge corporate version of Dunkin’ Donuts). It is more than a corporate expansion however. The move would allow Burger King to justify a “tax inversion” where an American company merges with a foreign company and then reincorporates abroad to fell under a more beneficial corporate tax rate. So long as shareholders of the Canadian companies end up owning at least 20% of the shares of the new parent company, you can escape the high corporate tax rate. I have previously criticized the corporate tax rate — and tax policies in general — as irrational in light of the lower rates in nearby countries. During the last campaign, even Obama admitted that our corporate tax rate is too high but there was never action to reduce it. The White House however recently asked for legislation to stop the inversion maneuver while Senator Sherrod Brown is calling for a boycott of Burger King.
We have previously discussed tax policies on this blog, though I am in the minority in criticizing the rising tax rates in states and cities. I have long been more conservative on tax and spending issues than many here, but I have enjoyed the different viewpoints. Companies and citizens are rational actors. When cities and countries have raised taxes to unacceptably high levels, they have seen an exodus of top taxpayers (which worsen the over tax base). Almost fifty companies have carried out inversion to avoid our high corporate rate and the pace is quickening.
Unfortunately, it remains popular to blame top earners and companies for not paying enough and to seek higher and higher taxes like they are a captive audience. The result of this approach has been disastrous in France. As they previously discussed how top earners are fleeing France in the wake of massive tax increased under Socialist French President Francois Hollande. Hollande’s popularity is now down to the teens (17 percent) and more importantly his economy is on life support. He just dissolved his government as businesses shutdown in the country and his economy contracts. The European Union is demanding reforms from the high spending and high tax approach.
In our country, we have continued to ignore the fact that other Western countries offer a far better deal for corporations. Canada’s corporate rate is 15%. Even when you add the 11.5% rate for Ontario, that is just 26.5% compared to our rate of 35%.
In a comparison of developed countries to what companies pay in the U.S., Canada requires only 53.6% of the U.S. tax burden while the U.K. is only 66.6% and the Netherlands require only 74.5%.
None of this tends to matter when politicians continue to campaign on the notion that corporations are not paying enough taxes and corporate welfare. I agree with some of these criticisms of tax loopholes and I have been a critic of government buyouts and subsidies. However, tax politics continues to rage in the absence of objective discourse. We cannot expect large corporations, particularly publicly held corporations, to remain headquartered in this country when our allies offer substantially lower tax burdens. That does not mean that we should engage in a race to the bottom with the Harper Administration in Canada. We still have many things to offer companies, but the rate of inversions is precisely what many people warned about when our corporate rate outpaced many of our Western partners.
The true impact of these tax policies will be brought home when they start serving mayonnaise with the fries at BK.
Source: Forbes
Jim:
“Annie, Is that an example of a guy who runs a business but is taxed so much that he can’t afford a good facility to make whatever he’s got going on there?”
Hahahahaha!
No, he’s a small business owner who now loses money rather than make it because they doubled minimum wage. So the Liberals made it illegal for him to close his business and now chain him in place. 🙂
And, may I add, the Tax and Spend philosophy fails to account for Cause and Effect.
Double minimum wage = loss of jobs and businesses as owners with small margins would suddenly start losing money rather than make any income at all.
Keep increasing taxes = exodus of the rich along with their tax money = net reduction in revenue
I agree that it is a popular political tool to blame the rich for “not paying their fair share,” although an analysis of tax revenue reveals that they actually pay the freight on running this country.
Most of the people who agree with imposing higher and higher taxes are those who don’t have to pay them. It’s so easy to tax “other people” when you don’t have to bear the consequences.
A minority of people pay the vast majority of our taxes, and yet they are labelled as “not paying their fair share.” And the minority who don’t pay most or any taxes keep clamoring for more and more taxes for them. It’s completely unfair. They’ll never be in the majority, and any politician who tries to represent their interested is labelled as “only caring about the rich.”
