Political Correction

High Taxes Are Not Crushing McDonald's Profits

November 07, 2011 4:16 pm ET - by Jamison Foser

The Heritage Foundation is excited to find a wealthy CEO of a huge company who thinks the nation's economic problems can only be solved by giving companies like his a tax cut. McDonald's CEO Jim Skinner argues:

The question is, how can we get the ox out of the ditch?" Mr Skinner said. "In order to create jobs in America, you're going to have to cut taxes... particularly in the business community.

"We pay some of the highest [corporate] taxes around the world. There needs to be some levelling."

As a general matter, the extent to which the U.S. has high corporate tax rates is wildly overstated due to differences in statutory and effective tax rates. A new Citizens for Tax Justice/Institute on Taxation and Economic Policy study of taxes paid by 280 of America's largest corporations explains:

While the federal corporate tax code ostensibly requires big corporations to pay a 35 percent corporate income tax rate, on average, the 280 corporations in our study paid only about half that amount. And many paid far less, including a number that paid nothing at all. ... [A] quarter of the companies in our study paid effective federal tax rates on their U.S. profits of less than 10 percent.

McDonald's, though, actually does pay relatively high taxes on U.S. profits. From 2008-2010, the fast food company paid an effective federal corporate income tax rate of 31.3 percent, one of the highest rates paid among the 280 companies included in the study. Its effective U.S. tax rate was ten percentage points higher than its foreign tax rate — again, one of the highest in the study.

So is the company's relatively high effective tax rate a crushing burden that threatens to drive an iconic American success story out of business? Not exactly. Over the three years in question, McDonald's enjoyed U.S. profits of nearly $8 billion. Profits have increased in recent years, and the company's stock price has soared 122 percent over the past five years:

McDonalds stock prices

The McRib remains inexplicably popular, sales are up, and McDonald's is hiring:

As the leader of a remarkable turnaround at McDonald's, Skinner's comments will resonate across the country. His company is one of only a few big US employers still hiring in significant numbers, with more than 500,000 staff on its domestic payroll.

McDonald's has just delivered 100 consecutive months of same-store sales growth. It is ranked number one in the Dow Jones Industrial Average for total shareholder return over the past five years, with the share price rising from $12 in 2003 to $93 today.

Things are going so well for McDonald's, it was able to pay Skinner $17.5 million in 2009.

So, no, its relatively high effective tax rate doesn't seem to be much of a hardship for McDonald's. Sure, the company would like to pay a lower tax rate and keep even more money — but that doesn't mean it can't afford to keep the doors open, or hire new employees, or pay its CEO $17 million.

On the other hand, new Census data shows there are 49 million Americans — 16 percent of the country — living in poverty. Persistent high unemployment and stagnant wages for most of those who do have jobs leave millions more struggling to keep their heads above water.

Skinner is right about one thing: "There needs to be some levelling" — but not in favor of multi-billion dollar companies and their millionaire CEOs. They're doing quite nicely already.

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