protections. to start the year off, the senate on a bipartisan vote rejected the radical, anti-environmental h.r. 1, the house-passed spending measure for the remainder of the 2011 fiscal year. soon thereafter, the senate defeated an amendment repealing the scientific finding by the epa that greenhouse gases endanger the health and human environment permanently blocking the epa from reducing carbon pollution under the clean air act and undermining those critical vehicle fuel efficiency standards touched on. later in the year the senate also voted down, along strong bipartisan lines, an attempt to avoid the cross-state air pollution rule which reduces smog from pour plants, pollution that is especially dangerous and harmful to residents of downwind states. the senate also sought back to back votes related to our nation's dangerous dependence on oil. unfortunately, just a minority of senators were able to block

passage of legislation to end taxpayer handouts to the nation's largest and most profitable oil companies. thankfully, the senate rejected a measure to irresponsibly expand and expedite offshore drilling. .. >> before we open up the questions i want to remind

everyone the entire national environmental scorecard can be viewed online at www.lcb.org/scorecard. we would now be happy to opened up for any questions you have. >> these are the same people who are still in congress now, so any projections for what might be to the end of the year, for this year? >> sure. as i mentioned we are releasing this scorecard even as some of our biggest opponents are scheming about how to get rid of some of our cornerstone environment of protection, go after progress. there's a transportation bill that could be on the house floor next week that has drilling in the arctic refuge. there's talk of going after keystone xl pipeline, and even though the pipeline is dead, the president rejected it, they are still trying to force legislative the approved a

decision on the. subcommittee chairman of energy and commerce whitfield has indicated he wants to go after the c.l.e.a.n. act title by title. then, of course, there's the recent progress, and some talk like senator inhofe and others going after the recently finalized mercury air toxics standards. we are going to have to remain vigilant against all kinds of insidious attacks throughout 2012. >> what would you say is the primary point of this scorecard, politically? what do you hope to achieve with this, primarily? >> this is not a political or an electoral document in any way. the scorecard we think is a valuable tool for measuring the way members of congress vote when it comes to some of the most important environmental energy and public health issues. and then, of course, critically important to educate the public

so that they know how their the representative and senators are voting on these key issues that are so central to them which is why we are encouraging everyone he was able to, to check at the full scorecard on our website. >> any other questions? great. would be happy to talk to people individually. thank you all again for coming. [inaudible conversations] >> we are live on capitol hill for a house ways and means committee hearing to the tax policy affects a corporate county for the witnesses from the business will go talk of how

those rules influence decisions on hiring and other investments. committee chair is dave camp, ranking member sander levin. both of michigan. we expected to get underway in just a moment. [inaudible conversations]

>> [inaudible conversations] >> good morning. today we are continuing our series of hearings on comprehensive tax reform. this morning's hearing will focus on the interaction of tax policy and financial accounting rules such as generally accepted accounting principles, or gaap. we'll examine how this interaction affects the way in which publicly traded companies

respond to tax policy. hate-laden will look at the special challenges faced by small and closely held businesses that might be less concerned with the gaap than most confront consider -- with tax accounting and related rules such as choice of entity. during today's hearing we will consider how public companies if i were tax policy options or book consideration. as such will examine whether tax legislation works as intended when congress does not consider the effects of financial accounting. wind companies profit from when companies report profits in financial statements, the primary purpose is to convey information about a company's financial condition to investors and creditors. conversely, the primary purpose of tax accounting is to measure income for leading the federal income tax. these two functions are not necessarily consistent and in some cases may even be at odds. for publicly traded companies focus on earnings per share, in

addition to cash flow, changes in tax policies might not produce intended results if the affected tax policy on earnings-per-share is not well understood. as a recent tax notes article suggests, when presented with an option between targeted tax benefits and lower corporate rates, many publicly traded companies might prefer a lower corporate rates over those tax benefits because of the book treatment. similarly tax provisions that provide cash benefits might not have their desired effect on behavior due to a less favorable book treatment. a variety of factors can affect publicly traded companies and their decision-making processes diddley. for instance, the high u.s. corporate rate is an important factor for companies that use either gaap or international accounting standards. if the rate is too high, companies will come all the factors being able, allocate capital to a location that provides more favorable tax treatment. today, the current top federal corporate income tax rate in the

united states is 35%. the average combined federal state corporate income tax rate is 39.1%. second only to japan's 39.5% rate. however, in fear of 60 days affected april 1, 2012, japan will lower its combined corporate rate to 38%. that will lead the united states with the highest corporate tax rate in the entire industrialized world. this dubious distinction will make it that much more challenging to attract businesses to hire invest here at home where we need jobs. however, not all employers have the same tax profile. the impact of federal tax policy on certain key book calculations can diverge genetically from the impact of the same policy on a companies cash tax liability. we need understand that how public companies respond to tax policy when such divergence occurs. if the goal is as likely to transform the code and create a climate ripe for hiring and investment, we must solicit input and insight from very job creators who will do the hiring

