How to stop ‘desertions’ like Burger King’s

Burger King could expand to Canada as the fast-food chain attempts to buy Tim Hortons.
Burger King could expand to Canada as the fast-food chain attempts to buy Tim Hortons. Photo Credit: NYC.gov

Burger King, corporate deserter?

You probably won’t notice anything different if you stop at one of the many Burger Kings or dozen or so Tim Hortons outlets in the city.

But deserter is what President Barack Obama would call Burger King now that it is buying Hortons, a Canadian coffee and doughnut chain. The combination creates the world’s third-biggest fast-food seller.

The epithet is hard to swallow.

But the $11.4-billion deal announced Tuesday will allow the Miami-based Burger King Worldwide Inc. to slash its U.S. tax bill by moving its corporate home to a foreign country, a strategy known as inversion. At least 21 companies have announced or completed such deals since the beginning of 2012, according to Bloomberg News.

Obama castigated them last month for doing business as usual in the United States but dodging taxes by renouncing their U.S. citizenship. He’s wrong to vilify corporations for legally reducing their tax bills.

Corporations have a fiduciary duty to shareholders to maximize profits. Rather than trying to shame them, the United States can discourage inversions by reforming the U.S. tax code to make the strategy less appealing.

The top federal corporate tax rate in the United States is 35 percent. That’s among the highest in the world, although many corporations actually pay much less and those most successful at exploiting loopholes pay zero. In Canada the top federal tax rate is 15 percent.

Congress should tilt the playing field in our favor. Eliminating the corporate tax would be the best approach, as long as reformers also scrap the lower rate for capital gains and dividends, and tax that income the same as income from work. Cutting the corporate tax rate while closing loopholes would work, too, or enacting a territorial system in which only profits earned in the United States would be taxed by the United States.

Of course, any of that would require Congress to take on contentious tax reform, something it hasn’t had the courage to tackle. Until it does, the message to corporations like Burger King is, have it your way.