President Obama on “Corporate Deserters”

Burger King is making headlines because it is considering merging with Tim Hortons, a Canadian coffee and donut chain. The motive is to share corporate services with Tim Horton and move the entire headquarters completely to Ontario, Canada to avoid high U.S. corporate taxes. Corporate taxes in the U.S. are 35% and 25.6% in Canada.

President Obama has stated his feelings on “tax inversion” multiple times throughout his re-election campaigns as well as presidency. Recently on July 24 in a speech at a college in Los Angeles, President Obama stated that companies that do cross-border mergers to escape U.S. taxes are “corporate deserters who renounce their citizenship to shield profits”. Later he stated that doing so adds to the tax burden of middle-income families and that companies should exhibit “economic patriotism”. To further sum up his feelings, he stated, “You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers.” In a speech a year earlier, President Obama stated:

“The best way to level the playing field is through tax reform that lowers the corporate tax rate, closes wasteful loopholes, and simplifies the tax code for everybody. But stopping companies from renouncing their citizenship just to get out of paying their fair share of taxes is something that cannot wait. That’s why, in my budget earlier this year, I proposed closing this unpatriotic tax loophole for good.”

Ouch. In the first set of quotes, President Obama feels that corporations who are making the best cost decisions for their companies are “deserters”, while in later quotes he is referencing that many corporations in America do get tax write-offs and benefits (hence “a handout from American taxpayers”).  However, there is nothing “unpatriotic” about choosing to take business elsewhere if it is too costly to run in America.  Is it better for a company to go out of business by having to stay in the original country they incorporated in just to be an “economic patriot”? The tax system should not be driving people out of business. It appears that President Obama, who has been outspoken about tax inversion cannot accurately pinpoint the problem. Yes, the tax system is complicated and should be simplified, but what is “a fair share of taxes” and how is Burger King not going to be paying them? So, long as they are in this country they must pay for taxes according to the tax code and their accountants, you can rest assured, will try and find any tax loopholes if they exist. Is that unfair? The tax code needs fixing, not the companies trying to make more money to create jobs, growth and product.

Moving headquarters or operations to other countries by big brands  may be seen more and more as countries have a much lower corporate tax rate. The Netherlands have a 26% corporate tax rate, United Kingdom has a 21% tax rate and Ireland, 12.5%. The U.S. needs a more competitive corporate tax to incentivize companies to stay in America, rather than name-calling those who choose to make good cost decisions “unpatriotic”.

 

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