Why would Burger King choose to be subject to Queen Elizabeth II? That's what I thought when I read that the burger chain intends to buy Canadian donut shop Tim Hortons and adopt the latter's corporate headquarters in Ontario. Such so-called corporate inversions are an emerging trend in big business: in recent months, Chiquita, Pfizer, Medtronic and Walgreens have pursued offshore moves in search of lower tax rates.
President Obama called these companies "corporate deserters," while Treasury Secretary Jack Lew condemned them while calling for a greater sense of "economic patriotism." The Joint Committee on Taxation estimated that inversions will cost the U.S. Treasury $2 billion per year over the next 10 years.
It's curious that while tax inversions are big news, little attention has been paid to an entire industry that has been quietly and legally avoiding taxes for eight decades. Thanks to an aged provision in our Swiss cheese tax code, credit unions pay no federal corporate income tax on their profits even though the largest credit unions are virtually indistinguishable from banks in terms of the products and services they offer. In fact, credit unions' tax loophole costs taxpayers as much as inversions do: $2 billion per year.
The argument against Burger King's decision to invert, as articulated by Sen. Dick Durbin, D-Ill., applies equally to the trillion-dollar credit union industry: "With every new corporate inversion, the tax burden increases on the rest of us to pay what these corporations don't. That burden is made worse when these corporations profit off of all the public benefits that help American companies succeed and then run from their U.S. tax responsibility."
Decades ago, Congress closed the tax loopholes that allowed mutual savings banks and savings and loans to avoid corporate taxes. It did so because these companies competed with taxpaying banks and their tax exemption was no longer justified.
Today, more than 200 credit unions have assets of over $1 billion bigger than 90% of banks. They have extremely loose membership requirements and provide the same consumer services and many of the same commercial services banks offer. But credit unions stubbornly insist they deserve special treatment in the tax code. If inversions are controversial, so too should be the subversion of the historic basis for credit union tax exemptions.
This year's inversion fever highlights the need for comprehensive corporate tax reform. The U.S. should not only reduce corporate tax rates among the highest in the developed world but also close unproductive loopholes to create a fair field of competition. Companies should be free to grow their businesses on their own terms, and they should then pay straightforward taxes on their profits.
Former Oklahoma Gov. Frank Keating is president and chief executive of the American Bankers Association.