Monday, September 1, 2014

Burgers, Donuts, and Teachable Moments


It has been announced that Burger King has reached a deal to purchase Tim Hortons, causing it to become the third-largest fast-food chain in the world. If you have to ask "what is Tim Hortons?" then you are a U.S. citizen who either doesn't watch hockey or doesn't live within a slap shot of the 49th parallel.

Tim Hortons is a donut chain that started in Ontario in the 1960's and serves up not only some of the best donuts on Earth, but also an impressive variety of pastries, cookies, hot breakfast sandwiches, coffee, tea, etc. Its cursive logo, which graces the sideboards of many NHL arenas, is more inviting than the blocky font of Dunkin' Donuts.

But getting back to the matter at hand, it is interesting to watch American politicians and MSM whores policymakers and media figures react to the idea of a Yank burger chain purchasing a Canuck donut chain.

Are they congratulating Burger King for taking action to increase its earnings and profit share? No.

Are they congratulating it for taking action that will yield financial benefits for the millions of ordinary people who own its stock through their mutual funds and 401(k)'s? No.

Are they congratulating it for protecting American jobs by finding a way to grow and bolster its strength during these troubled times? No.

Instead, the policymakers and media figures are crucifying Burger King because the deal states that it will shift its headquarters north of the border and domicile itself in Ontario, effectively making it a Canadian rather than American corporation.

On the radio I heard that some dunderhead from Ohio was accusing Burger King of "turning its back on its customers." That is an odd thing to say about a company that has no plans to close any of its restaurants, and that is expected to increase the breakfast and sweets options available to its customers by boosting the number of Tim Hortons outlets in the U.S.

So if the company is helping rather than hurting our nation's overall economy, why is it being subjected to so much negative oratory? The answer is simple and twofold: 1) Our policymakers, who work in government and have devoted their lives to government, don't care about the country's citizens or founding principles; all they care about is government, and they are pissed that they will no longer be able to use the U.S. tax code to pad government coffers by fleecing this particular corporation. And, 2) most media figures, no matter how much they deny it, are in bed with the political party that favors big and intrusive government, so when members of that party start accusing a corporation of betraying America or failing to engage in "economic patriotism," the media figures regurgitate the talking points like Pavlov's dog.

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I know schoolkids who can quickly realize why a move like the one Burger King has in the works makes perfect sense, and why it is beneficial to employees, customers, and shareholders alike.

Meanwhile, college-educated journalists swallow the "Burger King is leaving America so Burger King is bad for America" line without spending one second using their college-educated brains to analyze whether there is any truth or logic to the sentiment.

The gulf between reason and propaganda is often immense, but when it comes to this topic, in this day and age, the gulf is immense even by its own standards. The Left spends most of its waking hours contending that America's national borders are an artificial construct that should not exist and ought to be ignored. It acts as if the very idea of nationhood is a sham, as if we should all consider ourselves to be citizens of the world rather than citizens of particular nation-states. But as soon as Burger King announced plans to walk across the border, the Left let out a witch's shriek and accused it of being a traitor to America. Even the anti-American pseudo-Commies of MoveOn.org have alleged, in a petition, that Burger King is "treasonous" for planning to change its address.

Most liberals I know adore Canada and are perpetually eager to slap that maple leaf flag on their backpack, as the saying goes. Yet somehow those same people think it is evil for Burger King to place its home offices in Canada.

Burger King has added to the confusion by defensively saying that tax savings have either nothing or little to do with its decision. It claims that it expects to pay roughly the same effective tax rate after moving than it does right now, but as I will discuss, that claim lacks credibility.

Can someone please explain all these inconsistencies and disconnects?

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What is inarguable is this: The United States has the highest corporate income tax rate in the industrialized world, at 35 percent.

And this: Canada's rate, at 15 percent, is much more friendly to business. Thus, it offers more stability to employees.

Where things get muddy is when the issue of deductions, exclusions, credits, waivers, and protection by politicians (in other words, the things darkly referred to as "loopholes") come into play.

I have heard some cynics claim that no big corporations pay high taxes in the United States, but those cynics are wrong. Yes, some corporations do skate (like GE and big sugar conglomerates) but many others do not -- and you can bet your bottom dollar that when Burger King decided to relocate its headquarters from Miami to Oakville, Ontario, the decision was not based on Oakville's warmth, beaches, variety of cultural activities, or level of international pizzazz.

Burger King claims that after taking advantage of the above-referenced "loopholes," it currently pays an effective federal income tax rate in the mid- to high-twenty percent range. Taking it at its word (which I do) means it is still shelling out more than it would at Canadian rates.

Perhaps the difference would not be enough to justify the upheaval and expense of moving its home office northward by more than 1,400 miles, except for this: With Burger King domiciled in Canada, the higher U.S. rate would apply only to the revenue it generates in the U.S., the lower Canadian rate only to what it generates in Canada, the lower German rate only to what it generates in Germany, etc. However, with Burger King domiciled in the U.S., the higher U.S. rate currently applies to every net penny, yen, Euro, peso, etc. that it generates anywhere on the globe, in addition to whatever rate gets assessed by whatever local nation we are talking about.

Therein lies a huge difference in taxation, and it is one Whopper of an omission (if you will pardon my lame pun) for neither the media nor Burger King to mention that difference.

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Just like most American citizens aren't aware that the U.S. has the highest corporate income tax rate in the industrialized world, most American citizens are not aware that the U.S. is the only country in the industrialized world that taxes income regardless of where on the planet it is earned.