and investing. properly designing tax reform requires an understanding of the financial accounting rules and how those rules might influence the investment decisions of public companies. i'm pleased that some of those businesses here today along with members of the academic community have done extensive research in a financial accounting affects corporate behavior and i look forward to hearing from them all. without i will you do the ranking member for purposes of an opening statement. >> thank you very much, and welcome. when this hearing was scheduled on the interaction of tax and financial accounting on tax reform, i thought i would take out my accounting book from law school. fortunately, i could not find it. [laughter] i remember it so well, the course, taught by a brilliant teacher, and it convinced me i never wanted to be an

accountant. that was i think the main lesson i learned from his brilliance. it's useful to have this hearing to discuss these various techniques, as important as they are. and their impact on tax reform. i do think we need to continue to talk about tax reform, and always to keep our eye on the ball. and that is, what are the purposes of the tax reform, and what would be the impact on what our needs our? and this is why i think it's so essential that we not jump to conclusions, or essentially embrace i think rather than a simplified alternative. as we know, we ask the joint tax to take a look at the code and

to determine if the rate were lowered to a certain level, what would be the impact. and they came back with the conclusion that even if we eliminate it all of the specific provisions, it would not bring the rate down to 25%. and i think the challenge is now intensified, because at long last we are beginning to understand fully the importance of manufacturing in the american economy. i think we somewhat lost that understanding, and now i think with the return of the auto industry, with the help of the federal government, not to run the companies but to get all of them back on their feet. i think it has helped to

highlight how, as we proceed as we must, talking about tax reform, we keep our eyes on the ball. and here i want to quote what the president said just a few weeks ago. if you're an american manufacturer, and this was part of his plea that we continue to help american manufacturing get fully back on its feet, if you're an american manufacturing, you should get a bigger tax cut. if you're a higher tech manufacture we should double the tax reduction you get for making your products here. and if you want to relocate any community was hard hit, when a factory left town, you should get help financing a new plant, equipment, or training for new workers. the chairman and i, that's the end of the quote, for years have

tried to expand to strengthen the r&d tax credits. and here we are many, many months into this new session, a year plus a month now, and the r&d tax credits seems to be in jeopardy. so, i think we very much welcome your testimony. i think at first, some of us were somewhat or flexed whether we would ever understand what you're talking about. we will try. i yield back. >> thank you. we are pleased to welcome our panel of experts. also bring a wealth of experience, it from academia or the private sector. and i believe their experience and insight will be helpful as we focus on the interaction of tax policy and financial accounting rules. first, i'd like to welcome and introduce michael fryt, the corporate vice president for tax for the fedex operation.

mr. right has spent the last 30 years and it's a tactically for different corporations and comes to us today from fedex headquarters in memphis, tennessee. second will hear from mark schichtel, senior vice president and chief tax officer for time warner cable. he is responsible for all areas of tax at time warner cable including policy planning, financial reporting, and complaints. and third welcome michelle hanlon, an associate professor of accounting at the massachusetts institute technology, sloan school of management. her research focuses on the intersection of taxation and financial accounting. and forth will hear from tom neubig, the national director of quantitative economics and statistics for ernst and young, and the former director and chief economist for the treasury's office of tax analysis. mr. neubig leads a group of 24 quantitative analysts who assist clients with tax and economic policy issues. finally, we welcome mr. timothy heenan, vice president for treasury and tax at praxair inc.

praxair is the largest provider of industrial gases in north and south america. mr. heenan joined praxair inc. 2004 from earnest and young were hit last year a senior manager specializing in the development and implementation of international tax strategies. thank you all very much for your time today. the committee has received each of your written statement and they will be made part of the former hearing record. each of you will be recognized for five minutes for your oral remarks followed by questions. so, mr. fryt, we begin with you. you're recognized for five minutes. >> thank you. good morning, chairman camp, ranking member levin, members of the committee. i very much appreciate this opportunity to appear before you today to discuss the importance of tax reform to fedex. we believe that reducing the u.s. corporate tax rate significantly to be more in line with the rest of the developed world is essential to overall economic and job growth, and will help our company continue to invest in critical infrastructure to compete in

grow. before i delve into the details of how we analyze tax reform i would like to make a couple points about fedex and our business and our tax profile. with respect to our business, through our global x-men and transportation network we connect more than 90% of the world's gdp in 48 hours or less. so if a business of any size wants to send its product from beijing to buildings, or cleveland to cologne, we can do that for them without them having to invest billions of dollars to build their own distribution network. our businesses based on this global network. if our global network is competitive, you will grow, so will we, both around the world and in the united states. with respect to our tax profile, we are a full rate taxpayer. we are, our effective tax rate has not been below 35% for more than 20 years. this is a real competitive disadvantage for us. we are also troubled by other

