we are talking about lowering tax expenditures, and yet, we have a big one called research and development tax credit that's important, and i also argue looking at other countries right now, who we compete with, places like germany, high wage and cost, but major manufacturing incentives, and they take our new clean energy manufacturing because they have manufacturing tax incentives, so -- and i welcome anyone else who wants to respond as well. how do we do that dealing with the other issues that you raised, but at the same time knowing we are competing because there are tax incentives in other countries? >> yeah, i guess i'll speak next. i guess my advice to you, and this is not an easy challenge you're dpaising, but -- facing, but focus on getting the rate as low as you can and the

marginal rate is where a lot of investment decisions are made and having a low marginal rate is much more important than incentive packages, and i would say when it comes to making a choice between the marginal rate and incentive package, i choose the lower rate and get rid of the incentives. >> mr. lang, do you agree with that? >> i think having a competitive rate is important. i believe research and development incentives swelt research in the country is a foundation for the i.t. industry that built growth in the country for the last several decades. it's a combination of several factors. we need to be competitive as a country or stand to lose something that was invented here. >> right. not to be argumentative, but that's the dilemma, looking at competitive rates globally, but at the same time, the incentives that are also given around the world because we are losing because there are incentives

being given in other countries, and as, again, mr. chairman, on the manufacturing front, i know you know i care deeply about, we are facing dilemmas because of financing mechanisms and tax up acceptabilityives around -- tax incentives and once you're down with research and development, you make everything here as well, and so that's my question is to how do we do that? thank you, mr. chairman. >> thank you. senator nelson, you're next. >> mr. chairman lang, thank you for recalling that the sum conductor industry is so important. you remember about 20 years ago when all that business was about to go offshore, and when the united states decided that it was going to stop that trend, it put together a consortium.

the proof is in the pudding which you just told us. in your testimony, mr. duke, you said, in our view, the corporate tax proposal represented a very good start because it endorsed these three components of reform. there's a version of that that is circulating right now which is the gang of six, and it basically gives huge deficit reduction back to the committee's of jurisdiction, the biggest deficit reduction would come back to this committee. tax reform, what you all have all testified to, health reform, ect.. now, a big part of that tax

reform is taking all of these tax preferences, otherwise known as tax expenditures, and getting rid of a lot of them, and instead taking that revenue that you gained from that and then allowing the tax system to be reformed and to do just exactly what all four of you have testified which is bring dop the rates -- down the rates for everybody and simplify the tax code. as a matter of fact, one proposal is simplified into three brackets for the individuals and lower, of course, all the rates considerably as well as the corporate rate. now, my question to you all is boy, are you going to be stepping on some sensitive toes

when you get rid of all those special tax breaks otherwise known as tax expendtures, so i'd like your comment on it. >> senator nelson, we -- first, i have to say i am not familiar with the specific discussions that you referred to that are taking place at the moment, so the details of the current dialogue, i couldn't speak to. what i can speak to though is this broad topic that you're really asking about, and we do believe that comprehensive reform does mean that willingness to put everything on the table, including all of those tax incentives that you're referring to. we think for the overall rate to be lowered and needs to be in that mid-20 bring to be competitive with other countries that we're competing with, that it will require some difficult decisions around those up sentives, and we think

comprehensive reform involves reviewing all of those in a very thoughtful way. .. but with the some of its parts or a lot of special tax preferences for individual interests that are not going to want to give it up including the preferences that are to the benefit of your companies. >> to be specific when we do

most in the u.s. i take it and adjust the r&d credit. we do a lot of manufacturing in the u.s., take advantage of the manufacturing credit and i would trade both of those for a competitive global statutory rate. >> you've got a separate area if this all came to pass and came back to the finance committee and we had to start doing some serious looking at where you take things out of the health care system particularly medicare and medicaid you want to make some suggestions? >> well i think that similar to the discussion that we just had to the previous question in terms of there are going to be put and take i think it is true of our health care system and specifically medicare and medicaid. i acknowledge one of the challenges that we have coming and i think we have many

opportunities to address the cost of medicare and medicaid and at the same time, you know, the address some of the unnecessary costs and wasteful spending that we are seeing in the example i gave earlier $300 billion spent annually on the unnecessary medical costs as a result of poor prescription drug compliance and adherence. so i would encourage us to look at both of those as potential solutions to that challenge, recognizing that there are things we can do to take costs out of the system and at the same time keep americans healthier. >> thank you. senator wyden? >> thank you, mr. chairman. it's been a very helpful hearing. i also want to note before we start that as the parent of tough three-year-old twins i'm still stocking up on the fibers. >> thank you for the business we hope we have 100% market share in your household.

