Rather than decry Burger King's decision to transfer its headquarters to Canada to cut its tax burden following its purchase of the Tim Hortons coffee-and-donut chain, lawmakers should look to the reason behind why U.S. companies eye foreign countries — our nightmare of a tax code.
Congress has over the course of several decades nurtured and defended what has grown into a monster of a problem for American businesses, prompting many companies to seek out little-known — but perfectly legal — loopholes, including the corporate tax inversion sought by Burger King.
And why not? No one likes paying taxes and everyone wants to keep as much of their money as possible. Corporations do it. Individuals do it. And yet, there's this popular notion that U.S. companies have some sort of “patriotic duty” to pay every nickel of every tax concocted by Congress — rather than merely what they legally owe.
"They're ... basically renouncing their citizenship and declaring that they're based somewhere else, just to avoid paying their fair share," President Obama said in a weekend address in July, referring to U.S. companies that “exploit” tax loopholes.
And this is where we get into the weird area of trying to dictate what is “fair.”
“It is fair that this company pay outrageous taxes because they can afford it!” is battle cry of the populist left, ignoring the fact that companies have a fiduciary responsibility to stockholders to remain in business and maximize profits. A crushing tax burden can act as an obstacle to this goal.
America's “statutory tax rate — including state and local taxes — is close to 40 percent, the highest among the developed world,” CNBC reported, noting that many “U.S. companies apply a long list of tax credits, subsidies, loopholes and other giveaways, so most of them pay much less than the top rate.”
And Canada “just cut its federal corporate tax rate to 15 percent—the lowest of the so-called Group of Seven leading industrial nations,” the report added, citing data from the Tax Foundation.
So why not seek out "loophole" tax deals? Because it's not “fair”? Remember, taxes have the power to shutter entire businesses. There is a breaking point. Where does Uncle Sam go to collect tax revenues when that happens?
So rather than condemn Burger King — they deal in fries and milkshakes, not fuzzy notions about “fair share” — perhaps Congress should review the country's tax code, revamping it to make the business environment a bit more friendly to American companies.
Of course, “should” is the operative word in that sentence: It doesn't look like lawmakers will tackle tax reform any time soon.
The problem in Congress is that the two parties are too far apart on the appropriate fix. Democrats say the solution lies in abolishing the aforementioned “loopholes,” while Republicans say the answer is in cutting corporate tax rates.
But unless Congress unites to review the tax code, addressing the most common complaints voiced by American companies, U.S. businesses will continue to look elsewhere for friendlier environments, saving their own cash and handing lawmakers a set of talking points to use on campaign trails.