Burger King in Whopper of a Controversy
If you wanted to buy an item and it cost $20 at one store, but you could get the same item for $15 at a different store, which one would you buy? Most of us would choose the $15 store, all things being equal. But is that choice “unfair” to the store that sells the item for $20? Should you be required to shop there anyway?
Many people take this tact with regard to Walmart. “When Walmart comes to town it kills mom and pop business,” I hear them say. How? The small businesses can’t compete with the discount pricing a bulk buyer like Walmart can offer. Some people have even banded together to prevent Walmart stores from opening in their communities. I have a friend in Austin who refers to Walmart as “Satan Mart” and refuses to shop there, preferring to pay more to support other businesses he sees as Walmart’s competition. No problem, it’s his money after all.
Burger King announced this week, its intent to purchase Tim Hortons Inc, a Canadian breakfast food chain, for $11 billion. You would have thought the world had come unglued.
People on the left, from the President on down have fallen all over themselves to denounce the move. The president even labeled the move “un-patriotic.” I heard a caller on a nationally syndicated radio talk show yesterday nearly incoherently frothing over the issue.
So what has triggered this sudden outflowing of angst against Burger King, primarily by those on the left? As part of the merger agreement, Burger King is looking to move its corporate headquarters from its current location in Miami-Dade County, Florida to Canada. This would result in turning the once major American company, with outlets worldwide into a major Canadian company with outlets worldwide. And, incidentally, result it the company paying Canadian corporate income taxes at a 26.5% (15% Canadian Federal rate plus 11.5% provincial rate) rate instead of the current 39.1% rate the US charges; which just happens to be the highest corporate income tax rate in the world.
This process of relocating corporate headquarters outside the US, presumably to escape high US corporate tax rates, is known as “tax inversion,” or “corporate inversion.” It is not new, however recent changes in tax law have made it a growing, if largely unreported phenomena in the popular press; unreported that is until the latest Burger King deal. Some US companies have already done it, and others have or are considering the move.
Mr. Obama has stated that corporate tax inversions are akin to American companies “renouncing their U.S. citizenship,” In July, in a weekly address from the White House, President Obama had this to say:
“Even as corporate profits are as high as ever, a small but growing group of big corporations are fleeing the country to get out of paying taxes. They’re keeping most of their business inside the United States, but they’re basically renouncing their citizenship and declaring that they’re based somewhere else, just to avoid paying their fair share.” (italics added)
This is a real interesting statement coming from President Obama.
Back during the last election cycle, Mitt Romney famously said, in a speech “corporations are people.” He was roundly criticized by the left, by Democrats, and by the press. In fact, google that and you will find a site called “Dumb Mitt Romney Quotes – top 10 Dumbest Mitt Romney Gaffes”, where this quote can be found. Democratic National Committee Chairwoman Debbie Wasserman Schultz, called the comment a “shocking admission,” stating:
“Mitt Romney’s comment today that ‘corporations are people’ is one more indication that Romney and the Republicans on the campaign trail and in Washington have misplaced priorities”
Democratic National Committee Communications Director Brad Woodhouse stated “there‘s a great message for people struggling to get by and trying to make ends meet. Don’t complain – corporations are people too!”
Elizabeth Warren, whom many on the left see as a possible Democratic presidential candidate, stated in a speech during the campaign “…No, Governor Romney, corporations are not people…we don’t run this country for corporations, we run it for people…”
Obama himself, in his election campaign kickoff at Ohio State University had this to say regarding Romney’s remarks; “I don’t care how many ways you try to explain it – corporations aren’t people. People are people.” And he pummeled Romney over that “gaffe” time and time again during the campaign.
So I think we have established that, according to the left, the press, the Democrats, and Mr. Obama, corporations are not people.
According to The Free Dictionary, citizenship is defined as “the state of being vested with the rights and duties of a citizen,” while “citizen” is defined as “a person owing loyalty to and entitled by birth or naturalization to the protection of a state or nation.”
So in order to have “citizenship” one must first be a “citizen.” And to be a “citizen” one must be a person, which the President and others of his ilk have specifically stated corporations are not.
So how is it that they are even capable of “renouncing their citizenship?” According to the President, they aren’t people, so they can’t be citizens. So how does a corporation have “citizenship” to renounce?
Mr. Obama isn’t the only one who sees the move by Burger King and other U.S. and formerly U.S. companies as tantamount to treason. The aforementioned caller on the talk show ranted on and on about how Burger King uses the roads here in the US, Burger King uses the infrastructure. Americans spend their hard earned dollars there – how dare Burger King "flee" the country to avoid paying taxes in the US! After all, “they didn’t build that!” We should force them to stay! Here the caller is in lock step with the President who is looking at ways to accomplish just that. Of course, what was really on display here was the caller’s ignorance of the US tax code and just exactly what corporate inversion would and would not accomplish.
Corporate inversion works best for companies, like Burger King, who derive a large part of their corporate income from outside the United States. Sure they have a lot of restaurants here; but they have quite a few overseas. As of the end of 2013, Burger king had over 13,000 outlets in 79 countries, 66% of which were in the US. According to current US tax law, Burger King owes US corporate taxes on all income derived from all their restaurants regardless of whether they operate in the US or not. Moving to Canada simply means that they won’t pay US corporate taxes on anything except restaurants located in the United States. How is this “not fair?”
