The investor's Berkshire Hathaway is helping to finance a deal that would turn Burger King into a Canadian company for tax purposes.
Burger King and Tim Horton have made it official: They’re planning to merge, and when all is said and done the new headquarters will be in Canada, not the U.S. By using Ontario as the address for the combined company—the operational HQ for BK restaurant will remain in Miami, the company says—the company may stand to pay a lower tax rate. This has linked BK to the roiling political controversy over “inversions,” in which American companies merge with smaller firms located abroad to become foreign companies for tax purposes.
Part of the financing for the deal comes from Berkshire Hathaway, the company run by famed investor Warren Buffett. He’s long been a a critic of the way our tax code favors, in his view, super-wealthy people like him. Back during the 2012 campaign, President Obama, whom Buffett supported, loved to bring up Buffett’s observation that he actually paid a lower tax rate than his secretary. Obama even proposed a “Buffett rule” that anyone earning more than $1 million should pay at least a 30% effective federal rate.
So a critic of the tax code is taxing advantage of what looks like a loophole in the tax code. This has already prompted some to call Buffett a hypocrite. Neil Cavuto at Fox Business doesn’t go to the H-word but says of Buffett: “It sets him up essentially against himself – and his oft-repeated claim those who have more should pay more in taxes.”
No, not really. First, it’s hardly news that Buffett has always been very shrewd about investing with an eye toward keeping taxes low. A small example: As Bloomberg News pointed out in March, tax savings are one reason Buffett says he prefers to buy companies outright when he can, instead of simply holding stock.
Second, while this is a story that’s very much developing, it is not clear that the Burger King/Tim Horton’s deal is mainly about lowering taxes. As MONEY’s Paul Lim argued yesterday, it may have more to do with diversifying Burger King’s portfolio beyond the slow-growing hamburger business. (BK will still pay U.S. taxes on its U.S. earnings. Though, as Reuters explains, locating in Canada now could eventually become more valuable if the company expands abroad.)
But mainly, suggestions of hypocrisy ring false because Buffett has never, ever held himself out as person who pays more taxes than he has to. The whole point of his story about his tax rate vs. his secretary’s is that he was allowed to pay less than he thought he should. He never said he was writing a check to the Treasury to make up the difference. He just said the law didn’t make any sense, and then he actively he supported a change that would presumably cost him money.
Also, if we had a Buffett rule that captured more of the income of high earners, complex corporate deals that cut taxes would actually be a little less worrying. After all, the ultimate beneficiaries of inversions and the like are the shareholders of companies. And that means it’s wealthy households who get the biggest bang for the tax-saving buck when a U.S. company heads abroad.