Thursday, August 28, 2014

Thoughts on the new Timmy Burger

Burger Horton's?  Tim King?  Whatever.  Let's talk about taxes and corporations.

Item one: Corporations don't pay taxes, no matter how much money the government collects from them.  Corporations are made up of people.  A corporation first pays its bills and employees, then it invests in the future of the business, then it pays dividends.  Any money taken from the company in taxes reduces the amount of money available for those three possibilities.  So corporate taxes reduces employee compensation, investment and growth, or dividends.  So what is the tradeoff?

We'll concede that the government gets tax revenue which it needs to fund needed services (we can argue later about whether the services it is providing are actually needed or even Constitutional).  Is corporate tax a good deal for the government?  Well, if the company were paying their employees more there would be more income tax revenue, if the company were investing more it would grow and generate more sales and hire more employees (more revenue to the gov), and if the company were paying dividends to its stockholders the government would be collecting more income tax.

So let's assume that the first two are a wash.  The government gets its revenue either way.  The middle option, however, reduces jobs and growth, hurting the economy in general.

So what does that have to do with Burger King and Tim Horton's?  Well, Burger King is trying to reduce the taxes it pays in order to maximize the money it has available for employees, investment, and dividends.  It is doing this in a perfectly legal way, but there are a fair number of people in government (mostly leftists) who are screaming about the greed of their actions.  Decisions have consequences.  You can't have the highest corporate tax rate in the western world and expect that companies won't try to avoid paying it.  If it is legal to move to Canada (or Ireland or Switzerland) then companies will do so.  It is legal and it is ethical.  Corporations are created to make money for those who invest.  Confiscatory tax rates make it more difficult to make money for the investors, so the logical thing to do is to move somewhere with lower rates.

Burger King, eh?


Anonymous said...

BK isn't even American owned any more. So if we are going to throw loyalty at them then we are encouraging them to home-base in Europe.

heresolong said...

Loyalty? I don't give a rip about loyalty. I rarely eat at Burger King and to the extent that I have brand loyalty to any company it is based on a quality product at a price I am willing to pay.

This isn't about loyalty, it is about principles and basic economics. Higher tax rates encourage businesses and individuals to find ways to avoid those tax rates. The Laffer Curve clearly demonstrates (and is widely accepted amongst economists not named Paul Krugman) that at a certain point higher tax rates results in lower return. The higher you raise rates the more time people spend trying to avoid them.

Burger King leaving has nothing to do with loyalty and everything to do with common sense. Move your headquarters and benefit your shareholders by 14%.

My suspicion is that most shareholders would take that deal since they aren't investing out of some sense of loyalty but out of a desire to make some money. I have not issue with that.

As far as European ownership, not sure where you got that. A quick Wikipedia search says that a Brazilian company owns a majority share of the publicly traded company. And as far as I know, I own some, since I have a 401k account or two.

Anonymous said...

Brazil = europe.

The point is, "foreign owned".

heresolong said...

Which, now that I think about it, makes my point even stronger. The left is beating their chests about the fact that a foreign owned company has their headquarters in a foreign country.

Maybe that was the point you were making?

Brings up an interesting thought on the concept of patriotism, however. For years the left has mocked patriotism as the remnants of a bygone era, practiced only by redneck clingers, yet here they are, announcing that it is unpatriotic for companies to leave America to save money. Once again the left twists definitions to suit their preferred agenda.

Glen Filthie said...

This has some even more serious potential repercussions, IMHO.

Corporations don't pay taxes at all really - they just add them into their costs and pass them on. Combine confiscatory taxes with this proposed minimum wage hike to $15.00/hour...and you will see a lot more BK's closing as well. When corporations can't pass these added costs that add no value to their products - losses result.
There is some justice in it, however. Those that vote for liberals and Donks are the low income, low information voters that are getting hardest hit by all this socialist hopey-changiness.

heresolong said...

Or more likely this. Robots will take your order, replacing the high school kid trying to earn a few bucks to take his girl to the movies.