Tuesday, August 26, 2014

Burger King's Whopper Inversion

I hadn't eaten Burger King's food in years.

A few weeks ago, however, I got stuck in traffic near a Chick-fil-A while on a mission to procure a quick dinner for myself and my parents.  A space opened up in the roadway, and I was able to navigate a tight U-turn, so I went to the next-closest fast food outlet, which happened to be a Burger King.

"Burger King?" I had to convince myself I was making a logical compromise.  It had been so long since I'd been to Burger King, maybe their food had improved by now.

But no, Burger King hasn't improved.

Of the three sandwiches I ordered, two of them were completely wrong.  Unfortunately, I didn't discover that until my parents opened the wrappings.  I'd ordered French fries, too, but when the clerk at the drive-through window was passing the open bags to me, I saw that they'd given me onion rings instead.

"Hey!"  I hollered back to him, since he'd quickly closed his window.  He slid it back open, annoyed.  "I ordered fries, not rings."

Without saying a word, he disappeared around a corner inside the restaurant.  After a moment or two, he returned with the fries.  I held out the three little cartons of rings, presuming he'd want to make an exchange.

"Nah, keep 'em," the young man snapped, as though he was being magnanimous with his generosity.

Ironically, those dry onion rings turned out to be the tastiest part of our meal.

Today, we're learning that Burger King is purchasing Tim Hortons, a Canadian-based coffee and doughnut restaurant that is more popular up there than McDonalds.  The fast-food merger is a deal being partially financed by Warren Buffett.

But that's not the big story.  The big story is that Burger King is relocating its official corporate home - now called a "domicile" in MBA jargon - from Florida to Ontario, Canada, where Tim Hortons is based.


At a current top rate of 26.3%, Canada has much lower corporate taxes than we do here in the United States, where the current top rate is 39.1%.  Talk about American exceptionalism - our corporate tax rate is the highest in the world!  America also taxes foreign profits, while Canada doesn't.  By fleeing north of the border, Burger King can realize an immediate benefit from its purchase of Tim Hortons without increasing any of its prices.  It's called tax inversion, and a number of lesser-known companies have already done it without most American taxpayers realizing it.

This time, considering Burger King's brand recognition, if not actual market share, things may be different.  Some American politicians have begun calling on consumers to boycott Burger King, in an attempt to shame the iconic brand into changing its mind and staying in the nation that bore it.   This shaming strategy worked a few weeks ago, as Illinois-based Walgreens considered relocating its headquarters to Europe with its purchase of a major pharmacy chain there.  In its hyper-competitive industry, however, Walgreens decided it couldn't afford to risk alienating its American customers with such a decidedly unpatriotic move like trying to avoid US tax rates.

Whether Burger King's customers will be as patriotic as Walgreens feared its customers might be remains to be seen.  At this point, considering how marginal Burger King's products have become, perhaps its corporate honchos figure there's not much more to lose.  Besides, experts are speculating that both Burger King and Tim Hortons see their future growth taking place outside of their native countries.  Three Brazilian men already own the bulk of Burger King's stock.  So perhaps we should be grateful that the Whopper is staying at least on the North American continent.

Not that Tim Hortons will help with the food quality problem plaguing Burger King.  Up where my brother and his family live in Michigan, they have Tim Hortons restaurants, and, as greasy breakfast foods go, their doughnuts are okay.  But if I'm going to put such a heavy concentration of sugar, preservatives, and grease into my belly, frankly, I prefer the taste of Dunkin Donuts to Tim Hortons.

As far as Burger King's power play over tax inversion, however, I say if they've got the stomach for it, go ahead and leave.  Washington's politicians may howl about it being a dirty tax trick, but hey - those politicians are the ones who've been deep-frying America's tax code for decades.  Our corporate tax code has become nothing more than a lump of artificially-flavored, partially hydrogenated soybean oil,  with gluten, ammonium sulfate, calcium dioxide, diammonium phosphate, sodium stearoyl-2-lactylate, ethoxylated diglycerides, and corn maltodextrin thrown in.

With a side of bacon.

Glazed or plain, this morass our elected officials have concocted for us has become so onerous, don't you think it's about time it went on a diet?  For years, conservatives have lamented America's declining competitiveness in the global economy, and liberals have lamented how loopholes designed to lessen the severity of our corporate tax code unfairly benefit some companies at the expense of others.

Doesn't all of this leave a bad taste in your mouth?

Well, now everyone in Washington has an incentive to finally put Michelle Obama's health improvement initiative to work over at the Internal Revenue Service.  "Let's move," right?  Some legislators think they can make new laws to prevent tax inversion, but how will holding American companies hostage like that be any incentive for our economy to grow?  Times are changing, and American business is no longer the only game in town.  Globalization means that international corporate mergers are going to become more frequent, and if we don't want our homegrown companies to leave the United States for good, Congress is going to have to make it appealing for them to stay.

After all, from a beltway bureaucrat's point of view, a reduction in taxes will mean less revenue coming in, but less is better than none, isn't it?

Okay, so maybe neither Burger King nor Tim Hortons fit into the prototypical politicians' diet of steak and lobster.  But sometimes it takes a whopper to upset the gravy train.

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