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POLITICS: PennAve

Democrats' hopes of backlash over 'deserter' Burger King are dashed

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Politics,Taxes,Warren Buffett,PennAve,Joseph Lawler,Economy,Dave Camp,Orrin Hatch,Carl Levin,PoliticsToday

Disappointment awaits Democrats who hope public outrage will help kill Burger King's tax-avoiding move to Canada.

The latest and highest-profile corporate "inversion," which involves one of America's best-known brands, has failed to stoke a backlash. Republicans on Capitol Hill are feeling no pressure to thwart those whom Democrats label corporate "deserters."

“We’ve been down this road before," said Rep. Dave Camp of Michigan, the top tax writer in the GOP-led House, "and we know companies will continue to do this as long as our tax rates remain the highest in the world.”

Burger King's escape vehicle is a merger with a Canadian coffee and doughnut chain called Tim Hortons.

Camp called for tax reform to fix America’s “dysfunctional” tax code. At 35 percent, the United States' corporate tax rate is the highest among developed nations ranked by the Organization for Economic Cooperation and Development, and is one of the only developed countries to tax businesses on income earned in other countries.

Republicans often cite that as the reason why businesses seek inversions, and the party favors comprehensive tax reform to lower the rate and move to a territorial system that does not tax businesses on overseas income. Inversions are a tax-saving maneuver in which a U.S. business buys a smaller company in a low-tax country and places its headquarters there.

Following a number of high-profile inversions this summer, however, Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said he would consider supporting a short-term measure to stop them — but only if it moved toward more comprehensive reform.

Hatch has not changed his mind since the Burger King inversion, which was the first such maneuver announced since the Treasury Department announced it was exploring executive actions to stop inversions, as well as the one involving the most commonly known company.

“Burger King's pursuit of an inversion only further underscores the arcane, anti-competitive nature of the U.S. tax code,” said a Hatch spokesman, adding that his conditions for supporting an anti-inversion bill haven’t changed.

Part of the reason Burger King’s inversion hasn’t created more momentum for legislation is the White House’s silence on the deal. That, in turn, may be related to the $3 billion in financing for the deal contributed by billionaire investor Warren Buffett, whom President Obama has used as a business surrogate for his tax policies.

“There was a lot of indignation by the Democrats over Burger King, but that hit a wall with the introduction of Warren Buffett,” said Greg Valliere, a political strategist at Potomac Research Group. Having the “patron saint” of Obama’s efforts to raise taxes on high earners back the Burger King deal “probably took some steam out of the Democrats’ case,” Valliere said.

Another issue is that the legislation favored by Democrats probably would not have prevented the Burger King-Tim Hortons deal.

Sen. Carl Levin, D-Mich., said the Burger King deal showed why Congress “can’t afford to wait any longer to put a stop to tax dodging through this kind of merger.” Levin has written a bill to stop inversions.

Levin’s bill, the Stop Corporate Inversions Act of 2014, includes a provision allowing for mergers in which the new company has “substantial business activities in the foreign country” — a test that Burger King and Tim Hortons together likely would pass.

Levin’s office did not respond to a request for comment on whether the bill would have prevented the merger.

Meanwhile, Grover Norquist, the anti-tax crusader and president of Americans for Tax Reform, suggested that the GOP go on offense.

"Best GOP response is to call for a 20 percent corporate rate and territoriality,” Norquist said.

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