Friday, August 29, 2014

Burger King's Greedy Move Betrays the U.S. and Its Customers

The news that BURGER KING - home of the 'Whopper' - could be moving to Canada, where its taxes would be paid, has many long time customers (including your truly) upset. Already, by Monday afternoon,  social media exploded with disapproval with over one thousand negative comments on BK's Facebook page. According to one customer, Shawn Simpson, interviewed outside a BK in NYC:

"For them to take their headquarters and move it across the border is a negative to me."

He added that he "didn't like the idea of the company paying its taxes to another country."

Well, me neither!  Since it was established in 1957 in Miami, I have been a Burger King customer - not on any frequent basis - like eating there three times a week - but more like once a month. I always preferred the taste of the Whopper to the Big Mac and the best Whopper I've ever eaten (and wifey too) was at a BK on Picadilly Circus, London in July, 1978.  Some of my first malted milk shake and burger dates were at the Burger King in Miami located near the Palmetto Expressway and NW 42nd Ave.

So it is disheartening now to learn this news, almost like a betrayal. Some financial gurus have proclaimed that "it's rational" and even the great Warren Buffet has bought a bunch of new BK shares, though once proclaiming that no CEO ought to escape more taxes than his workers. Cognitive dissonance anyone?

If Buffet were serious regarding his salary and tax proclamations, he'd have dissed the move - which took no cognizance of workers and merely exploited mammoth loopholes in current tax legislation. But then, despite all his blabber, Buffet is a Wall Street investor and all that counts is share price. Let's hope with all the taxes now saved Burger King will do the right thing and at least give its workers a raise!

Here's the skinny: Burger King currently earns about $1 billion a year but its customers aren't buying like they used to. Mickey D's still leads them, but let's face some hard facts: people now have many more choices including antibiotic -free fare at Chipotle's and also there's the general trend to healthier food choices. It is thus unrealistic to expect most people to go to the King as often as even twice a week. The last Whopper I ate (actually two) was about a month ago and that was via a coupon where you got one free with the purchase.  (I more often go to get breakfast, a sausage croissanwich and small black coffee).

Burger King also pays $51 million a year in corporate taxes and that's where they want to try to make a tax cut. They believe that by anchoring operations in Canada (via buying out the Canadian coffee and doughnut chain Tim Horton's ) they can cut taxes nearly 30% while also creating the 3rd largest fast food restaurant. But is bigger always better? Actually no! Ask MacDonald's,  which has seen steady losses over the past couple years mostly due to competition from the likes of Chipotle's and Panera Bread but also from the greater health consciousness of consumers who now often eat at home.

Thus, merely jumping to a Canadian tax base via a takeover is not likely to help BK long term.

Meanwhile, Burger King spokesman, Miguel Piedra, claims that while the new headquarters will be in Canada, Burger King would still continue to be run out of Miami. That's some consolation, but not much.

Here's the nasty thing about this tax inversion impetus, dozens of companies are now doing it (they say to cut costs) and are moving billions to offshore accounts.. And yeah, though the lazy corporate media report the U.S. has the highest corporate tax rate in the world, at 36% - the facts are substantially different.  While the on-paper tax rate is 36%,  the actual amount paid by the typical corporation is 12 1/2 percent. Which effective rate is really among the lowest in the world.

Part of the reason for this aberration is that Uncle Sam himself "has allowed companies the right to write off 100% of the purchase price of new equipment in 2010 and 2011". (According to one report from TIME< in Feb. 2012) This was done to theoretically "spur investment and create jobs". One wonders then how come these companies are still sitting on almost $1.5 trillion and are doing little to create more jobs. They'd rather use the $$$ to buy back shares. (Let's keep in mind here the population replacement rate for jobs is nearly 180k a month, i.e. the number required to provide steady, full time work to new monthly labor force entrees  - and we still have some 4.5 million jobs to make up that were lost after the 2008 financial crisis.)

Whatever the reason, the engineered corporate tax avoidance has had a dunning effect on our society along with the top 1% escaping their own fair tax assessments. According to TIME (ibid.), corporations account for only 9% of the nation's tax bill compared to 40% in 1943. That means citizens are now left to make up that difference, and the ones who are happen to be in the lower quintiles of income - even as the upper 5% have seen their wealth soar.

This means that more companies using the ruse of tax inversion will create even more tax burden on the rest of us by virtue of abdicating their own responsibilities. The most misplaced aspect is how the corps that do this now have over $150b sitting offshore in accounts while the U.S. scans the offshore accounts of private citizens - which are usually pitiful by comparison. (Citizens with offshore accounts must report each having more than $10,000 in it, on a FATCA form.)

So, basically, the corporations are allowed to get away with tax avoidance 'murder' while very strict oversight laws now apply to private citizens.  No surprise then that President Obama and Congress have criticized tax inversions because they means a loss of tax revenue for the U.S. government. So why not DO something about it then? Where is the political will to act if neither likes it?

Most likely because they are terrified of pissing off Wall Street. The proof? Burger King's stock surged $5.78 a share or up 21 percent on Monday to $32. 89. Once more, Wall Street rejoices like it does when higher productivity gains come at the expense of having fewer workers do the jobs of every two laid off. And as they do by awarding higher share prices to airlines that employ "densification" - stuffing ever more people into aircraft cabins to maximize profit! Our nation, sadly, is still hostage to Wall Street.

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