Burger King deal stirs up Washington rancor, but will it spur action?
Burger King's decision to acquire the Tim Horton's doughnut chain and move its headquarters to Canada has caused blowback among consumers online and politicians on Capitol Hill.
So far, members of Congress and the public have discussed boycotting the burger chain, or potentially changing corporate tax rules so that fewer companies flee the U.S. It remains to be seen, however, whether the negative reaction is strong enough to move a dysfunctional Congress or motivate Burger King to change its strategy.
"If this merger goes through, there could well be a strong public reaction against Burger King that could more than offset any tax benefit it receives from a tax avoidance move," Sen. Carl Levin, D-Mich., said in a statement released Monday.
The controversy over the merger stems from the fact that it includes an "inversion," a legal move that lets a company shift profits overseas to avoid paying domestic tax rates. The statutory U.S. corporate tax rate in the U.S. is 35 percent, the highest in the world, although effective tax rates are much lower. Canada's nominal tax rate is about 15 percent.
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The feedback from customers online has been harsh. Commenters on Facebook have left a deluge of posts on the Burger King page, calling the company "tax cheats" and "traitors." One comment with thousands of "likes" reads, "If you attempt to buy Tim Horton's for the purposes of evading US Taxes, I will NEVER step foot in another Burger King again...Don't do it."
MoveOn.org has started a petition online that reads, "Burger King benefits enormously from being an American company and should pay its fair share of taxes here in America. Don't even attempt this whopper tax dodge or we will boycott Burger King."
Public outrage over such deals has in the past influenced companies to change course. After groups against Walgreen's potential inversion gathered more than 300,000 signatures online, the company decided against moving to Switzerland. Walgreen CEO Greg Wasson said the move was "not the right course of action" in part because it could have led to "potential consumer backlash and political ramifications."
In 2002, tool manufacturer Stanley Works abandoned plans to reincorporate in Bermuda after facing public backlash. The controversy also inspired reforms in Congress.
This deal is different for a variety of reasons, not the least of which is that the inversion does not appear to be the main motivation for the merger. As Professor Steven Davidoff Solomon notes in the New York Times, Burger King ultimately won't save that much in taxes by putting its headquarters in Canada. Furthermore, corporate tax rates may rise in Canada, while that almost certainly won't happen in the U.S.
The deal also seems to have the seal of approval from billionaire Warren Buffett, a businessman who has backed President Obama and who the president has held up as a proponent of tax fairness. Buffett's company Berkshire Hathaway is reportedly helping to finance the Burger King deal.
Buffett's involvement has put the president in a tricky situation as Mr. Obama recently has slammed the uptick in inversions and his administration is considering executive action to reduce the number of these types of deals.
"These companies are cherry-picking the rules," he said last month. "And it damages the country's finances. It adds to the deficit."
The White House has remained mum about the Burger King deal since the news broke Tuesday, but White House spokesman Josh Earnest said Monday before the deal was announced that the Obama administration is still considering tweaking regulations.
"There may be an opportunity for the Treasury Department to change some rules in a way that removes or at least reduces the financial incentive for some American companies to consider those kinds of transactions," he said.
Nevertheless, lawmakers are disappointed.
"W/every new inversion, the tax burden increases on the rest of us," Sen. Dick Durbin, D-Ill., wrote on Twitter.
A spokeswoman for Sen. Orrin Hatch, R-Utah, the top Republican on the Senate Finance Committee, said the deal underscores the need for Congress to pursue tax reform.
"Short of a tax overhaul that will make it easier for American companies to invest and create more jobs at home, Senator Hatch has advocated for an interim proposal to address the disturbing recent uptick in inversions," Hatch spokeswoman Julia Lawless told CBS News. "He's continuing to work with colleagues on both sides of the aisle and hopes to find a viable policy-driven, apolitical solution."
Rep. Sandy Levin, D-Mich., the top Democrat on the House Ways and Means Committee, told MarketWatch that Congress should act now that "the iron is really hot."
"We could have a temporary halt to inversions. We could hold hearings. That would be useful," he said. "We're going to be back for some days, and I think it would be useful to hold a hearing. It may well be that the administration will propose some actions. So there's really quite a bit that can be done when we get back."