>> i'm sure that you are doing well. mr. chairman -- [laughter] >> ibm. mr. chairman, i think you put your hand on the key question that people are talking about, and that is how is this going to affect jobs? i think people in this country that's what a free but these focused on, the kitchen table, anywhere you go and i want to ask a very specific job question. if you all as part of tax reform were to give up tax deferrals, that's the break of course that you get when you are doing business overseas, you defer paying taxes until you bring your money home, and all of that money, all of that money was brought back to our country and used to slash rates dramatically when you are doing business in

the united states. so that we would be able to say you are then competitive with everybody around the world. wouldn't that be a significant boost for job creation in the united states? let's start with you. >> each of these steps would be important but it's important to look up the whole picture, and that's why we've continued to focus on comprehensive reform operating on a global basis. so, we are growing in the united states already and we want to continue that growth. i would say that competitiveness is very important also. one of the retailers, our competitors that has been growing in the united states in recent years is test code by mentioned recently that has an overall lower rate.

so, growth in the united states and around the world is important, and we believe all of it should be looked at together. >> the reason i ask the question, the finance committee said that your effective tax rate for 2010 was around 32. if you abolish the deferral and use those dollars for creating what i would call red white and blue jobs in this country coming your effective rate would go down considerably. you would be in the mid to low 20s. >> that's why i'm asking -- let's just go down -- >> if you look in different markets around the world the categories are growing at different rates. we talked about the young moms and emerging markets that use diapers each week within five years will be using five diapers a day so our business in china today we do about 300 million within five years of billion just to meet the demand of those

consumers. so, for me it's about creating a system where we have free trade free flow of capital that have that right and prosper in the level corporate tax rate. >> mr. lang we touched on this yesterday. i would say certainly having a system that allowed companies to bring the dollars back to the u.s. and put them to work in the u.s. can only be positive. having them overseas looking for overseas investment does nothing for us and bringing them home i think is something i strongly agree would be a positive. i think the key question though comes down to what is that rate and something in the low 20s really going to make it competitive with the other markets where we compete i'd think we all have some different countries, different places we compete. in our business most of the places we compete are in the 15 to 17% statutory rate, and as we

know with other special incentives, the rates can be substantially lower. so my view of that and my concern about that would be finding that rate that would make it competitive and make it natural, and i think it would be below that low 20% range but the general concept would be positive because a would simplify life and bring the dollars and put them back to work in the u.s.. >> acknowledging we are a domestic company, some of your question really doesn't specifically apply to -- >> you are at age 38.9% effective tax rate according to the finance committee figures. so under this, for job creation in the united states, you would be one to be a very substantial rate reduction. >> that supports our goal in doing more in terms of products and services and accelerating investments in the infrastructure which will create

jobs and the question to my other panelists i certainly concur with them and i think federal tax reform that does benefit multinationals in terms of bringing those dollars back to stimulate economic growth accompanied by a meaningful corporate tax rate reduction makes all the sins of the world. >> my time is up, mr. chairman. i'm very interested in working with you mr. chairman and senator hatch. on that point senator hatch made with respect to when we have a tax reform bill of that we have some way to try to keep in place that the good work and we don't unravel it to create uncertainty again i thought senator hatch's point was for a good and i'm interested in working with you on that. >> thank you. senator menendez? >> thank you mr. chairman. gentlemen, thank you for coming. i with interest read your

testimony. let me start with mr. duke. you had my former chief of staff working for you now and i've come to the proselytize if i read one more e-mail it says save more money live better. [laughter] let's talk about branding i tell you. he does a great job for you and me. let me pick up on a point we had a hearing yesterday and was a deficit hearing, and my colleague, senator conrad, made what i thought is a very good point. he pointed out that interest rates matter, and he said a sustained one point increase in interest rates would cost the federal government more than a trillion dollars over the next decade, that's from the