aspects of the current tax code. it creates distortions and economic decision-making. it diverse capital from its most efficient and effective use. and it leads to lower wages and employment. like many of you in congress, our company has also been evacuated and even modeling some of the tax reform proposals. we look at these from the perspective of both what is good for our country and what is good for a company. overall, we believe the ideal corporate tax system would including materially lower tax rate, something at least close to the average oecd rate. along with capital investment incentives such as 100% expensing. we have also said, however, that if tax reform must be revenue neutral, so be it. we are willing to put all base, including expensing or accelerated appreciation on the table in exchange for a material lower tax rate. doing so, however, would come with a cost, both macro

economically and to our company. strong capital costs incentives like expensing generate new investment and new productive assets in the united states, and it's reflected in the discharge i pass in my written testimony. there's an almost perfect correlation between new investment and jobs in this country. from our company's perspective, we would generally expect a lower tax rate to increase our cash flow. bottom line earnings and earnings per share. to the contrary, reducing capital incentives we have a generally greater adverse effect on our cash flow. this is important a test as is often said, cash is the lifeblood of any business. our investors pay close attention to our cash flow, as was our bottom line earnings and earnings per share, and they routinely quiz our ceo and cfo about all three. one of our biggest cash outflows that gets a lot of attention is capital expenditures. $4.2 billion in our current

year, for example, up from $3.4 billion last year. so while there are other factors, a sunni business tax reform must be revenue neutral, most critical analysis from my company's perspective is a comparison of the cash flow detriment from slowing capital cost recovery versus the earnings and cash flow benefits of a lower tax rate. if a tax reform package cannot get us to a materially lower tax rate, you will not address our competitiveness issues. particularly of the capital costs incentives are reduced as part of the deal. one other thing that needs to be considered in the mix of tax reform is simplification. this is difficult, if not impossible, to measure, but its value should not be underestimated. in closing, we commend the recent tax reform discussion draft released by you, chairman camp. we think it is an excellent starting point, and we urge that you continue your efforts to lower the corporate tax rate to be consistent with the oecd

average. and the simple by. we need to get back to the basics. where businesses compete on the basis of the merits of the products and services, not on the basis of what the tax code says. thank you. >> thank you very much, mr. fryt. mr. schichtel, you have five minutes. >> thank you. chairman camp, ranking member levin, and members of the committee, thank you very much for inviting me to share our views on corporate tax reform. i'm the senior vice president and chief tax officer for time warner cable. i'd like to first tell you about our business and impact of taxes and tax policy on time warner cable. then i will explain why we believe that less complexity and a lower rate will benefit our investors, employees, and customers, as was the overall economy and americans at large. spun off from time warner cable nearly three years ago, time warner cable is a fortune 150 capital intensive domestic

company that provides high speed data, video and voice services to over 14 and a half million customers. we have over 48,000 employees in 29 states. we offer our workers secure jobs, in wages and benefit packages that are competitive, and that support families, dreams, and retirements. last year we hired over 7300 people, including hundreds of veterans. we are part of our nation's communications backbone that enables domestic companies to compete regionally, nationally, and globally. we help small and medium-sized businesses grow and thrive. time warner cable spends about 3 billion a year on capital improvements, a third of which goes to wages. in 2012, we are continue to extend our network to even more businesses and families. our investments also support a

national network of suppliers, including nearly a quarter of a billion dollars spent annually with minority and female owned businesses. our effective tax rate is historically around 39%, while i cashed taxes paid are lower, driven by temporary incentives such as bonus depreciation, the benefits of which are now reversing. taxes are a significant business cost, ranking among our largest in terms of 92 to come along with our programming, employees financing and capital outlays. although difficult to quantify and allocate, these taxes are ultimately borne by our investors, workers and customers through lower returns and wages, less investment in training, and higher costs and prices. we are strongly influenced by tax policies that impact our net income, effective tax rate, and earnings per share. we do benefit from targeted

incentives like the research credit in section 199. given our capital intensity, however, we currently rely even more heavily on timing incentives that don't impact got the financial accounting, such as expensing and accelerated depreciation, which can significantly enhance our cash flows and ability to invest in our people, technology, and network infrastructure. these policies have and continue to support our business. over the decades, well-intentioned policy choices have helped produce a tax code and related regulations that are read in small print and measured in volumes. each an active policy objective is accompanied by nuanced rules needed to implement, clarify, and limit potential abuse. it's not just the complexity that burdens our economy. it's the year after year starts, sits, stops, changes, and

