Tuesday, June 30, 2009
In a clear indication that Canada is starting to be considered a low-tax place to do business, Tim Hortons Inc. announced yesterday plans to shift its base of operations from Delaware to Canada for tax purposes.And note that, thanks to outsized budget deficits, we're probably heading higher. The Canadians are noticing:
Further, analysts indicate this is also a sign of unease among corporations regarding the U. S. business environment, where taxes are likely heading upward to deal with trillion-dollar deficits and proposed health-care reforms and the White House is looking to crack down on companies that invest abroad.
The move by Tim Hortons makes good on a promise contained in the company's filing with U. S. securities regulators earlier this year, in which it said it was exploring such a reorganization because it could potentially drive down its effective tax rate closer to Canadian statutory levels.
In Canada, the federal corporate tax rate is headed to 15% in 2012, and the federal Conservative government has called on the provinces to get to a 10% business levy by the same time frame--for a combined 25% rate on corporate income. Alberta is already at 10%. British Columbia will be there in 2011, Ontario by 2013, and New Brunswick will go down further, to 8%, in 2012.
In the United States, the top corporate tax rate is in the mid-30% range. As a result, the United States now has about the highest combined corporate tax rate, second only to Japan, among industrialized countries.
The retailer said in recent filings it expects its effective tax rate to be in the 32%-to-34% range in 2009. In 2008, it paid US$139.2-million in income taxes.Rust never sleeps, and capital is quicksilver. It's not going to wait around for our rapacious Washington elite to feast upon it.
With the reorganization, Tim Hortons could generate "quite a bit" of savings on taxes paid because the income earned in Canada would be taxed at the lower Canadian rate, said John Wonfor, national tax partner at BDO Dunwoody. Its income from U. S. operations would still be taxed at U. S. rates.
Plus, Mr. Wonfor said Canada's fiscal framework looks much healthier compared with the United States, which means the country's policy-makers can likely maintain its lower tax rates. Meanwhile, U. S. taxes are bound to climb, he added.
Finally, there is the current White House proposal to remove the incentives for U. S. companies to invest overseas, and curb the use of offshore jurisdictions by companies and investors.
"If the U. S. tightens up on the tax treatment on foreign income, many Canadian companies -- as well as other foreign entities operating in the U. S. -- might look to put headquarters and holding company functions in Canada since dividends from foreign affiliates are not taxed by Canada," said Jack Mintz, a public-policy expert from the University of Calgary and a renowned tax expert.
Eventually, American companies will either have to withdraw from global competition and compete solely at home, or they will have to move out of the US in order to return to an equal tax position as their competition, whose governments only tax them on domestic earnings.The more I think of this, the less I think it's the tax rate that matters as much as the Obama Administration's spending plans. Suppose they cut the corporate tax rate but leave the spending alone. Does anyone think it wouldn't lead to an increase in individual income taxes? An increase in the tax on dividends would hurt corporations as much as an increase in their corporate income tax. A VAT without a cut in income taxes would kill US businesses. So too would increasing interest rates through more government borrowing, or inflation if they print money to pay deficits. What matters is spending. Pawlenty is right: They need to stop.
Tuesday, December 16, 2008
I was checking a student's coffee cup this morning while watching final exams. �There's a Caribou on campus and kids use it all the time. �This one is busy and run by a third party franchisee (Sodexho). �To keep track of the cups and orders, rather than using a screen with cups on it -- like you see at most coffee shops and fast-food restaurants -- the person taking the order simply put letters on the cup of appropriate size. �The barista looks at the cup, interprets the letters and makes the proper drink and calls it out for the student or staff member to pick up.
