Burger King to escape U.S. corporate tax system
Three cheers for Burger King, I say! All of the whiny liberals racing to call them “unpatriotic” for pursuing a deal to merge with the Canadian coffee shop Tim Horton and reincorporate north of the border, thus escaping the deranged American corporate tax system, are completely missing the point. Nothing is more patriotic, more quintessentially American, than voting with your feet and withdrawing your consent from an unhinged government. When CEOs start climbing over the walls to escape from greedy left-wing government, the problem is not insufficiently high walls.
Democrats are the same party that’s planning to hand out amnesty to five million or more illegal aliens, right? The “dreamers” who fled their corrupt governments and ignored U.S. immigration law when it proved inconvenient to their migration? Well, Burger King is doing the exact same thing, except they’re not breaking any laws.
And as the Wall Street Journal points out, the fast-food giant is getting help from the man who was constantly presented to us as the model for responsible corporate stewardship, Barack Obama’s good friend Warren Buffett. Is Buffett an unpatriotic scoundrel now? Have we finally heard the last from Democrats about how the economic relationship between Buffett and his ostensibly underpaid secretary should define American tax law?
The White House might need a new poster child for its “tax fairness” campaign.
Famed billionaire investor Warren Buffett, who President Barack Obama has lauded and named a signature proposal after,is helping finance a deal that would allow Burger King Worldwide to reincorporate in Canada and potentially reduce its U.S. tax bill through a so-called inversion, the Journal reported late Monday.
One of the White House’s top economic priorities this fall is to deter companies from pursuing inversions, and Treasury Department officials are designing plans that would remove some of the incentives for these deals.
Mr. Obama and Treasury Secretary Jacob Lew have spoken disparagingly about companies that use inversions. Mr. Obama in July called inversions an “unpatriotic tax loophole” and said “my attitude is I don’t care if it’s legal, it’s wrong.”
It even published a blog post titled “what are inversions and why should you care.”
Now that Mr. Buffett’s involvement in a possible inversion has been made public, will Mr. Obama and other Democrats take him to task? That might be awkward, given how the Obama administration has named one of their top tax proposals after the “Oracle of Omaha” himself.
When an Administration’s big economic priority is “discouraging inversions,” you know the country is in big trouble. That’s the most desperate, defensive economic policy a government could be reduced to. We ought to have tax laws that encourage corporations to “invert” here. We should have them stacked up at America’s borders like airplanes in a holding pattern over a busy airport, clamoring to reincorporate in the U.S. Instead, in the twilight days of dying liberal “economics,” Democrats are looking for new ways to kneecap captive corporations and keep them from escaping.
Maybe Burger King should make some fat campaign donations to Democrats and buy some love from President Solyndra. Cronyism is the name of the game these days, right? Grease the wheels, put some green in the right hands, and you can have bags of taxpayer cash handed to you, along with special waivers from whatever regulations you find inconvenient. Look at how well Salesforce CEO Marc Benioff made out in California. Big donations to House Minority Leader Nancy Pelosi and other Democrats were rewarded with over a billion dollars in subsidies, which worked out great for the Pelosi family, who just happen to be be stakeholders. Why doesn’t the Burger King take off that creepy plastic mass, smell the coffee, and start greasing the right palms in America, instead of decamping for Canada?
As always when a big inversion story makes headlines, someone – usually Harvard professor Greg Mankiw – steps forward to explain that instead of making the tax code even more complicated to punish escaping companies, we should junk it altogether. Mankiw took another stab at it last weekend, without specifically mentioning Burger King:
Perhaps the boldest and best response to corporate inversions is to completely rethink the basis of corporate taxation. The first step is to acknowledge that corporations are more like tax collectors than taxpayers. The burden of the corporate tax is ultimately borne by people — some combination of the companies’ employees, customers and shareholders. After recognizing that corporations are mere conduits, we can focus more directly on the people.
A long tradition in political philosophy and economics, dating back about four centuries to Thomas Hobbes, suggests that the amount that a person consumes is the right basis for taxation. A broad-based consumption tax asks a person to contribute to support the government according to how much of the economy’s output of goods and services he or she enjoys. It doesn’t matter whether the resources for that consumption come from wages, interest, rent, dividends, capital gains or inheritance.
So here’s a proposal: Let’s repeal the corporate income tax entirely, and scale back the personal income tax as well. We can replace them with a broad-based tax on consumption. The consumption tax could take the form of a value-added tax, which in other countries has proved to be a remarkably efficient way to raise government revenue.
Some may worry that a flat consumption tax is too easy on the rich or too hard on the poor. But there are ways to address these concerns. One possibility is to maintain a personal income tax for those with especially high incomes. Another is to use some revenue from the consumption tax to fund universal fixed rebates — sometimes called demogrants. Of course, the larger the rebate, the higher the tax rate would need to be.