uncertainty that frustrate business leaders, analysts and investors alike. often the benefits are very large, swing or thwarting decisions of what, when and where to invest. subtle changes from one year to the next, intentionally or unintentionally, deny one company a benefit while often keeping on an extra helping for a note that it's time for american businesses to put aside our industry-specific wish list, and to work collectively to support a moral cash for a more coherent and equitable tax policy, corporate taxation structure. we recognize that competing priorities and deficit reduction efforts likely mean that corporate tax reform will need to be revenue neutral. as a member of the rate coalition were willing to put all of our tax incentives on the table and broaden the base in order to bring america's corporate tax rate in line with

the rest of the developed world. we advocate for significantly lower rate, a simpler code, and a predictable, consistent set of tax rules upon which business can make long-term decisions. america had so many business advantages, yet we are saddled with an inefficient tax structure in an uncompetitive tax rate. we are pleased that there is growing consensus for reform that significantly reduces the corporate tax rate. we want to commend chairman camp and this committee for its leadership in this regard. we would welcome the opportunity to work with the committee and its members and staff in dealing with these issues as tax reform progressives. once again i want to thank chairman camp, ranking member levin, and the members of this committee for inviting me today. i very much appreciate this

opportunity to testify, and will be happy to answer any questions you might have. thank you. thank you, mr. schichtel. ms. hanlon, you're recognized for five minutes. >> thank you. chairman camp, ranking member levin, distinguished embers of this committee, thank you for the opportunity to testify before you today. the main point of my testament is that the responsiveness to tax policies can be affected by the financial indications of those policies. i would like to first offer examples of importance of financial accounting to managers of publicly traded companies. one example is that instead of companies accused by the sec of fraudulently overstating accounting earnings. it turns out these companies also overstated their income to the irs and pay taxes on their inflated accounting in québec to suggest these countries were willing to pay substantial sums of cash in order to require higher financial accounting earnings. in the literature we call this the book tax trade off. a second example is at a recent survey of tax executives of publicly traded companies.

85% of the tax executives at top management at the company used the accounting effective tax rate as being at least as or more important than actual cash taxes paid. to lj to financial accounting effects of tax policies my written test mode discusses three current tax policies related to investment. as you know the u.s. is one of the highest statutory corporate tax rates in the world. with the top rate of 35%. rather than reducing our corporate rates our policies have instead include targeted tax provisions such as bonus depreciation in section 199, in an attempt to reduce economic effective tax rates and promote investments. in addition to my corporate statutory tax rates in the u.s., we have a worldwide tax system with deferrals which is in part led to multinational u.s. companies holding a great deal of cash overseas. financial accounting has affected corporation tax policy responses in each of these cases. because the details can become technical quickly i will discuss only one of these in detail today, accelerated depreciation,

including bonus depreciation. accounting earnings are computed using the accrual method of accounting. this means for example, that expenses are recorded and financial statement went in kurt regarded than actual cash is paid to the same method of accounting apply to the accounting income tax expense. in the case of depreciation most companies use straight line depreciation for both purposes and accelerated depreciation for tax purposes. that's the tax deduction for depreciation is larger than the depreciation for financial accounting in the early years of an asset slide but however this is only temporary in nature because of the same amount will be depreciated for financial accounting and tax purposes over the life of the asset to the deduction for pass goes faster than the expense for book. to compute the income tax expense for financial accounting purposes in this case, the accounting rules require something that only the cash taxes paid but also accruing and expensing the future taxes that will be paid because the companies that tax shield early. than 600 or bonus depreciation

does not reduce the firm's accounting income tax expense. it will not reduce their tax rate, and this is not increased purported accounting earnings relative to a world without accelerated depreciation for tax purposes. when asked, corporate management will often reveal a preference for a rate cut over bonus depreciation for several reasons. one of which is that there's no reduction in comp tax expense but there would be with a rate cut. in addition evidence on the responsiveness to accelerated depreciation relative to the investment tax credit which did reduce financial accounting income tax expense reveals that the responsiveness to the credit was greater holding the president value of the tax savings constant. this evidence suggests the accounting aspect is important answers to mitigate the responsiveness of accelerated depreciation because there is no financial accounting benefit. in conclusion, the main point of my testimony is that what many consider to be cosmetic accounting effects our children to grow and responsiveness to

tax policy. the financial accounting implications can mitigate the effect of the policy such as bonus depreciation for public firms. in addition as i discussed more fully in my written testimony sometimes the written -- such as exasperating the tax incentives to lead cash overseas. in addition as i'm concerned of the accounting applications to be enacted in particular manner as was the case in section 199. in sum, it is important to recognize both tax and financial accounting tax are included in the set of factors that public corporations will consider in the decision-making process. thank you for inviting me to testify today. i look forward to your questions. >> thank you, ms. hanlon. and mr. neubig, you're recognized for five minutes. >> think a good opportunity to testify. i was an economist and u.s. treasuries office of tax analysis from 1980-1990, during the development of the 1986 tax reform act. financial accounting issues were