Unlike the caller’s assertion that somehow Burger King is getting something for free, they will still pay property taxes on the businesses they own here in the US; that money goes back to the cities and states where they reside, helping to pay for infrastructure. The trucks that supply the restaurants with the goods they need to prepare those yummy burgers will still require the same amount of fuel and still pay the usual fuel and road-use taxes which will, at least supposedly, pay for the roads and bridges they utilize. And they will still pay the onerous 39.1% corporate income tax – the highest in the world – on income actually made here in the US.
Yes, they are “fleeing the country” for tax reasons; why shouldn’t they? Americans do this every day right here in the US.
New York has the highest tax burden in the Union, followed closely by California, and people (and businesses) are leaving these states in droves. Where are they going? To states with lower tax rates, like Texas and Florida, neither of which have state income taxes. In fact Governor Rick Perry has gained certain notoriety by visiting both California and New York and letting it be known that the great state of Texas would welcome their businesses here.
And many are leaving. A lot of them are coming here to San Antonio, which is growing rapidly. Are these people “traitors” to their state? Are folks and businesses fleeing California “for tax reasons,” “renouncing their California citizenship?” (You betcha they are!) Should they somehow be forced to stay in the state they are in and not be allowed to leave? Is Governor Perry “evil” for encouraging people to leave these high tax states and move to Texas? Should laws be passed to penalize them for doing so?
If not, and I can’t imagine who would advocate for disallowing people and businesses to relocate where ever they like here in the US, unless it would be the politicians in the states that people are leaving, then why should the same not apply to people and companies who elect to leave the United States and move elsewhere?
If people are leaving a state, or companies are leaving the country, perhaps the thing to do is to change whatever it is that is causing them to leave, rather than trying to force them to stay.
“Stay here and be fleeced, damn it!”
The communists put up a wall around the city of Berlin in 1949. They also militarized the borders of Warsaw Pact states bordering the free world. This was done not to keep people out, but rather to keep their people, who wanted to leave, in.
Here in the United States, there are those of us who have advocated for building a fence on our southern border; not to keep our people in, but rather to keep out those who would enter our country illegally. Those on the left have fought this tooth and nail with the result that there is no fence, and people from other countries are encouraged to come here freely and stay as long as they like; the government even moves them around the country for free!
Now we have the current administration, which has no problems with people streaming in, contriving ways to keep its citizens and corporations from flowing out; much as the communists did during the cold war. Is this the new “American Way?” Is this part of “hope and change?” Is this “fundamental transformation?”
There are Democratic politicians who are calling for a boycott of Burger King over this issue. I wonder what kind of cars they drive. I have noticed that a lot of well-to-do folks, including politicians, drive foreign cars. To be sure, many of these are built here in the US. But the corporate headquarters are located in foreign countries; the only tax money we get from them is from sales here in the US and the other local taxes I already mentioned in conjunction with Burger King. I bet a lot of them drive BMWs, Lexus’s, Mercedes, or Infiniti’s. Why are they supporting these foreign companies? Shouldn’t they be buying Ford, GM, and Chrysler products?
Of course, what constitutes an “American” car these days? Many of the parts we use to build “American” cars come from foreign suppliers. The following lists the top “American made” cars, based on percentage of parts considered “domestic”, where the car is assembled, and US sales. The #1 vehicle is the Ford F-150, which has about 75% of its parts “domestic (which evidently includes Canada oddly enough). The only other “American” vehicles on the list are the Chevy Corvette Stingray at #7 and the Dodge SRT Viper at #10. Of the others, four are Toyotas and three are Hondas. Sorry guys, but those corporate taxes for worldwide sales go to Japan.
This is even crazier when you stop to realize that Burger King isn’t even an American owned company in the first place. It is 70% owned by 3G Capital of Brazil, who bought the controlling interest for $3.26 billion back in 2006. We are in effect saying that a company here in the US, owned by a Brazilian company is “unpatriotic” if it moves its corporate headquarters from the US to Canada?
Because in the end, it isn’t about “patriotism” at all; it’s about money - although the President, as he did during the elections, tries to equate the two. For Burger King and other US or formerly US companies it is about reducing tax overhead. For the feds it is about “preserving revenue.” It’s a bit funny that when it comes to individuals and US corporations seeking to “save money” at the expense of the federal government, that’s evil, “unpatriotic,” and needs to be stopped. But when it is the federal government seeking to “save money” at the expense of tax payers, well – that’s a different story.
It’s like a line from the movie 1776, where Ben Franklin made the observation “a rebellion is always legal in the first person, such as ‘our rebellion.’ It is only in the third person – ‘their rebellion’ that it becomes illegal.” Likewise, when the government is “saving money” at the taxpayer’s expense, that is OK; but woe betide the taxpayer, corporate or individual, who attempts to “save money” at the government’s.
An example of the latter might be a person leaving New York and moving to Texas to lessen their tax burden, or an American retiring overseas to stretch their retirement income; or a corporation relocating its headquarters to Canada.
An example of the former would be the government “saving money” by modifying the CPI to show the inflation rate to be lower than it is, so that they can “save money” by giving smaller COLAs to Social Security recipients, VA recipients, and Federal and Military retirees. Or “saving money” by only providing a 1% pay increase to the military, when current law, duly passed by Congress and signed by a previous President of the United States mandates a 1.8% raise based on increases in wages in the civilian sector. But hey, why bother with a stupid law? If it’s inconvenient, just ignore it or don’t enforce it.
But if it is a person or – gasp! A corporation – hammer them with everything you have. How dare they not pay their “fair share;” whatever that is?
It’s the New American Way.