The best government response to the “inversion” of Burger King with Canada’s Tim Hortons Inc. for the purpose of avoiding US taxes is the opposite of what you might think. Rather than club Burger King over the head with yet more tax avoidance rules, don’t tax Burger King – or its ilk – at all.
Why not? Won’t this solution deplete Uncle Sam’s coffers of badly-needed revenue from BK? Actually not. The reason why not requires one to understand that no profitable business, not even BK, eats taxes. To be sure, BK collects money for its burgers and writes big checks to Uncle Sam. But the tax on the burger is passed on to the customer in the price.
If we stop taxing BK and instead tax the customer, we arrive at the same result. But why should we change? Because taxing BK taxes productivity, and taxing the customer taxes consumption – but the customer will have the same purchasing power. We stop taxing the customer’s income too. If we change, Tim Hortons will re-domicile in the US rather than BK re-domicile to Canada.
Will the plan work? Peer-reviewed academic and market research says yes. Is there a proposal in Congress today to change our tax code to keep BK in the US? Indeed there is. The Fair Tax Act of 2013, with 87 sponsors, replaces Subtitles A, B and C of the Internal Revenue Code with a national tax on all services and all new tangible goods sold at retail to a consumer in the United States.
The FairTax®, as the bill is known, also phases out the IRS over a three-year period and requires the destruction of its records of “ABC” taxes, except those records needed to calculate Social Security Benefits and to support ongoing litigation. A Family Consumption Allowance assures that lawful residents of the United States, regardless of income, pay no tax on essential consumption up to the poverty level. To learn more, go to www.fairtax.org.
Jim Bennett is a member of the Board of Directors and Secretary of Americans for Fair Taxation (“AFFT”). AFFT is the organization that educates the public about the FairTax®.