not very important been, but over the last 25 years i have seen their importance grow not only in the federal level, but also in terms of state tax policy and tax policy in other countries. in 2005, president bush's advisory panel on federal tax reform outlined a business cash flow tax that allowed first year 100% right off of capital investment, like bonus depreciation. one might have expected that this plan which many of my economist brethren claim result in a pseudo-effective tax rate for new capital investment would have received strong support from the business community, but it did not. this led me to consider a number of reasons why many economists often predict the effects of tax reforms, much differently than the business community. although i am not an accountant, in testimony before the select revenue subcommittee in 2006, i noted the importance of financial accounting rules that

many -- i will restrict my comments to several reasons why many corporations may prefer a lower corporate tax rate to more targeted tax reductions. i will use accelerated tax appreciation as one example since it's repeal has been proposed accommodation with lowering the corporate tax rate in several recent tax reform plans. also, a number of countries have moved towards economic depreciation to partially finance their reduction in the corporate tax rates. timing of taxes matters, and particularly for cash constrained firms, et cetera depreciation can provide important cash flow benefits. accelerated deduction provide benefits similar to an unsecured zero interest rate loan from the federal government. at today's historically low interest rates, the value of accelerated tax deductions is relatively modest, for

corporations with access to capital markets. many corporate tax executives as doctor hanlon noted, focused on that on their tax cash liabilities but also on their reported financial statement effective tax rate and reported book earnings. temporary book taxes such as accelerated depreciation, many others, do not affect the total financial statement effective tax rate which is based on the total accrued tax expense, those current and deferred. at a lower corporate tax rate and accelerated depreciation both reduce the economic effective tax rate on tangible business capital investment, but a lower corporate tax rate also reduces many other tax distortions, including the double tax on corporate equity, the biased towards corporate debt, taxable income shifting, across tax jurisdictions, the locking effect on corporal punishment the lockout affect on

dividend repatriations and also reducing the tax on corporate entrepreneurship and innovation. a number of reports emphasize the necessity of combining permanent expensing with repeal of interest and deductibility in order to prevent negative effective tax rates. in 1982, congress scaled-back accelerated depreciation as part of its deficit reduction efforts to do what were considered excessive tax benefits from combining an investment tax credit with those accelerated depreciation and interest deductibility. in 1986 tax act was a key starting point for the 1986 tax reform process. that base broadening in 1982 enabled the lower individual income tax rates to continue to begin indexed for inflation. while also reducing the deficit. it was clearly a trade off between base broadening versus lower tax rate. which continued in 1984 and then

culminated in 1986 tax reform act. finally, out like to point out a recent study by two treasury economists found that only 50-6% of corporations, and only 30-40% of passed through businesses took advantage of the recent bonus depreciation rules. the study notes that while et cetera depreciation in theory reduces the cost of investment, quote in practice serious actors limit the use of bonus depreciation and its relative value. financial statement accounts is one of those factors that influence companies decisions in which economists generally don't include in their tax modeling. in addition to financial accounting, tax risk and uncertainty, compliance burdens, and other non-income taxes also affect business decisions. financial accounting is one of several reasons why many corporations may prefer a permanently lower corporate tax rate to more targeted tax

incentives. i'd be happy to answer any questions about my testimony. >> thank you very much. mr. heenan, you're recognized for five minutes. >> good morning. thank you for inviting me today. i appreciate her i'd like to just our vitamin you, chairman, for tackling and the rest of the committee for tackling this important topic of tax reform. we support the efforts and to appreciate the time to talk about it here today. i'd like to just start to give a little bit of the background about praxair, maybe a household name -- maybe not a household name. we sell the components in there. we have a diverse customer mix. we can sell to refute -- a food and beverage company that puts nitrogen in your potato chip bag, the soda, that is in your soda. we also steel companies who use tons and tons of gases. so very, very diverse customer group. we have about $11 billion in sales worldwide. we are one of the large and osha gas producer here in the united

states. importantly we spend about $2 billion a year on new capital investment. we go to a very rigorous process. we sit at a table with senior leaders of each new project, and they tend to be big projects, and we discuss capital investment. and we compare projects around the world. and for us, you know, cash is king. to answer the question that was posed, in what way does financial accounting affect our business investment decisions, our answer is simple, it really does not affect our decisions. for us, it's about cash. cash is king. unit, earnings will follow the cash it if we get more cash, we do more to invest and the earnings will follow. so we do not focus on financial accounting. it's important to focus on earnings for other decisions in the business, but on the investment decisions, cash is king. so we use sort of a net present

