William McBride at the Tax Foundation puts the Burger King-Tim Hortons merger into context by noting that over the last 15 years Canada has lowered its corporate tax rate. He then asks:
The natural question is: How much tax revenue did Canada lose?
According to OECD data, corporate tax revenue increased following Canada’s corporate tax rate cuts that began in 2000. The first chart below shows the data. Corporate tax revenue as a share of GDP in Canada has averaged 3.3 percent since 2000, while it averaged 2.9 percent over the years 1988 to 2000….
How is this possible? McBride continues:
Canada's corporate tax base has grown for two reasons. First, multinational corporations, especially those based in the U.S., are attracted to Canada's tax regime. Second, Canada's low corporate tax burden and relatively simple tax code grows corporations organically, i.e. through low start-up costs and reinvestment of after-tax earnings.
How much corporate tax rates were the driver in the merger is debatable. What isn’t debatable is that the United States is stuck with the world’s highest corporate tax rate.
Burger King, Tim Hortons, and corporate taxes are the subject of Charles Krauthammer’s latest column:
Everyone knows why inversions are happening. America’s 35 percent corporate tax rate is absurdly uncompetitive. Companies are doing what they always do: legally lowering their tax liabilities.
What is maddening is that the problem is so easily solved: tax reform that lowers the accursed corporate rate. Democrats and Republicans agree on this. After the announcement of the latest inversion, Burger King buying Tim Hortons and then moving to Canada, the president himself issued a statement conceding that corporate tax reform — lower the rates, eliminate loopholes — is the best solution to the inversion problem.
But instead of trying to engage in comprehensive tax reform that would include lowering the corporate tax rate and moving to a territorial tax system, Members of Congress and Obama administration officials call companies that take legal steps to reduce their tax burden “unpatriotic.”
The global economic landscape has become more competitive. Countries like Canada have responded by creating business climates that are more conducive to economic growth. The United States could learn from this.
Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.