Besides the knee-jerk freak-out we could expect from class warriors at the suggesting any tax - especially corporate tax – be repealed, the other reason Mankiw’s crusade never gets anywhere is that our Ruling Class loves the opacity of the tax code. It’s a major instrument of control. By extracting taxes in many different ways, at various levels of production and distribution, the total size of their tax burden is hidden from the American people. Their political behavior is controlled by manipulating their perceptions. They’ll cheer high nominal tax rates out of anti-corporate or soak-the-rich bloodlust, but the effective rates are usually far lower… especially for companies with the right political connections. Conversely, lower- and middle-class citizens tend to believe their personal tax burden is far lower than it actually is, because much of it has been hidden from them using pass-through techniques. Part of their tax load is invisibly built into everything they buy. There are people with zero or negative income tax liability who actually fork over quite a bit of money to Uncle Sam every year without realizing it.
The inversion issue is interesting because some of these companies pay a far lower effective tax rate than the ridiculously high nominal American rate. So why are they leaving? In part, it’s because the “worldwide” structure of U.S. corporate tax bites into every dollar a multinational operation earns. Most other countries use a “territorial” approach in which they tax only the income earned within their borders. That means a relatively low effective tax rate can still add up to huge costs for a multinational corporation based in the United States, as the lower rate hits more of the dollars it earns, even when those earnings occur far beyond America’s borders. (Say, I thought we were supposed to hate taxation without representation…)
Corporate planners are also nervous because they know the special breaks and deductions that keep effective rates low can be removed easily, at the whim of the Ruling Class, without the heavy political fallout that comes from raising the nominal rates. The way our bloated, over-committed government’s finances are going, the quiet shredding of those deductions is likely to happen soon. It would, in practice, represent a gigantic stealth tax increase on the ultimate payers of all taxes – you and me – with corporate “tax collectors” taking the blame instead of politicians. (Imagine the demagoguery that will be directed at companies that raise prices to cover higher effective corporate taxes, and try to clearly explain the situation to customers.)
That’s such a sweet racket that cash-hungry politicians won’t be able to resist it for much longer. This, in turn, explains the rising tide of hysteria over corporate inversions, which are still relatively infrequent events… but are feared to become more common as CEOs anticipate political and economic turbulence to come. As John McDuling at Quartz.com puts it, “The message to corporate America today is clear: If you’re not already looking for a ‘tax inversion’ partner, you should be.”
McDuling makes another interesting observation: “As with most things in Washington, there is no quick fix to this problem. And both sides of the political aisle in Washington depend on corporate funding to win elections. I wouldn’t bet on an elegant solution any time soon.” Of course, the Democrats will try to sell anti-inversion tax increases as just such a quick fix – a short-term legislative band-aid with populist appeal.
But let’s take a longer view. Join me on a balloon flight over the Potomac, and behold the glittering fortresses of the lobbyist army camped permanently around Washington. Nothing is more “populist” than disparaging lobbyists; rhetoric to that effect even tricked people into voting for Barack Obama, the greatest practitioner of big-bucks “crony capitalism” in the modern era. In truth, those Beltway operators are exercising their lawful right to petition the government, just as the CEOs of inverting companies are taking logical and legal measures to reduce tax exposure for the benefit of their shareholders. If you want to disperse the lobbyist army, the one and only way is to take away the valuable government power they wish to purchase. A great start would be abolishing the warped tax code that gives Big Business so many eminently logical reasons to curry favor with the politicians who can warp the code to their benefit. The kind of tax simplification Greg Mankiw writes about really should be the great populist cause of our age. Then we wouldn’t have to talk about punitive measures to kneecap overseas corporate mergers any more. Maybe some of those lobbyist fortresses could be sold to all the foreign companies that would be scrambling to re-incorporate here.
Update: Naturally, it didn’t take long for people who have been killing America with their economic policies to call for a punishing boycott of Burger King food. From Breitbart News:
“Burger King’s decision to abandon the United States means consumers should turn to Wendy’s Old Fashioned Hamburgers or White Castle sliders,” U.S. Sen. Sherrod Brown (D-OH) said in a statement.
White Castle and Wendy’s, of course, are two Ohio companies.
“Burger King has always said ‘Have it Your Way,’” Brown said. “Well my way is to support two Ohio companies that haven’t abandoned their country or customers.”
Just what the Land of the Free and Home of the Brave needs right now: leftist politicians lecturing us on which hamburgers to eat. When Americans realize their problems can be solved by boycotting the likes of Sherrod Brown, rather than the fast-food restaurants he hates, the Great Recovery can truly begin.