In his rush to flame-broil Burger King as an unpatriotic fast-food joint looking to skip out on paying its taxes to Uncle Sam, MSNBC Hardball host Chris Matthews sought to enlist the famously pro-free market, pro-capitalism Wall Street Journal. The only problem is his claim is 100 percent Grade A baloney.
"The Wall Street Journal lead editorial today came out against it.... The lead editorial today, surprisingly, attacked this tax scheme," Matthews insisted to guest David Corn of the leftist Mother Jones magazine. In point of fact, the Journal editorial board slammed not corporate "inversion" schemes but the current U.S. tax code, which it called "the reigning world champion in punishing investment and discouraging job creation." [MP3 audio here; video embedded below page break]
In their August 27 lead editorial, "Warren Buffett's Tax Whopper," the Journal praised our neighbors to the north for moving "toward open markets and economic growth" while swiping at Mr. Buffett's political hypocrisy. Here's the editorial in full (emphasis mine):
President Obama and Senate Democrats are going to need a new business front man. This week they've been officially abandoned by their erstwhile tax-policy patron saint Warren Buffett, who has joined up with what the President likes to call the "corporate deserters" who locate their legal headquarters somewhere other than the United States.
On Tuesday Burger King Worldwide confirmed that the Miami-based burger chain is buying Tim Hortons Inc., the Canadian purveyor of coffee and doughnuts, for roughly $11 billion. As part of the deal Burger King will move its legal headquarters north of the border. Mr. Buffett, who has been the President's longtime partner in a campaign to raise taxes, will help finance the transaction. Mr. Buffett's Berkshire Hathaway will invest $3 billion in preferred shares that will pay a handsome 9% coupon.
Burger King says the deal isn't about cutting its tax bill, and that it will continue to pay taxes on all the money it earns in the U.S., like other companies that adopt foreign parents for their U.S. subsidiaries. Burger King execs maintain that the deal is about building a fast-food giant that can expand the burger business outside the U.S. and the coffee-and-doughnut business outside Canada.
No doubt that's true but it overlooks that Canada has become a far more business-friendly tax jurisdiction than the U.S. And so are most serious countries, given that the combined state and federal corporate tax rate of nearly 40% in the U.S. is the highest in the developed world.
The real tax gain for Burger King is that by choosing a legal address in Canada it can avoid Washington's obsession with taxing overseas profits at American tax rates. To the extent that either chain is able to grow internationally, this deal means that their world-wide earnings, once taxed overseas, generally won't have to be taxed again for the privilege of being invested in the U.S.
The business case seems clear, but the politics can be difficult. Senate Democrats, desperate to avoid discussing Iraq or ObamaCare, are hoping to hold the Senate by running against "Benedict Arnold" corporations instead of real-life Republican opponents. But it looks like Democrats will now have a harder time having it their way—unless they want to stage a political inversion and turn on their most famous benefactor and supposed tax expert.
Since the Journal reported this deal over the weekend, the Twitterverse has transmitted a stream of jokes about holding the pickles, the lettuce and the taxes. Burger King, for its part, hasn't seen this much bad publicity since it rolled out the "Where's Herb?" campaign. Sherrod Brown, the liberal Senate tax warrior from Ohio, is already talking up a nationwide boycott of the chain.
But the criticisms are undeserved. Mr. Buffett and Burger King's controlling shareholders at 3G Capital are providing a valuable public education on the need to reform America's noncompetitive tax system. Will Senator Brown also boycott Geico insurance or other Berkshire Hathaway businesses?
The Burger King deal also signals the continuing success of Canada's historic move toward open markets and economic growth. A series of tax cuts since 2000 have reduced Canada's federal corporate rate to 15% from 28%. Provincial rates tack on roughly 12% more, but the combined rate in Canada is still more than 10 percentage points below the overall U.S. rate.
Canada's Department of Finance says it now has the lowest rate on new investment in the G-7 and cites a KPMG study in claiming that Canada's total business tax costs are now 46% lower than those in the U.S. That's a boast you'd never hear from the Obama Treasury, which is even now looking for ways it can unilaterally raise corporate taxes without going to Congress.
Mr. Buffett is no doubt aware of the tax implications of this deal, as he always is when investing his fellow shareholders' money. Despite his public pose as an advocate for higher tax payments, he's remarkably good at minimizing them for Berkshire. He recently cashed out his investment in Graham Holdings, former owner of the Washington Post, by executing a tax-free swap of assets.
In a 2011 newspaper op-ed Mr. Buffett said, "I have worked with investors for 60 years and I have yet to see anyone—not even when capital gains rates were 39.9 percent in 1976-77—shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off."
But follow the man's money. In May 2010 Barron's magazine reported that Mr. Buffett "groused about a tax bill of roughly $1 billion that Kraft incurred by selling its pizza business to Nestlé, the world's largest food concern, for $3.7 billion, to raise additional funds. 'Dumb' was Buffett's word of choice."
That word also applies to America's corporate tax code, the reigning world champion in punishing investment and discouraging job creation.
It makes you wonder if Mr. Matthews actually read past the headline -- "Warren Buffett's Tax Whopper -- and print edition pull quote -- "Obama's business front man finances 'corporate deserters.'"
