Kevin Glass
Burger King has agreed to purchase Tim Hortons, a Canadian food service chain, and has re-ignited the debate over "tax inversions." If Burger King gets its way, it will relocate its global headquarters to Canada for tax reasons.

But it's not necessarily the reason you might think it is. Danny Vinik at The New Republic writes that "Congress needs to close this absurd tax loophole," and that "Burger King will have opted out of the U.S. corporate tax system."

What isn't said in that piece is that it's not merely Canada's tax rate that has attracted Burger King. Statutorily, Canada does indeed have a much lower rate. But after accounting for local laws and code complexity, Burger King and Tim Horton's have very similar rates and by some estimations Tim Horton's tax rate is higher than Burger King's:

Burger King’s overall effective tax rate was 27.5% in 2013, according to its annual report. Tim Horton is expected to book a tax rate of 29% this year.

The U.S. corporate tax system that Burger King wants to opt out of is its odd system of global taxation. That is, Burger King has to pay the U.S. corporate tax on earnings no matter where they are made. So they must pay the U.S. marginal rate on a Whopper sold in Bahamas, where the corporate tax rate is 0%. If they relocate their global HQ to Canada, they don't have to pay U.S. taxes on Whoppers sold in Bermuda.

The U.S. is quite unique in our system of global taxation. As Megan McArdle says:

he U.S., unlike most developed-world governments, insists on taxing the global income of its citizens and corporations that have U.S. headquarters. And because the U.S. has some of the highest tax rates in the world, especially on corporate income, this amounts to demanding that everyone who got their start here owes us taxes, forever, on anything they earn abroad.

Practically speaking, global taxation is hard to enforce and loaded with bad incentives, which is why our fellow members of the Organization for Economic Cooperation and Development have moved away from global taxation of corporate income, and abandoned global taxation of personal income. If anything, the U.S. has gone in the other direction -- by insisting, for instance, that foreign companies report various financial transactions with U.S. citizens to the Internal Revenue Service, and taxing foreign cost of living allowances, which makes it more expensive for companies to employ expats.

Progressives are constantly comparing the U.S. to other countries when it comes to laws and norms. We're the only country that owns guns, for example, and we're the only country with the death penalty. That's used as justification for moving towards what other countries do. Not so for corporate taxes. We're alone in global taxation, yet progressives see no good reason to move in a better direction for it.

This is not to say that other countries' tax regimes is a good reason to move away from a regime of global taxation. We should get rid of our global tax regime because it's a good idea regardless of what other countries do. In an area where the U.S. is an outlier for reasons progressives like though, they don't think the fact that the U.S. hasn't followed a global lead is meaningful.

Kevin Glass

Kevin Glass is Director of Policy and Outreach at the Franklin Center for Government and Public Integrity