Politicians are supposed to represent the interests of ALL of their constituents EQUALLY, not prize the poor and middle class while demonizing the rich upon which we depend, as they keep the country running.
That is why I support a flat tax. Make everyone pay the same rate, and all of a sudden people won’t be OK with raising taxes anymore. Increase benefits and the income limit so that the poor will still have the same net take-home income as they did before this tax. Financially, they will have a net zero effect, but all of a sudden, we’ll all be in the same boat together. No more deductions, loop holes, etc. No more incentive to relocate offshore. That will actually bring in the tax revenue we’re losing now.
I realize this is not popular with many, but I cannot find any other way for this minority of people to be treated the same as everyone else.
Professor Turley:
“I have previously criticized the corporate tax rate — and tax policies in general — as irrational in light of the lower rates in nearby countries.”
Thank you for pointing this out. When our taxes are high, and other countries’ are lower, businesses simply relocate. France has discovered that high taxes simply chases their tax revenue golden geese away from their country.
But the Liberal approach is to increase taxes. When people try to move to lower tax areas, they simply try to make that illegal. They do this time and again. I recall an effort where they’ve tried to do the same for companies relocating out of state, not just out of the country. It’s the Tax and Spend MO. That is why, as a fiscal conservative, I oppose this paradigm.
Annie, Is that an example of a guy who runs a business but is taxed so much that he can’t afford a good facility to make whatever he’s got going on there?
http://www.corynikkel.com/wp-content/uploads/2013/06/Stirring-a-pot.jpg
Aridog, Stop providing facts!! The free enterprise haters don’t understand them. Tell us how you FEEEL, does it FEEEL FAIR? That’s why Jim’s parable is so powerful. I doubt the haters even read it.
Aridog, Jim22 is a strong and smart fiscal conservative.
Nick…when you hear “VAT” and no talk of amelioration , you are being sold sodomization of your wallet region. No one gains and soon no one remains. Michigan is proof.
Anyone here or anywhere who has a retail receipt for any product under the Michigan SBT (and can produce it, along with documentation how they handled it on the IRS Form 1040 and MI 1040), that shows the value of the VAT imposed on the products production, show me….I swear I’ll buy you dinner at the restaurant of your choice and throw in a bottle of La Tour (a spectacular Pauillac) if you’ like it….or select year of Celani Family Vineyards Cabernet if you prefer “American.” I know I am safe in my bet here…because such evidence does not exist. :-))
Annie,
I guess fantasy is better than the factual world.
Nick…we had such a “contingent” in Detroit and look at us now! Grand ‘innit!
PS: I have already quoted Jim22’s first comment on this thread to a couple friends. I couldn’t have told that parable any better, so I quoted him.
Aridog, Good point. I occasionally hear whispers of a VAT from the beltline. Gotta feed that obese beast. And, VAT will be sold w/ the magic word of cultists, FAIRNESS.
Michael …. I’m with you until this issue: How do you blend what one earns seamlessly with what one spends? You seem to do that at the end of your comment above. They are vastly different forms of taxation (tax on productivity versus consumption) …one is a level playing field, the other is regressive. This is exactly what I meant in my comment about be careful what we hope for, so to speak. I suspect I am misunderstanding you.
Haz, Great point. I taught my children that when you hear a politician say they are supporters of small business, they are lying. It doesn’t matter if they’re Dem or Rep, they’re lying. And, you see we have a contingent of free enterprise and wealth haters here. Income equality lovers.
Rafflaw, because God said so.
It is disturbing that one would think that corporations are paying a high corporate tax rate when the average multinational corporation is only paying, on the average, 12.5%? And as BettyKath stated, many of them are paying zero federal taxes. How much lower than 12.4 and zero can we get? If corporations are really people, why are they paying a lower rate than individual citizens?
rafflaw wrote: “If corporations are really people, why are they paying a lower rate than individual citizens?”
