Burger King’s effort to acquire Tim Hortons, a Canadian purveyor of coffee and doughnuts, is a good business decision, but its choice to locate corporate headquarters north of the border would be the direct result of President Obama’s anti-business tax policies.
Burger King is a well-managed global enterprise with restaurants in nearly 100 countries, and half its profits are earned abroad. Like rival McDonald’s, its sales are declining, as millennials turn away from hamburgers, and it is seeking other avenues to expand.
Simply, the U.S. federal corporate-tax rate is 35 percent and applies to both Burger King’s domestic and overseas profits, whereas Canada’s rate is 15 percent and only applies to Tim Hortons domestic sales.
In the second quarter of this year, Burger King’s federal and state income taxes were 24 percent of its operating costs and 34 percent of its profits. Locating in Canada would cut those figures by up to 25 percent.
No responsible CEO or corporate board could reasonably ignore those figures, and that’s why about 60 U.S. companies have completed or plan so-called “tax inversions” — acquisitions or mergers with foreign companies that permit them to locate their tax address in a friendlier jurisdiction.
What American businesses actually pay in federal and state income taxes varies a lot, thanks to many exemptions, deductions and provisions to delay taxes on foreign earnings; however, the average combined U.S. and foreign tax burden on profits is about 30 percent, whereas the average for foreign rivals is about 23 percent.
Sen. Sherrod Brown, Ohio Democrat, is calling for a boycott of Burger King, and Treasury Secretary Jacob Lew is busy crafting legislation for Congress to make tax inversions more difficult, if not impossible.
If Congress doesn’t act, Mr. Lew is threatening to bypass Congress and make tax inversions illegal by “reinterpreting” tax laws — likely as suits the convenience of Mr. Obama’s political agenda.
That’s the more fundamental point. The U.S. tax system has beco oth burdensome and quite arbitrary — a political tool that presidents of both parties may use to reward friends and punish enemies.
A 2013 study undertaken by a European think tank ranked the United States 94th out of 100, right after Zimbabwe, for its impact on business competitiveness. No wonder the U.S. economy is not creating enough jobs.
In a recent example, the Treasury Department determined that a telecommunications company’s copper and fiber-optic transmission lines — think the wires on poles outside your home — are real estate, and may be placed in a special real estate investment trust that receives privileged tax treatment.
It is no accident that telecommunications companies, which are highly regulated entities, are big donors to the Democratic Party. In fact, the home of Comcast’s CEO is one of the president’s favorite fundraising venues.
Democrats and Republicans alike say they want corporate tax reform — to eliminate loopholes and deductions, and to lower rates — but Mr. Obama has made clear he wants more revenue overall out of the exercise.