Just in case frustrated Americans needed another reason to doubt Washington’s problem-solving skills they got one this week when an important debate about tax reform degenerated into a weird campaign to turn Burger King, of all companies, into a traitorous and unpatriotic corporate boogeyman.
What sparked the controversy was Burger King’s announcement that it was merging with a Canadian restaurant chain, Tim Hortons, and would be basing its new corporate headquarters in Canada.
As is so often the case with the tax reform debate, the problem isn’t tax-avoidance in America but solutions-avoidance in Washington.”
U.S. Senator Carl Levin (D-MI) predicted there would be a “strong public reaction against Burger King” for their “tax avoidance move.” U.S. Senator Sherrod Brown (D-OH) put it more melodramatically. Burger King, he said, had “abandoned their country.”
As to Brown’s claim, the Daily Beast helpfully noted:
Sen. Sherrod Brown immediately suggested that Americans turn to ‘Wendy’s Old Fashioned Hamburgers or White Castle sliders’ in the wake of reports that Burger King had ‘abandoned their country.’
Both Wendy’s and White Castle are based in Ohio, the state that Brown represents in the Senate.
Brown may have confused patriotism with parochialism.
Burger King’s CEO insists their tax rate won’t change in any meaningful way but it isn’t placing its primary headquarters in Canada on a whim. Canada’s corporate tax rate is 15 percent while the U.S. rate is 35 percent.
Burger King’s move is the latest in a series of corporate “inversions,” which happen when a U.S.-based company merges with a foreign-based company, and moves or “inverts” its headquarters overseas to take advantage of a lower corporate tax rate.
Doug Holtz-Eakin at the American Action Forum has produced an excellent and mercifully brief video that spells out the issue in plain English.
In everyday life, this is like an individual consumer driving across the street for a cheaper, or better, burger. People paying less when they can is standard behavior in a market economy but to some in Washington it is deeply unpatriotic.
To understand what’s driving this supposedly “unpatriotic” behavior, take a look at this chart that compares the corporate tax rate of developed countries.
What’s driving the Burger King bashing is a desire by Washington politicians and Senate Democrats, in particular, to deflect blame off of themselves for creating an arcane tax code that encourages companies to move their headquarters overseas. Instead of doing the hard work of legislating and problem-solving, it’s easier to demonize an American company and collectively punish Burger King’s franchise owners, store managers and front-line workers by fomenting a boycott.
Fortunately, the American people are much smarter and savvier than Washington politicians realize.
Many on the left have cited this poll, which shows that 80 percent of the public doesn’t like inversions, as justification for their class warfare campaign. But a closer look shows that Americans across the spectrum understand that making our corporate tax rate more competitive is the best way to solve the problem.
According to the poll, even Democrats favor pro-growth tax reform over punitive (and unachievable) measures to block inversions. Thirty-three percent of Democrats said “Congress should overhaul the U.S. tax code to make the U.S. more attractive to businesses” while 30 percent of Democrats said “Congress should make tax inversions more difficult to enact.” In other words, Democrats prefer the House Republican, and U.S. Senators Orrin Hatch (R-UT) and Tom Coburn (R-OK) tax reform approach to the Levin and Brown approach.
As is so often the case with the tax reform debate, the problem isn’t tax-avoidance in America but solutions-avoidance in Washington.