The news that Burger King is planning on purchasing Tim Hortons of Canada to take advantage of the lower 15 percent Canadian tax rate should not surprise anyone. Free enterprise means that companies seek to do business in locations where the most profit can be kept. There’s nothing wrong with this perspective. Tax inversion is simply a variation on supply and demand. Economies are in demand that provide for low taxation.
I am not rigidly Darwinian in my viewpoint regarding capitalism; I do believe companies have a corporate responsibility to pay their fair tax share, particularly when they enjoy the benefits of what many believe to be the strongest economy in the world, the United States. Sure, they need to pay up, but there needs to be more progressive thinking about taxation of corporate revenues or we are going to read about tax inversions every week.
Perhaps what should be put in place is a quid pro quo perspective on job creation and taxation. This would be no different than the tax benefits given to companies that invest in capital expenditures. Create jobs and you get tax credits. Incentivize companies and they will come to the table.
Jobs to China? Maybe not if it pays to keep jobs here. Burger King to Canada? Maybe not if they hire more people here in the United States.
Here’s a thought on how this might work: Let’s say a corporation agrees to hire 1,000 employees. Those employees would create tax revenue for the federal government as well as tax deductions for the employing corporation. Instead of the government trying to receive a net increase in tax revenue, couldn’t the government give a credit back for the taxes paid by the hired employees? The net result would be a wash for the government but the overall economy would expand.
An expanding economy would mean more money circulates in the economic system. Given that the U.S. economy is 70-percent consumption, that should help move the U.S. economy forward and a virtuous economic cycle would create further economic growth. In the end, the government benefits because of increased taxation from sales. Increased economic growth means more Americans are employed and companies are not tempted to buy companies in Canada.
This tax plan would not be protectionist but instead positively encourage companies to do their part in spurring economic growth.
The United States economy is already managed enough as it is. With an interventionist Federal Reserve and a government insisting on massive regulations, free enterprise is already on ropes. This might be highly wishful thinking, but let’s not penalize companies for being creative in seeking higher profits. Let’s instead incentivize them to keep capital in the United States and a hire workers.