Will Burger King's "inversion" rouse Washington to the task of tax reform?
Everyone is up in arms about Burger King today.
The King. Home of the Whopper and the Kids Club. There are a lot of different ways to say “America,” but nothing says it quite like a fast-food burger chain. And when one of the biggest announces that — thanks to a merger with the Canadian doughnut chain Tim Hortons — it’ll be moving its corporate headquarters to Ontario where it can take advantage of a lower tax rate, Americans become upset.
The public reports being very aware of the concept of corporate tax “inversions” – the practice of an American company buying a smaller, foreign-based one and reincorporating in that country to advantage itself of its lower tax rates. And, if polling and the reaction to Burger King's the public doesn’t like it.
So will this rouse Washington?
It’s a fair question. In the short term, the Obama administration has talked about using executive action to put the kibosh on inversions. Others have suggested poking at the bees nest that is corporate tax reform. An oft-repeated statistic is that effective U.S. corporate tax rate is 40 percent, the highest among Organization for Economic Cooperation and Development (OECD) member countries, and advocates of reform say that hurts the competitiveness of American-based businesses.
But that second option is most definitely a long-term goal. Corporate tax reform is gonna be a heavy lift on Capitol Hill:
Other Congressional watchers see the exits remaining open until Members of Congress tackle broader corporate tax reform, a project that won’t start in earnest until at least next year. “From a practical perspective, for this to mean anything, it would have to be retroactive, and I can’t see Republicans agreeing to that,” says Antonia Ferrier, formerly a Republican staffer on the Senate Finance Committee. “This is really hard policy.”
It is really hard policy, because it’ll touch the whole economy. The whole thing! So here’s a hard truth that must accompany it: Any attempt at tax reform must preserve the current incentives that are afforded the capital-intensive industries in manufacturing.
And no, we’re not just talking about putting hamburgers together. The goal of tax reform shouldn’t simply be a broadening of the tax base in order to lower rates. It must reward investment at home. It should have the goals of enhancing economic growth, improving the climate for our nation’s manufacturers, and creating a long-term path to future prosperity for companies that manufacture in America and for the workers they employ.
Make it here with American workers? Enjoy the tax benefits.
Simple enough, right? Remember where manufacturers stand — and what they stand to lose — as the debate over tax reform gets served up hotter than a flame grilled burger.