Brandau: The upside-down tax debate

Trying to cover political news in a business-to-business setting as I’ve occasionally done in my career has been frustrating — not because it’s too difficult or boring, but because writing about politics in this century so far seemingly has been to write about frustration itself. One of the biggest business stories in my short tenure with 1851 Magazine so far has been the merger between Burger King Worldwide and Tim Hortons Inc. announced last month. To be sure, it’s a huge piece of news, given the sales and unit numbers of the franchisors. But the part of the deal consuming all of the available oxygen is the political consideration that Burger King would dramatically lower its tax bill by reincorporating the combined company in Tim Hortons’ home market of Canada. The politics of the merger will be even more prominent now that the Treasury Department has released new rules to discourage future “tax inversion” deals and prevent companies that still reincorporate abroad from skirting the U.S. corporate-tax rate of 35 percent. Starting now, if Burger King or any other American company wants to execute a tax inversion, it will be harder and just as costly for that company to access foreign profits and cash. The regulations are sensible responses to the problem of tax inversions being too easy and too appealing. Personally, I’m fine with the rules. Arguments that reincorporating outside the United States is more about growth than reducing the tax hit to the bottom line are specious at best. Keeping loopholes like “hopscotch loans” alive is not good for the U.S. economy, and rampant tax inversions could create a race to the bottom where every company chases the lowest possible rate outside the United States. But the lawmakers involved, from President Obama to Treasury Secretary Jack Lew and members of Congress, agree that this issue shows the pressing need for corporate-tax reform. What’s severely frustrating is that they also acknowledge the needed legislation is unlikely to come from Congress anytime soon. “While comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the recent surge of inversions, we cannot wait to address this problem,” Lew said in a statement late Monday. Business leaders from major-brand executives to single-unit franchisees did not need the Burger King-Tim Hortons deal to know that the United States has a higher corporate-tax rate than many industrialized nations. They have been clamoring for tax reform for years, long before a mega-merger pushed the 35-percent tax rate into the spotlight. Now the public is paying attention to this debate — either by voicing its disapproval of a cynical move like a tax inversion or by rallying around Burger King as a brand standing up to an unfairly onerous tax rate. But I wouldn’t bet on Congress acting on this in the near term, or even the long term. Nobody’s touching it before the midterm elections, and by the start of 2015, Treasury’s new rules will either have scuttled most of the proposed inversions or had their intended chilling effect and dissuaded any more from ever happening. The urgency for tax reform will dissipate. Which is too bad. I think the franchising industry and the American economy in general would benefit from a genuine open debate about what the corporate-tax rate should be, if 35 percent is too high. Instead, we’ll get finger-pointing, shouting matches over “economic patriotism” and more passing of the buck. Thanks, but no thanks.