This is the Cato Daily Podcast for Monday, August 25, 2014.

I'm Caleb Brown.

Burger King might buy Tim Hortons, but the main reason for doing so may be to simply escape the punitive

corporate tax code of the United States.

Dan Mitchell, Senior Fellow at the Cato Institute, offers his thoughts.

Whether it's the Burger King, Horton's deal or many of the other inversions we're hearing about, they're all motivated by two factors.

First, the United States has the highest corporate income tax in the entire industrialized

world, maybe even the entire world period.

Second, we have a very punitive system

known as worldwide taxation, which basically

means American companies trying to earn market share abroad.

They not only have to pay tax on any foreign income to foreign governments, but then they have to declare that income to the IRS and pay a second layer of tax, which when combined with our very high corporate tax rate is a real competitive hindrance for American firms

competing against foreign companies.

So for Burger King, as with a lot of other companies, a move to Canada would allow them to earn profits in other countries and only pay the

tax in that country.

Correct. What an inversion does, if you in effect take your charter out of a filing cabinet in Delaware and put it in a filing

cabinet in Canada or London or Zurich or someplace else.

All that really happens is that your legal domicile has changed,

but in almost all cases your headquarters still stays in America,

your operations still stay wherever they are.

The only effect of an inversion

is that extra layer of tax on foreign source income disappears.

...