Exactly BECAUSE corporations are people. If these people get taxed as a corporation and then again as individual citizens, they are getting taxed twice. That’s not fair. More importantly, the taxes take away jobs and resources from the corporation so their money can be wasted through useless government programs or to fly the President’s dog to Hawaii on his own personal jet.
Some comments from Thomas Jefferson about such taxation:
“For that portion of Income with which these articles are purchased, having already paid its tax as Income, to pay another tax on the thing it purchased, is paying twice for the same thing; it is an aggrievance on the citizens who use these articles in exoneration of those who do not, contrary to the most sacred of the duties of a government, to do equal and impartial justice to all its citizens.”
“To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, “the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.” If the overgrown wealth of an individual be deemed dangerous to the State, the best corrective is the law of equal inheritance to all in equal degree; and the better, as this enforces a law of nature, while extra-taxation violates it.”
Letter to Joseph Milligan, April 6, 1816 (On political economy)
http://www.founding.com/founders_library/pageID.2190/default.asp
davidm2575
What are you trying to say? If I pay an employee a wage, that I should pay taxes on that pay before I pay him?
That is the hope of many progressives…and I mean of BOTH parties. When you hear the term “VAT”, a value added tax that in its purest form, not what Canada uses with pass through credits, etc., is precisely what you just described. Michigan had one for 23 years (it was removed by the current Governor & Legislature), otherwise known as the “Single Business Tax” or SBT….a closeted VAT with no pass through features and no declaration on any receipt you might get upon purchasing something. Unspoken among many experts on the decline of Detroit (because it doesn’t fit their narrative) is the fact that in fact labor was taxed twice here, annually, once to the employer and again to the employee. No deduction for labor expense. Period. Furthermore, you paid this SBT even in loss years. I know this because at the time I’d left the Army and was in private business of moderate size…and I wrote the checks to the State in years we’d not profited a dime. I returned to Army to get away from the insanity …and that’s saying something. Why insanity? Because the Michigan SBT, plus the State Income Tax, were both promoted and implemented by a Republican Governor. You really DO have to listen to everything a politician says or implies…or you might get more of the same regardless of party.
Unspoken in the above, of course, is the obvious issue that if you did not profit, from what funds do you still pay this VAT thing? Easy answer: your personal funds or thee retained earnings of the company, e.g., the stockholder’s equity. Don’t be conned, a flat tax on income or profit is one thing, a VAT is a whole ‘nuther critter.
http://www.msnbc.com/rachel-maddow-show/house-gops-anti-obama-lawsuit-gets-price-tag Boehner has done nothing on tax reform or immigration. The house spends its time of useless hearings and lawsuits.
This event helps bring focus to a larger issue, tax fairness. While BK is following the law in its inversion, other, smaller companies don’t have the same opportunity and are therefore placed at a disadvantage relative to the companies that can invert. Look at companies like Apple, for example, that essentially accomplish a partial inversion by leaving overseas profits in the countries where they were earned rather than re-patriating them and paying the higher US corporate tax rates.
The tax code is used to pick winners and losers, mostly be preferential tax laws and regulations that favor one sort of activity over another. A more fair approach would be taxation of gross revenues, period, without any offsets, credits, or other deductions. I favor this approach for personal income taxes as well. Everyone pays, no deductions or dodges or tricks. Think of it as a sales tax. The more you spend, the more you pay. Higher earners (and spenders) will likely pay more tax than lower spenders, but everyone pays something relative to what they spend.
Good for Burger King! Right after lunch, at BK of course, I’ll ask my broker whether I should invest in them. You have to admire a corporation that adheres to the rules and looks out for its shareholders.
BTW, Sherrod Brown calling for a boycott is hilarious. I’m not thinking that BK’s clientele is thinking: “I’m a Brownie! I’m sharin’ with Sherrod! I’m eaten’ at Chik Fil A (sp?) today! That’ll show ’em.”
NO TAXES, NO PEACE !