governmental side, and i noticed that you were one of those ceos who signed the chamber of commerce letter warning of danger of default and in part the letter says treasury securities influence the cost of financing not just for companies but more importantly, for mortgages, auto loans, credit cards and student debt default risk this ray and those markets and a host of unintended consequences. so, my question is the helpless will cost the government what will be the impact of redefault on interest rates for your customers and if they are increased by this self-inflicted wound of redefault which we still hope and pray we can prevent what do you think of what deutsch to the purchasing power and are your sales and companies like yours? >> cementer menendez, think again for the colleague's comments and i appreciate the training and you provided and that worked very well.

related to this i would have to first represent our consumers, our customers shopping in the store as across america they are watching the events take place here in washington and there is both a real and perceived and i think with reality and perception have to be considered high interest rates clearly but have an effect on consumption and so the ability of the consumer to regain confidence to start than reinvesting themselves as families across america is important. redefault and the ripple effect i think would be in tactful and representing consumers, we think that there would be very difficult for the american economy to withstand at this point in time in history. the other factor is consumer confidence. i'm out every week talking to customers and our stores, and when i'm talking to the

customers shopping in the stores i'm not getting a sense of confidence so i measure my own consumer confidence when i am not talking to our consumers and with the situation in the economy with the job situation and other factors facing consumers i think redefault at this time would be devastating and that both reality and perception of consumers. >> i appreciate that. mr. merlo, i want to follow on what my colleague was i think referring to in terms of the repatriation of the profits and they understand that cvs caremark is not necessarily in that category but you do say in your testimony you are paying almost an effective 35% rate, and in essence, by paying a high effective rate it seems to be your company and others is basically paying for the burden

of loopholes and avoidance behavior of other companies. so, do you believe that aggressive use of avoidance methods by competitors or the ability of companies to be able to take their overseas earnings and convert them into a tax benefits here at home that provide them with a much lower effective rate and you still pay a higher effective rate is a fair set of competitive standards? >> i think it does create competitive challenges for us acknowledging that we compete with domestic companies as well as foreign nationals that have the opportunity to have a lower tax rate and i think it goes back to the theme of this hearing in terms of we support and overall corporate tax reform

review of it would reduce our overall rate. now i would like to go back and just tag on to something mr. duke mentioned about consumer confidence and bring us back to the healthcare space because we do see evidence of consumers' today making decisions about when to get their maintenance prescription for chronic condition and we see evidence they are getting it filled later which means they are not taking the medication as prescribed and in many cases dropping off the therapies so we would be very concerned with any additional decline in consumer confidence and the impact that would have on the health of americans. >> i appreciate that. i would like to work, mr. chairman to repatriate and do it in a way that would induce companies to do so. but when i hear the choice is 5%, as the rate of return that

money it's hard to tell them who's paying 25% or higher in the tax bracket that we are going to do 5% in the rate for the repatriation of the foreign corporate assets and unless there is a connection with job creation that is tangible that's the last time we did this on a hall with a basis we didn't really get the jobs i think it is problematic. so, i'm one of those sign me up on the column that wants to find a way in which we can have the trillion dollars of the private-sector investment in the country and repatriate but do it in a way that actually creates the shop at the end of the day. thank you for your testimony. >> thank you. senator tim? >> thank you mr. chairman for holding the hearing today and senator hatch, i think this is -- i appreciate the witnesses to offer insight. it's interesting all four of the

witnesses today agree on both the your urgent need for tax reform as well as the direction we need to move and that is a lower corporate rate it doesn't impose a second layer of taxation on the earnings of the u.s. companies and also pointing out the united states is allied air when you look at that we have the second highest corporate tax rate in the world and of the g8 nations we are the only one now that has a world wide tax system so the combination of those factors make a very difficult for the companies to compete and as we begin to look at shaping the bill mr. chairman i would hope we would take into consideration the testimony provided by the witnesses today and look at lowering rates brought into the base and putting american companies in the position the can compete better globally. this may be a tough question for you to answer and i throw it out there to anybody but i'd be interested in knowing from each