fire, cash flow model, we don't vary from it. i can tell you thursday this week we will go through 10 projects, and not one of those projects is going to say anything about earnings. all of them will talk about rate of return which is a cash flow model we focus on. so, while i support tax reform, i think that we really have to take a close look at targeted deductions that we may eliminate that pay for the tax reform. and specifically, you know, many members here, folks here who have been testifying have mentioned accelerated depreciation. under the current u.s. rules, that is a very important factor that helps influence our investment decisions. so if we're going to remove accelerated depreciation in favor of a lower rate, really need to weigh the two very closely to see what it's going to do to investment decisions for companies like praxair. so thank you, and would be happy

to take any questions you might have. >> well, thank you. and thank you all for your excellent testimony. now we'll move into a question time. and, therefore, mr. schichtel and michael fryt, i had a question for all of you. you were invited because you do represent capital intensive businesses that could be asked to consider trading off a substantial amount of tax benefit if there was a comprehensive reform plan put forward, that could alter pretty dramatically the corporate tax rate, reduce it somewhat drastically. the committee wants to understand better how businesses such as you evaluate those trade-offs. and that will be part of tax reform. now, understand we're not talking about details today, but especially with respect to choosing the right base broadband measures. could a revenue neutral reform package that reduces the corporate rate to 25% and move

to a territorial system, could that improve the competitiveness of your companies? if you could each just take a few minutes, or moments to answer that? >> my answer would be yes. at 25% i think that's close to the oecd average, which is about 25% right now. and given our international competition, that's about where we need to be, at a minimum. you talk about the trade off, there certainly is because i mentioned in my prepared remarks, and that's something we take into consideration, the cash flow affects are detrimental. there's a question about it, but lowering a tax rate overall as something around 25% i think would be well received. >> mr. schichtel? >> i agree with mike. resounding yes, but i think if we can get to 25% rate, or something close to that, that's in line with the rest of the developed world, you will find the vast majority of the business community coming out in

support of the i know it's a challenge to get their. >> from our perspective as a company, our health and growth is tied inextricably to the growth and health of the overall economy. no question about it, that's the biggest driving factor in how will we do over the long run. our view is that a significantly lower rate in a simpler tax code will be to the benefit of the entire economy, will and courage over all more growth and developing, and that will in turn increase the returns that we have to our shareholders and the opportunities that we have out there. >> mr. heenan? >> i'd like to give you an answer yes or no, but really, i've been doing this a long time, and the devil is in the detail. and in our view, clearly all the tax expenditures are not created equal.

you know, just focus on accelerated depreciation. a tax rate will affect both our old business and our new investment. so we have, we are the largest industrial gas company in the u.s. we will certainly benefit from a rate reduction come to your specific question on an investment decisions, that's a future question. a rate benefit is not going to impact our future decisions. so i look at something like accelerated depreciation, that is very focused on new investment. new investment will bring growth and jobs. so i think we just have to be very cautious as to which tax expenditures we are using, we are particularly focus on accelerated depreciation because we think it has a special place in promoting new growth and we think with that will come jobs. >> that is the right is broadening measures were chosen, do you think a revenue neutral package that reduces the rate to 25% would help the competitiveness, including a

territorial system? >> i conclude say accelerate depreciation remains the same and everything else goes, we speak from your point of view. i'm asking you, your finger is the right measures were chosen from their point of view, that it would be something that would increase -- >> absolutely. >> the other, just to follow up. could you envision a package, the three become a being designed that would lead employers to invest more and higher more american workers? >> absolutely. i think the package, i described my repaired remarks the ideal one, maybe not a practical, but the ideal one would be some rate close to the oecd rate, with 100% expensing. i think you would see tremendous new investment, additional global expansion, u.s. expansion, and job growth. absolutely your even the base broadens your talking, chairman camp, got down to rate of 25%, i think there's no doubt in my mind that also would increase. >> naked.

mr. schichtel? >> i would love to keep our tax incentives like accelerated depreciation. i would love to see expensing extended as part of the overall tax reform that lower the rate to 25%. but i don't see how that's possible in a revenue neutral fashion. i think for the short term until we do have corporate tax reform, i think expensing, extending bonus depreciation is tremendously important and impactful. certainly from our vantage point and come because i get calls all the times. it is tremendously important. that being said, if we all put everything on the table and we start working towards a targeted raid in a simpler code, i think we will see more growth. and for us, that will definitely result in more jobs and more investment. >> all right.

