- Or is it a misnomer?
One of the latest $3 words invented by the media is "inversion" and is used to describe the transfer of corporate headquarters, and jobs, to another locale outside of the United States. When I first heard the expression, it conjured up an image of an office turned inside-out, but that is not exactly what is meant. Perhaps the best example for describing the concept is the recent merger of Canadian based Tim Horton's restaurants (coffee and donuts) with fast food giant Burger King of Miami, Florida. In doing so, Burger King opened the door to move their headquarters from Miami to Toronto, thereby escaping America's high corporate tax rates.
A handful of Senate Democrats cried foul when they learned of the move and accused Burger King of being unpatriotic and not paying their fair share of taxes. Patriotism has nothing to do with it. This is a smart business move in these troubled economic times and, frankly, I'm surprised we do not see more of it.
The impetus for this, of course, is America's high corporate tax rate. Of all of the modern industrial countries in the world, America has the highest tax rate at 40%. By comparison, Canada offers a paltry 26.5%. Since Canada began dropping their tax rate in 2008, the Canadian economy has rebounded and turned into a dynamo.
Likewise, Japan, who had higher rates than the United States, began lowering their rates in 2012 and is experiencing a resurgence in their economy. In 2008, Germany also dropped their rates from 38% to 29%.
Today, the United Kingdom is at 21%. Switzerland is at 17.92%, and Ireland at 12.5%, which explains why a lot of companies are moving to these countries. It's not unpatriotic, it is called survival. However, in doing so, a lot of jobs leave our shores and unemployment rises. One would think the Democrats do not understand the situation, that lowering the corporate tax rates would ignite the economy. Actually they understand the concept quite well, but are unwilling to drop the rate in fear of losing tax income. By keeping America's corporate tax rate high, they are encouraging businesses to leave. The hard truth is "inversion" is not about corporate greed as it is about government stupidity.
Even the public understands what is going on better than government officials. In a recent Toronto Sun poll, when people were asked, "Should Burger King move to Canada?"
76% - Sure
19% - No
05% - Maybe
19% - No
05% - Maybe
Then again, most of the people responding were likely Canadians and fully cognizant of the benefits derived from lowering corporate tax rates.
With all this said, I tend to believe the expression "infusion" is a misnomer. Perhaps it should be called a "transfusion" as overseas tax rates provide the means to survive.
Keep the Faith!
Note: All trademarks both marked and unmarked belong to their respective companies.
Tim Bryce is a writer and the Managing Director of M&JB Investment Company (M&JB) of Palm Harbor, Florida and has over 30 years of experience in the management consulting field. He can be reached at timb001@phmainstreet.com
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Copyright © 2014 by Tim Bryce. All rights reserved.
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LAST TIME: WHO SHOULD BE RESPONSIBLE FOR CHARITY?
- The government or the individual?
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