of you if there is any target it tax benefit would be willing to give up if it were necessary to do so to lower the corporate tax rate to a level commensurate with the major competitors and move toward a territorial tax system that's the whole debate right now tax expenditures and tax preferences if we close the loopholes and have the necessity of closing the loopholes or some of those doing away with those targeted tax benefits i'm wondering if you have any observations about things you would be willing to give up. >> senator soon, we are willing to look at every benefit and believe they all should be on the table for discussion and we do receive some benefit we are not into heavy r&d investment as a retail company but there are benefits we received today that we think should be looked at as

an overall comprehensive plan. i would add i believe it is possible to have revenue neutral corporate tax reform and other fiscal crisis shouldn't add to it. but i think everything should be on the table and again i would air in favor of lowering the rate and if we can get the combined federal and state in the u.s. by a 25% which would imply a federal writ of 22 or 23% then i think a lot of these incentives become much less important. >> one of the hallmarks of the global nature of the u.s. economy is the fact larger and larger percentage of the u.s. businesses outside of the united states there are those who view this as a - and an indication that u.s. companies are moving the operations abroad, and there are others i think to believe that it's a necessity in the world where 95% of the consumers

and 70% of the global purchasing power outside of the borders but could each of you describe briefly were discussed with is a greater reliance on the revenue means for u.s. jobs and do you view that as a positive or negative thing? >> i will start. we are already about 80% overseas and so we kind of lived and breathed this type of international footprint everyday, and i don't view it as a necessity. i think it's an opportunity. it's an opportunity for things, for us to take things we invent or grow and offer those products and services around the world and benefit from that and leverage u.s. jobs and efforts to realize those gains so it's not evil and it's not a necessity. it's a wonderful opportunity because the growth potential outside of the u.s. far exceeds

what is in the u.s. we should be pursuing. >> anybody else care to comment on that foreign investment, good thing, bad thing, positive, negative? >> we want the u.s. companies to be competitive players in the global economy, and so as the economies as the u.s. are growing faster we won the u.s. companies to be winners in those markets as well. it's got to be good for jobs in the u.s. long term. >> this is for i guess mr. duke or mr. merlo because your company is in the retail business you both have highly effective tax rates. what does it mean when you compete against companies that are not u.s. based, and i guess it comes back more specifically to the question who are your major competitors i guess i would ask and where are the headquartered and what challenges does the tax system

present for you as you seek to expand new markets around the world? >> senator come i can quickly named three large multinational retailers we compete with against the world. tesco from the u.k., from france and metro from germany, and it's interesting because we are often competing for specific real-estate sites to build new stores and markets around the world, and that means that there is an advantage in the calculation on the return on investment. the return would be at a lower rate as an example of tesco in china we would compete against frequently and the 25% rate of taxing in china would be all that tesco would pay. we would be the 25% and then the additional 10% as far as the u.s. rate. we also and it comes into play even in acquiring the business and then as i mentioned tesco is

now growing stores and business in the united states so we are opening the door for the foreign retailers to have an easier entry to compete in the united states against u.s.-based retailers. >> senator, i think that mr. duke is spot on. we have other companies out there that operate food and drug comoros in the u.s. but the same principles mr. duke mentioned apply the and create some competitive challenges. stomachs before. my time is expired. thank you. >> senator conrad? >> thank you mr. chairman and thank you very much for holding this hearing. i think it's so important. i was part of the fiscal commission as was the chairman of the committee. i've been part of the group of six. both of them concluded you've got to have fundamental tax

reform to broaden the base, to lower their rates and help us to be more competitive at the same time to raise some additional revenue to couple with entitlement reform and to couple with domestic spending reductions in order to get our debt down. that is the fundamental framework of the fiscal commission and the group of six. i just would like quickly to ask each of you those that fundamental framework make sense to you mr. duke? >> the fundamental free-market the debt reduction and fiscal responsibility certainly makes sense, and the comprehensive corporate tax reform we think is important we do believe that all of these should be looked at on the long term perspective. i think the earlier members of the discussion today mentioned the uncertainty. that's why our interest is in a long-term comprehensive tax reform plan that we think would