i have a question for ms. hanlon and mr. neubig. in congress we measure revenue, neutrality by looking at cash taxes over a ten-year period. without using a discount rate. and that is very different now public copies guide to book earnings under gaap, and it's a very different how public companies calculate cash flow benefits. but if this committee succeeds in designing registration that is revenue neutral over a ten-year period, the way congress measures it, but in the aggregate increases companies book earnings, do you think that such a tax reform package would lead to more economic activity being located here in the united states and, therefore, more jobs for american workers? ms. hanlon, why don't i start with you? >> i guess the main thing i would say to that is if you would, you know, remove the mitigating effect of financial accounting, there seem to be no

negative effect that would come from that so to the extent that doing the attack site that it would increase jobs and investment, then releasing the mitigating effect of accounting would only help those incentives. >> all right. mr. neubig. >> i think the compass are going to be looking at a lot of different measures of taxes. you mentioned although it might be revenue neutral over a ten-year period from a government scoring standpoint, it might be actually higher total taxes on the corporate community. i think it would certainly be concerns about that having some adverse affect. there's certainly lots of benefits from lower corporate tax rate, but they are going to be looking at the total tax burden in the u.s. [inaudible] >> we're having a microphone problems. >> and other tax-based issues. so really is the whole tax reform package that they will be looking at.

>> and to the two of you again, some copy to save cash is king, and that investors are sophisticated enough to certainly look through the differences between cash flow and book earnings. how do you respond to the arguments that investors look through book earnings and see only cash? >> this is a great question. it's been asked many times in accounting workshops when we present research on earning pics i think a person to read it is accounting earnings a use for two purposes, both equity markets and contracting purposes. that context and compensation contracts coming extent to which those are written based on accounting numbers you see managers respond to the same incentives. equity markets and his contract riders, they are not stupid or not, not savvy enough i wouldn't say, in using accounting earnings because accounting earnings is general kind of like a scorecard.

in other words, there's research that shows that a cruel accounting earnings can predict future cash flows better than current cash flows. so it's reasonable for these people to use accounting earnings. and finally the other thing is investors may be savvy but they are still only human so there's a long line of behavioral finance research that shows investors have limited attention and limited ability to process complemented information like you'd find in an annual report of a complicated company. >> all right. there are differences across the different companies, and accelerated depreciation as a cash flow benefit -- >> maybe if you could borrow someone else's microphone. that one doesn't seem to be working. >> cash constrained companies that do with economic downturns, a lot of cash constrained countries concerted benefit from the cash flow benefits from the number of timing provisions. so i think not all companies are

alike. there'll be a number of companies as dr. hanlon noted, do look specifically at the financial statement earnings and book earnings. i have found that in terms of my discussion with a number of corporate executives. but also there are a number of corporations that do this type of project evaluation, looking at the cash flow benefits. i guess i would say that at the current time for companies that have access to capital markets, interest rates are at a historic low. to the extent that accelerate depreciation really is a zero interest rate loan from the federal government, the benefits of accelerate depreciation at the current time are modest for those that have access to capital. >> thank you. and ms. hanlon, just finally, you mention in your testimony the important point that some of the announcers were talking about today doesn't really apply to closely held businesses. and could you just explain how closely held businesses might

analyze tax on dividend publicly held companies? >> yes. there's a long line of literature in the accounting research that examines this exact book attacks trade a. and often what we will find if we can get the data we will find a private habits and public companies. and essentially find that private companies are much more responsive to the tax incentives and tax reporting incentives in public of respect and the id is the public copies have the financial accounting constrained. so it is probably true that private companies will respond to these incentives more than public companies will. >> thank you very much. mr. levin is recognized. >> except for the last few questions, we've been really discussing broader issues of tax reform, and not look and tax

accounting issues. we may be related by this because we need to look at it. they are not easy issues. and you're going to have to, i think, have a few seminars with us on that subject as we look at these broader issues. so it's really the broader issues that have been mostly discussed here, and let me just say a word about that. there's no doubt we need to look at tax reform. there's no need, as i said earlier, to look at it with care, and not simply grab a hold of a specific figure without looking at its consequences. because according to the joint tax analysis, when we asked them, they said if the rates were reduced to 28%, half of

that reduction would come from ending accelerated depreciation. so, when people say they want the rate dramatically reduced, but not at the expense, expense of accelerated depreciation, that doesn't really fit. and it was interesting in testimony of first two of you that you referred to that. for example, in testimony, you know this well, mr. fryt, you said our investors applaud capital incentives like expensing, because our after-tax cash flow on new capital investment can be up to 35% less

than it would be otherwise in the first year. and, of course, that evens out, but it's kind of a broad embrace of the importance of that. and then, i just, mr. schichtel, your testimony, if i might, you know well, this is important for us to have a full and intelligent discussion of this vital issue. and this is on page three. given the capital intensity of our business, however, we rely even more on -- let me just read above. like most companies, we are strongly influenced by tax incentives that improve our recording metrics, such as i reported that came up effective tax rates and earnings per share. items like the research credit in section 199 domestic production incentives, our

difference is that permanently reduce our taxes paid, and can affect our tax rate. thereby encouraging new investments. and let me just indicate, i was looking as we reading over your testimony last night at marty sullivan's analysis of winners and losers come if there was reduction in the rate of 30% with slower depreciation, repeal the domestic production credit, and repeal the research credit. and this is his analysis, and i think all of us need to look at this and do other analyses. it's really interesting, and it's not very surprising, the industries that benefit from that, and i would just read a few that apply to you, i guess.

