Catherine Rampell: Congress’ whopper of a mess

By Catherine Rampell

Customers can be so demanding.

First they criticized fast-food joints over nutritional content. Now they’re getting picky about tax and labor practices.

In recent weeks, consumers and commentators have savaged Burger King over its plan to merge with Tim Hortons, a move that appears at least partly motivated by tax avoidance. And on Thursday, Burger King, McDonald’s and other quick-service restaurants were the targets of strikes and civil disobedience in 150 cities across the United States as part of a national worker campaign for a $15 hourly wage and the right to bargain collectively. Meanwhile, McDonald’s is facing several high-profile lawsuits over whether it should be responsible for the wage theft and other labor law violations allegedly committed by some of its franchisees.

The bad press has taken a toll on firms’ reputations, with TV pundits arguing for boycotts and consumers unleashing their rage on the chains’ Facebook pages. YouGov, a company that tracks views of brands, has found that consumers have reported hearing substantially more negative “buzz” (through advertising, news coverage or word of mouth) about McDonald’s and Burger King in recent weeks. Survey respondents have also become increasingly likely to say they would be “embarrassed” to work for the companies.

It’s unclear whether all this bad PR will translate to lower profits for the firms. True, in July, McDonald’s had its worst decline in global same-store sales in over a decade. Yet YouGov’s polling still found that about two in five adults reported patronizing a Mickey-D’s in the previous month, while one in five went to a Burger King — pretty close to the average rates over the previous 18 months. Maybe consumers will put their money where their mouth is, and maybe they won’t.

Either way, I’d prefer to see consumers carry more of their ire to the voting booth. When it comes to many of the tax and labor policies driving this bad PR, the firms themselves aren’t entirely at fault. I blame Washington, too.

On tax policy, Burger King would hardly be the first major corporation to opt for a tax inversion; there have been 35 such cases since 2009, according to S&P Capital IQ’s Global Markets Intelligence research team.

Why are all these firms engaging in complicated tax dodges like inversions? Because they are responding to the incentives our policymakers have embedded in the tax code and corporate governance law. A byzantine, loophole-riddled, high-statutory-rate tax code encourages companies to construct byzantine, Rube-Goldberg-like tax strategies to minimize their tax burdens. Our legislators have created a system in which it’s easier to boost profits through tax strategy innovation than actual product innovation, and firms respond accordingly.

Regarding labor practices, wage theft is a serious crime that should be punishable by jail time. If McDonald’s did indeed commit or encourage labor law violations, as some of its workers allege, it should be held accountable. But I understand why companies such as McDonald’s set wages for low-skilled workers at or near the legal minimum, given the race-to-the-bottom nature of the industry. It’s hard for companies to unilaterally take on higher labor costs when they face such stiff competition for low-price-point burgers, and when they have a fiduciary duty to their shareholders to maximize profits. As with voluntarily paying a higher-than-required tax bill, firms like McDonald’s and Burger King might worry that raising wages to appease social critics could put them at risk of shareholder lawsuits.

All of which is to say that the main target of consumer and worker agitation should not be the companies, but Congress. It has the power to simplify the tax code so that firms won’t invest so many resources in tax avoidance. Congress also has the power to raise the minimum wage from its pitiful level of $7.25 per hour, which would even the playing field for all companies that employ low-wage workers. The CEO of McDonald’s, in a talk last May, even acknowledged that the company would “be fine” if Congress raised the federal minimum wage for all firms, and that McDonald’s “will support legislation that moves forward.”

By all means, consumers, vote with your wallets and support businesses that treat their workers well and that you perceive to be economic “patriots.” But don’t expect these companies to change their practices until Congress makes doing so worth their while.


Comment Policy

Print This Article

Syndicated Columnists