As I tweeted (how odd that verb!) this morning, the student had�five�marks on it. �Six, if you count the cup's size as a signal, since its size tells the barista how much espresso to brew and milk to heat and froth. �I'm sure one says the type of drink, another maybe the type of milk, but at some point I was stumped to what they meant. �And stumped by how much we want our drinks customized. �
Now of course part of this is Caribou's way of extracting revenues by price discrimination. �(I have followed Tim Harford's advice and ordered the short cappuccino, because that's the strength I like. �A small macchiato is actually preferred, but it costs more.) But to think how we decide to specialize our drinks this way! �And that the market provides that to you. �What people forget is that price discrimination is beneficial to some consumers. �Some will get the product at the low price rather than not at all; others will get a product that it would not have paid to produce and instead get a cheaper product. �
Would my student get the six-marked-coffee if he had walked into a Dunkin Donuts in 1976 (when I was hitting the place every morning on my way to school for "cahffee regulah no sugah and a honey dip"*?) �No, and he might be willing to buy something from DD, but it would not be as good as what he has now, because if it was he could still get it -- or could have, when KK was here (STC has never had a DD, alas.) �
*translation from New Englandese: �coffee with milk and a glazed, raised donut
Wednesday, February 27, 2008
"Just not making the dough. Just not enough retail, not enough wholesale. We're a retail, wholesale operation and the retail just has not even met our expectations ... It's just disappointing," said Molly Spoor, the Director of Operations for the Maple Grove location.Mild wailing from James, but Kathy's lamentation bears notice.
Well, it's unfair of you, Kathy! You should know that your decision to not drive has impoverished Molly and many other KKD workers! I'm asking you to believe, "We are all in this together. From CEOs to shareholders, from financiers to factory workers, we all have a stake in each other's success because the more Americans prosper, the more America prospers.�
I'm so ashamed. This is my fault. I'll admit it. I'm to blame. Since the various Krispy Kremes about town were nowhere near the Cake Eater pad, I visited only occasionally when we had a car, and then not at all when we didn't. Maple Grove is quite the hike from the Cake Eater Pad. It takes about a half-hour to get there---and that's without traffic. I just couldn't be bothered to get in the car and drive all the way up there to get some donuts. I lamented their lack of inner city locations, but, woe is me, did nothing to support their glazed ambitions because it was too far to go for donuts. I should have made the effort. Really, I should have.To be fair, however, they did deliver to all the local Holiday stations, and there are a few of those nearby. I patronized their glazed deliciousness via the local gas station, but alas, they lost that contract to a local grocery store chain a few months ago. And while I like the local grocery chain's custard filled chocolate bismarcks, I still adored the glazed goodness of a Krispy Kreme. Unfortunately, I didn't adore them often enough.
Oh, wait. That was politics, this was supposed to be about donuts. But Don Boudreaux points out that, well, shift happens:
Trade is just one manifestation of consumer sovereignty. Just as there are ... winners and losers from consumers shifting their expenditures from goods made in America to goods made abroad, there are winners and losers from consumers shifting their expenditures from goods made in Illinois to goods made in Arizona - and from consumers shifting their expenditures from donuts, beef, cigarettes, whiskey, and train travel to bagels, fish, yoga lessons, wine, and air travel. Trade plays no unique, or uniquely important, role as an avenue of economic change spurred in part by consumer sovereignty. The only practical way to rid the economy of such "loses" is to try to freeze it, a futile step that will in the long-run only make losers of everyone.The decision of Americans to avoid carbohydrates in an effort to trim their waistlines is a choice that a free society should embrace, but KKD was a loser in that. Maybe they made mistakes in overly aggressive expansion, but I don't see any Dunkin Donuts here from the east nor an invasion of Tim Horton's from the north. As an east coaster, I'm very, very fond of the Double D, but because there are not enough of me my preferences are not fulfilled in the market either. By what right would I be able to claim my two honey dips and a coffee regulah no sugah? By what right would the worker at KKD have a claim on my purchasing pattern?
But isn't that what we do when make claims for "free trade as long as it's fair"? Or use tax expenditures to favor firms who invest with our friends rather than someone else's?