August 27, 2014
BURGER KING AND THE WHOPPER ON TAXES:
Let me explain. Or actually, in the case of Burger King’s planned acquisition of Tim Hortons, let my colleague Matt Levine explain, because he is smarter and funnier and a better writer than I am, and has already nicely summed things up:
The purpose of an inversion has never been, and never could be, and never will be, “ooh, Canada has a 15 percent tax rate, and the U.S. has a 35 percent tax rate, so we can save 20 points of taxes on all our income by moving.” Instead the main purpose is always: “If we’re incorporated in the U.S., we’ll pay 35 percent taxes on our income in the U.S. and Canada and Mexico and Ireland and Bermuda and the Cayman Islands, but if we’re incorporated in Canada, we’ll pay 35 percent on our income in the U.S. but 15 percent in Canada and 30 percent in Mexico and 12.5 percent in Ireland and zero percent in Bermuda and zero percent in the Cayman Islands.”
What is he talking about? The U.S., unlike most developed-world governments, insists on taxing the global income of its citizens and corporations that have U.S. headquarters. And because the U.S. has some of the highest tax rates in the world, especially on corporate income, this amounts to demanding that everyone who got their start here owes us taxes, forever, on anything they earn abroad.
This is a great deal for the U.S. government, which gets to collect income tax even though it’s not providing the companies sewers or roads or courts or no-knock raids on their abodes. On the other hand, it’s not a very good deal for said citizens and corporations, especially because our government has made increasingly obnoxious demands on foreign institutions to help them collect that tax. Both private citizens and corporations who have a lot of income abroad are deciding that they’d rather renounce their ties to the U.S. than deal with the expense and hassle of letting it tap into income that they have earned using some other country’s roads and sewers and police protection.
Taxing people on income earned elsewhere is a human rights violation. Someone should complain to the UN.
And no, I’m not exactly kidding. The United States has been able to get away with this kind of intrusiveness because we’re powerful. As Obama makes us less powerful, there’s increased incentive for other countries to band together against this practice. Though on the other hand, they may favor it as a way to get businesses to relocate outside the United States.
Here’s a crazy idea: Let’s have a business climate that would make people want to headquarter their businesses here.
UPDATE: From the comments: “The global community has spoken: don’t tax income earned overseas. That cowboy Obama is going it alone.”