If a French citizen spends three months of the year working in France and nine months working in Australia, he pays French taxes for the three months and Aussie taxes for the nine months. Along the same lines, a French corporation pays French taxes on the profits it makes from its stores in France while paying Aussie taxes on the profits it makes from its stores in Australia. No block of revenue gets double taxed.

Conversely, American people and businesses get hit with a financial ramrod by our supposedly "friendly" government. If an American citizen spends three months working in the U.S. and nine months working in Japan, he pays U.S. taxes for all twelve months in addition to Japanese taxes for the nine months worked in Japan. Along the same lines, an American corporation doing business in both countries would pay U.S. taxes on the profits it makes from stores in both countries, while paying Japanese taxes only on the profits it makes from stores in Japan.

So with Burger King having restaurants in many nations, there is no doubt that shifting its domicile outside of the United States will boost its bottom line. It will do so by the simple fact of protecting its international earnings from the ravenous grasp of our Leviathan.  

It is a disgrace that the United States has such a punitive and retrograde tax system, especially when you remember that it was an anti-tax revolt that led to the United States being founded.

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It would be easy to opine about the curiosity by which policymakers respond to moves like Burger King's not by rethinking whether the taxes and regulations they impose are fair and just, but by defaming the relocating companies as "corporate deserters" who refuse to practice "economic patriotism" (in the words of President Obama and Treasury Secretary Jack Lew).

But such opining would be too easy and there is a chance it would miss a big part of the story, for there is something to the idea of economic patriotism, even if that idea is not what Jack Lew envisions it being.

In my opinion, one of the reasons for our population's declining faith and pride in America stems from the fact that businesses, by and large, look at America not as a homeland but as a market. In cold, hard terms, there is the Brazilian market from which x number of real can be earned, the Indian market from which y number of rupee can be earned, and the U.S. market from which z number of dollars can be earned; and lots of businesses, perhaps most of them, look at our country through that lens and no other.

That seems bad, and on many levels it is bad, but when you think about it, how can you blame the businesses? For the United States to be looked at differently than other countries, it must be different than other countries and the difference must be significant. The United States must in fact be fundamentally better than other countries, and right now it is not.

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For most of its history the United States has been better than other nations, not because the humans who inhabit it are better people than the humans who inhabit other nations, but because its founding principles place freedom and enterprise front and center and our government functioned accordingly, even if it didn't want to.

Those founding principles protected people (and, yes, businesses) by creating an environment in which people and businesses were free to maximize their potential by pursuing their goals and writing their own stories, so to speak. That environment was created by tying down the government with the chains of the Constitution, in the phrase used at least twice by Thomas Jefferson.

Once upon a not-long-ago time, it was understood that government can not allocate resources any more ethically or effectively than those who earn and create the resources...It was understood that because of that fact, confiscatory taxes and heavy-handed regulations should not be imposed on our citizens, whether those citizens be individual or corporate...And despite some obvious shortfalls, the nation functioned in accordance with that understanding, and as a result it consistently grew and flourished. For generations, it was a given that "today's kids" would achieve a life better than their parents' lives, so long as they kept their noses clean and retained their work ethic.

Back in the 1950's, when General Motors CEO Charles Erwin Wilson remarked that "I thought what was good for General Motors was good for America, and vice versa," he did not mean it in the arrogant "we run the country" way his critics claimed. He simply meant that policies which favor free enterprise are good for America, and because GM is an American company those policies are also good for it. In Wilson's formulation, everything was mutual on a macro level.

In the six decades that have passed since he uttered that phrase before Congress, much has changed for the better. Jim Crow has been vanquished. Man has ventured into space and walked on the moon. Computers have reached the masses and become ubiquitous. Soviet Communism has disappeared.

But much has also changed for the worse. Our government now ignores the Constitution far more than it observes it. After gains in personal freedom were achieved in the first half of those six decades, an alarming retraction of personal freedom has taken place in the second half. Divorce rates have soared and so have out-of-wedlock births. Educational quality in our public schools has collapsed. Cynicism has replaced optimism.

And the United States, which was once the most business-friendly and therefore most upwardly mobile nation on Earth, has become strikingly unfriendly to business. And that is not only because of tax rates and politically motivated favoritism; it is also because of class warfare rhetoric, environmentalist overreach, biased journalism, an uncritical soft spot in our universities when it comes to Marxist thinking, and on and on.

In order to benefit their citizens, national governments from Canada to Sweden to Australia have spent recent years altering their governance to bring it more in line with what ours once was. Simultaneously, in order to benefit itself, our government has been altering its behavior to be more in line with what was traditionally the case in those other nations.

As a result, today's youth and middle aged question whether upward mobility is a realistic possibility, or whether it is a pipe dream sold to suckers by fat cats who hold all the cards. That questioning does a lot to explain why Burger King is looked at like a villain when it should be looked at like a steady ship in a storm.

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Now I have started to ramble, and have started to wonder how I can tie this post together and bring it to a decent denouement.

I've been struggling with the ending for a few days, and I think I have finally decided to stop trying and call it quits. But I think I have made myself clear, and I certainly hope I have made myself clear.

Basically, Burger King is not abandoning America. Instead America is abandoning Burger King.

By shifting its address northward, Burger King is supporting American principles by drawing attention to the fact that America's federal government has abandoned those principles. Burger King is supporting those principles by pro-actively refusing to tolerate their abandonment. In that light, emigrating to Canada is a pro-American move at the moment.

The next time I find myself at a Tampa Bay Lightning game, I intend to make my way to the Tim Hortons outlet in the arena and purchase something from that venerable Canadian institution, precisely because I think it is the patriotic thing for a U.S. citizen to do. After all, our nation is based on principle and philosophy, not geography and ethnicity -- ay?


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