Forum

Corporations right to avoid U.S. tax structure burden

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Corporate tax avoidance has become a trendy topic lately, with President Obama himself taking the time to speak out on the issue a few weeks ago. Recently, it was heavily publicized with Burger King corporation’s decision to merge with Tim Hortons Inc. and move the corporate headquarters of the new combined company to Canada, rather than staying in Miami.

Many liberals, President Obama included, have criticized Burger King’s decision for demonstrating a lack of “economic patriotism,” of course implying that Burger King has some sort of duty to stay in the United States and compromise its profits under a non-competitive corporate tax structure because the company just owes it to America. Unfortunately, what Obama forgets is that corporate executives don’t have a duty to act in the United States’ best interest, but in fact have a very different duty, called a fiduciary duty. That’s a fancy way of saying that corporate executives are legally obligated to act in the interest of the corporations they work for. In fact, corporate executives can and have been convicted of crimes for not acting in the best interest of the shareholders of the corporation.

In other words, if Canada’s corporate tax structure makes Burger King’s tax bill lower, and therefore makes it a more profitable enterprise, not only is it a permissible action for the company to move, but it’s actually the company’s legal duty. Examining our corporate tax structure in comparison to Canada’s, it becomes very clear that Burger King’s decision to move its HQ to Canada was absolutely correct.

The United States suffers from the highest corporate tax rate among industrialized countries, coming in at 39 percent. To put that in perspective, Canada’s corporate tax rate is 15 percent, which has vaulted Canada to the spot of sixth most economically free country in the world, compared with the United States in the 12th spot and declining. The decision to favor a freer economic tax structure wasn’t an unconscious one either. Canada and other countries are realizing that they can attract more business and investment by creating economic freedom. This creates more wealth for Canadians and makes the country better off.

When we look at the reasons for the United States’ high corporate tax rate, we can find the answer in a few shocking statistics. General Electric regularly has a net positive tax bill, meaning that when all is said and done and the taxes are calculated, the government is writing GE a check, and not the other way around. Similarly, one in nine Standard & Poor 500 companies had a tax bill of $0 last year, and many more companies paid less than the 39 percent that plagues corporations without the resources to lobby and create loopholes. Massive corporations can use their resources to warp the tax code in their favor, a luxury smaller corporations don’t have.

Our egregious corporate tax structure only serves to further the aims of cronyism and it certainly runs counter to the aims of economic development. When corporations act on their fiduciary duties and eventually leave the United States for our more competitive neighbors, liberals can gripe about economic patriotism, but until we reform our corporate tax structure, empty words won’t bring back the prosperity that America once enjoyed.