Monday, 1 September 2014

Burger King's Smart Move

The Capital Express Is On the Move

"Progressive"  ideology is generally anti-business, anti-profit , pro-taxes and pro-redistribution of property.   But in our modern world, "time" has moved on; capital and labour are now more global and international than ever before. Because trade is increasingly global, pay rates in China affect trading conditions in New Zealand.  Capital and labour are more mobile than ever and can move relatively freely around the world. 

In the face of this growing internationalism (theoretically favoured by progressive ideology) progressives have actually become more and more regressive, wanting to drive national economies back to a more autarkic past with higher taxes and more government interventions to control wages, prices, and business activity.  One manifestation of this retrogression is the complaint of governments that "business" is evading tax by setting up in lower foreign tax jurisdictions, channelling their profits through the lower tax regime and maximising returns thereby to their shareholders.  President Obama has moaned about this tax leakage in terms which suggest he regards the practice as unpatriotic, if not corrupt.  Left-wing politicians in New Zealand have chanted the same mantra with respect to multi-nationals doing business in New Zealand.

Naturally the most easy and straightforward solution to a shrinking corporate tax base is to lower corporate tax rates.  If taxes are lower, businesses are encouraged to stay put; international businesses are encouraged to set up shop if the tax rate is competitive.  But since progressive ideology calls for an ever vaster government, lowering taxes is a hard trick to perform.   Meanwhile, business is driven by economic rationality and the globalisation of business requires that one must remain competitive world-wide or eventually be driven under.

The most recent high-profile example is international conglomerate, Burger King which is moving its business headquarters out of the United States to Canada, where its tax burden will be less.
  The technique is known as "tax inversion" and involves a US company buying a company in a lower tax jurisdiction, and then moving its corporate headquarters to the new company, thus paying lower taxes.  This, from Breitbart:
Burger King says it struck a deal to buy Tim Hortons Inc. for about $11 billion, a move that would give the fast-food company a stronger foothold in the coffee and breakfast market. The corporate headquarters of the new company will be in Canada, which stands to help lower Burger King's taxes. Such tax inversions have been criticized by President Barack Obama and Congress because they mean a loss of tax revenue for the U.S. government. Burger King and Tim Hortons said the chains will continue to be run independently and that Burger King will still operate out of Miami.
This has caused a brouhaha amongst the progressive chattering classes, with some talking heads proclaiming that they will never buy another hamburger from Burger King because they are "cheating" on their taxes.  The President himself has sniffed, “You know some people are calling these companies ‘corporate deserters.’” Warren Buffett, one of the world's most successful investors and progressive Democratic Party stalwart, has said he wants to pay more taxes, and believes that tax inversion is immoral.  Nevertheless, Buffett financed the Burger King deal, which reveals just how compelling the business case must be.
News of Buffett’s investment in Burger King has sparked American ire and charges of hypocrisy, as the “Oracle of Omaha” was a strong backer of President Barack Obama and a vocal critic blasting citizens for not paying their “fair share” in taxes.
Business is now global.  Capital is mobile.  The best defence for the tax base of the state is to ensure that  tax rates are competitive with those in other countries.  The best defence against the problem of mobile capital eroding the tax base is to have lower corporate taxes than other countries.  Then capital will migrate into the country and the overall tax base will rise.  But such a rational move is likely impossible when progressive ideology is in charge.  Smaller government, requiring less tax to fund it, would be Apocalypse Now to the Progressive/regressive mindset. 

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