Corporate Inversions

So Burger King buys a Canadian coffee and restaurant chain for $11 billion dollars. What are the immediate thoughts that come to mind?

Well first, where’d they get the money? Burger King has had a tough time maintaining market share and keeps competitive by maintaining lower prices in their market. So profits are little iffy, right?  So again, where did they get the money?  They sure didn't borrow it. They had it in their balance sheet – idle cash earning very little on the investment market. So…

Point second, they could build new restaurants, or buy out some other chains to expand market, or… a lot of options. But they didn't. They bought a Canadian firm. Why?

They say they wanted to expand their ‘lock’ on the coffee and breakfast market niche. And they do that in America by buying a Canadian firm that they have no intention of building a presence for in the American market.  Exactly what niche are they referring to? And where is it physically located?

Point third, there has to be another advantage staring us all in the face because what the company shared with the press doesn't make any sense. Window dressing sense, yes; mathematical sense, no.

So a mention of moving their operating headquarters to cheaper space in Ontario, Canada combined with their newly purchased Canadian company, and voila! We now have the true reason for buying the company: cheaper corporate tax rates and avoidance of American federal taxes.

Essentially they are inverting their tax liabilities by relocating to foreign territory outside the USA. This happens more and more because the tax code has been shaped by corporate lobbyists who in turn finance election campaigns of senators and congressmen. This has been going on for years. And the tax code whole needs to be plugged.

Now!

It is not just tax dollars saved but it is a diversion of jobs and careers sucked from American families. That is the hidden cost of corporate inversions.

I've mentioned here in the past that corporations claim to be job generators, tax payers extraordinaire, and community partners in countless ways. Once this was true. Not so much any more.

I have served on a city council. I know what municipalities have to put up with – the demand for lower taxes and service fees, favored status in road repairs, softer water for their plumbing, better traffic controls for their properties, and of course speedy police and fire responses for their facilities.  All these cost huge amounts of money. And yes, they pay property taxes, but they also produce a lot of traffic, resultant traffic snarls and accidents, storm water retention/detention/flooding challenges, etc. All of these cost lots of money. And let’s not forget the cost of the initial installation of the infrastructure that is often overlooked and taken for granted. Streets, curbs, gutters, lighting and traffic control equipment is not free to build and buy. And the maintenance costs go on for an eternity.

Local services are paid from property and use taxes. Not income taxes. The infrastructure has to be in place to support daily routines of residents and the business community. Employment opportunities grow from these businesses but not very much for the local town. Lots of commuters paying taxes elsewhere and wearing out our streets add to the tax load of our community.

Corporations do not pay their full share of the costs for the infrastructure (building it or maintaining it). Federal dollars are used for some of these investments, and of course federal dollars are used for regulatory safeguards, national defense, education supports for a talented workforce, and so much more.

The Burger Kings of the world are simply dodging the costs they create only those costs are hidden in public infrastructure costs paid for by everyone else in their tax obligations.

Corporate inversions have become an economic liability and we should demand a congressional fix for the problem. Meanwhile we should boycott all companies who employ the inversion tactic to cheat on their community responsibility.

By the way, most oil companies are foreign last time I checked. Very few oil corporations are American anymore. Just think of the federal tax loss from that. And they claim to be working to benefit America!

Bosh!

September 2, 2014