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
So if it is bad for companies to allow a legal tax deduction why is it not bad for an individual to take a deduction for first mortgage interest or a credit for purchasing a zero emissions vehicle?
Airdog brings up a significant point. I might add that excise taxes and to a lesser extent B&O taxes if too significant can cripple a business.
Income taxes are roughly based upon a company’s profits. If the company operates at a loss, it has no tax liability. Excise and B&O taxes are based upon gross sales regardless of if a company is making or is not making a profit. If the business operates on a low margin the excise taxes could potentially cause the business to fail because it cannot control the excise tax burden.
If a B&O or Excise tax is small such as two mils it can easily be managed, but some can be very high. If there is another jurisdiction that is close where the consumer can choose between the low excise taxed business and the high excise taxed business if the excise tax rate difference is large and significant to the consumer the higher taxed can risk failure. Then you look at this on a macroeconomic scale the taxing authority in the high tax state loses far more revenue due to the tax avoidance by the consumer and would actually have greater revenue if the tax rate was lower because the consumer might not care or notice the difference.
Saudi Arabia likes kings huh king Geo.
Paul, Nice!
I shall eat at BK every time one is near when I want to eat. They are keeping their costs down, which benefits me, the consumer. It’s smart business and that’s what this country was built on.
Sandi, your pithy statement says it all. I wish everyone thought like you do.
Fine… don’t pay taxes. Who then will pay for your wars?
Max-1 – if I don’t pay taxes who will pay for your social engineering programs?
Why don’t we slap a foreign-owned business tax upon them?
Does this mean BK will now serve the Canadian national dish — Poutine — in the US? Yum, french fries smothered with cheese curds and gravy!!!
Burger King was recently purchased by a foreign private capital company. All private capital companies do is pump and dump.
They will pump as much money out of the business as they can and in a couple years leave the debt filled carcass for the next pumper and dumper. It’s a familiar process that happens constantly, but is rarely mentioned by the business press.
swm;
For the time being.
Nobody outperforms WS expectations – massively;
not even Warren Buffet…..
These guys are very bad business people;
but very good ganefs!
“Has anyone walked into BK during breakfast, lunch or dinner lately?
Those – aRe – cricket chirps in the corner – you be hearing….
I’m just sayin……”laser Right, And Horton’s give them a very lucrative entree into the breakfast market.
Akin to Lending Tree giving out mortgages like candy going out of style, Burger King, the home of the Whopper, where dust & spider webs are growing in location corners (due to lack of customer support) – out performs the industry massively.
When it sounds to good to be true…….
As is noted upon THE STREET
http://www.thestreet.com/story/12856704/1/why-burger-king-bkw-stock-is-gaining-in-pre-market-trading-today.html
Not only is his Lord failing to report on the sophisticated malfeasance of PItten’s RICO enterprising empire;
your helping foster the nefarious gains!
Whooper – for the Whopper fleece – Professor!
Has anyone walked into BK during breakfast, lunch or dinner lately?
Those – aRe – cricket chirps in the corner – you be hearing….
I’m just sayin……
Whoop – Whoop
My comment at 8:40 wasn’t as clear as it should have been. Sorry, I’ll give it another go.
1. BK is doing something that is legal under the current tax code. While it is legal, it is understandable that some may not like it. That problem is with the tax code, however, and not with BK.
2. The tax code gives US-domiciled corporations the highest corporate tax rate in the world. That is a damper on investment and growth, and hence on employment.
3. Some US corporations (e.g.Apple) purposely leave overseas profits overseas, in lieu of re-patriating them and paying a high tax on profits already taxed elsewhere.
4. The tax code is rigged to select winners and losers. Want your corporation to pay less income tax? Then do exactly what the tax preference-creators in Congress want you to do, and your corporation will pay less tax, possible 0% (cf Jeffrey Immelt and GE).
5. One solution is a flat tax paid on all corporate income, after costs of product and sales but before interest and depreciation. Every C corporation pays the same tax rate.
6. Regarding individual taxes: tax purchases, not income. A sales tax, if you will, under which every citizen is treated the same. No income tax deductions, period.
Imagine, JT criticizing forcing of corporations to pay “their fair share”.
Jeesh JT, what kind of a liberal are you?
Oh, that’s right he is not.
But I heard Sean Hannity say that you are!
Naw, I keep saying it, JT will come out as a full libertarian in a couple years :-))
Karen S – “That is one of my favorite allegories regarding how taxes affect the rich.”
Karen, Also in my own head I always relate business to how water flows. It always wants to be level and as soon as you put walls with cracks in it (Tax laws) and try to pile it up on one side, it finds the cracks and returns to level. And, as a bonus, you just might cause the cracks to open up causing a catastrophe for the rest of the pool. The business/free market haters just don’t get the unintended consequences of their “rules” and assume that business will just role over instead of reacting. Then, they turn around and blame capitalism for our problems when we haven’t even been using capitalism but crony capitalism.
Canada does have a lower corporate tax rate but it does have a higher minimum wage, and they use the tax money wisely in funding equal health care for all. Some here would call it socialized medicine.
Karen, It is your patriotic duty to take every deduction available. We need to put the diabetic and obese govt. on a high protein diet.
bettykath:
“Unless you have a mortgage or high medical bills, the standard deduction is used by most people. The very rich have lots of deductions as do corporations. They don’t pay the full rate, so don’t try to cry on my shoulder.”
Well, right. They use every deduction available to them, and SO DO YOU. If your accountant said, hey look, you qualify to use this deduction? Or why don’t you set up your small business in thus and such a manner, you’d save 10% of your taxes. You’d do it, right? And if you didn’t, it would be financially irresponsible.
What would you think of someone who loudly proclaimed, in the middle of a cocktail party, that he was entitled to a dependent child tax credit and mortgage interest deduction, but he chose not to take it. You’d think, that’s not being very smart with your money, wouldn’t you?
If you lived in an apartment, and the landlord jacked your rent up 50%, but the neighboring apartment cost lower than when you started, wouldn’t you move there?
Why do people act one way, but expect corporations to act another? One way for me, another for thee?
Jim:
That is one of my favorite allegories regarding how taxes affect the rich.
But it is far better than the toddler in the toilet picture!