securities, insurance, retail trade, these are winners. bank holding companies, real estate, other services. it diminishes on going down line, wholesale, mining is essentially even with construction. and then those who are losers, and food manufacturing, utilities, other manufacturing, chemicals, minerals, machinery manufacturing, transportation, internet. i don't quite understand that. but agriculture, technical services, computer and electronics very dramatically. transfer equipment very dramatically and electrical products, most dramatically. so i think the testimony has

really focused on these larger issues and not on the technical stuff that was headlined in the announcement of our hearing, i think your testimony today does underline the importance of our looking deeply into this issue. when we say everything is on the table, that doesn't really settle what's left on the table, right? in a sense it's somewhat easy to say put everything on the table. we do that all the time here. and the real issue becomes what is taken off and what is left. so we welcome your testimony, and i hope that today's hearing is another step towards our comprehensively looking at these issues so that we can come out

with a proposed revision of the tax code. it very much keeps in mind what our objectives are. and i go back to what i said today at the opening. i do think that with the return of understanding of the importance of manufacturing, we need to look at tax reform in terms of how we promote a continued growth in services, in agriculture, and the like. but also in the industrial sector of the united states. and mr. heenan, that's where you come from. and i think that some what motivates your, i was a hesitation, i think it's kind of a well-rounded response. thank you. >> thank you. mr. johnson is recognized for five minutes. >> thank you, mr. chairman. mr. fryt, how well -- how low

would we have to get the rate before you guys could take over the postal service? [laughter] >> to i have to answer that question? you're doing a good -- i've got a place out in new mexico where you deliver to the door, the postal service doesn't even come. pic if you ever have a problem just give me a call, please. we will help. >> in your testimony you say the id of reform would lower the rate to at least 25%, including incentives for investments such as bonus depreciation. however, you also say you're willing to put all base abroad nurse on the table for significantly simpler and reform corporate tax code with materially lower tax rate. what rate would that be if you, if we were to give of all the other next? >> it really depends, mr. johnson but it depends on what's in the package, but given

our competition overseas, we think he would have to be something close to the oecd right. if you get there, you know, presuming that doesn't continue to decline, i think as chairman camp asked earlier, i could be a good place to be. >> well, does that mean r&d tax credits and those kind of things would be -- you could eliminate them if you got the rate low in the? >> i'm sorry? >> if we got the rate low enough would you go along with that? >> yes, sir. >> i had a meeting with some of your guys and gals. they said 23%. do you like that number better than 25? ..

if you did to a low enough rate, and i think somewhere around a rate that is consistent with the developed world, say 25 percent, i think is a clear winner for our -- us as well as the economy and you could get rid of all of the other. >> of lead said -- >> another delighted to. i would love to keep it, but amaryllises as well. >> michelle hanlon, and his argument he said that it was a more powerful to an overall tax

rates. you, however say, with respective targeted tax incentives such as bonus depreciation there is fertile evidence that the policies have spurred any investments. can you comment on that? >> my statement is based on the light of the evidence. basically there are papers that would show that small firms will shift the equipment to an earlier. , dec. a set of january. also evidence that farmers will purchase a different class of assets. what we can tell and is very difficult the purse out is whether these are, you know, part of it is timing, part of it is shifting, and some of it could just be a change in reporting. when you say a certain class of asset gets a certain benefit they might just our record different assets differently. we can't tell that in the literature. the research that tries to look

at air it affects really far is very little. so just the weight of the evidence and a large sample. >> have you done any studies on the elimination of the incentives and just when the tax rate? >> not directly, no. >> they you, mr. chairman. >> thank you. mr. davis is recognized. >> they key, mr. chairman. i am interested in this discussion have worked in manufacturing for many years before coming to the house representatives. i ran into -- i would like to preface my question, i'll agree with the macro concern that the professor talk about that a rate reduction overall is certainly more beneficial and the long-term and certainly support that, what i would like to come back into manufacturing or airport -- operations capitol manufacturing trying to balance this out in side door dirty the umbrella of the strategy. i work with many clients, discussing earlier three in particular, some of the bus

depreciation issues came out after 9/11 and subsequent years were their were reluctant to make investment into machine cool technology and other systems that would be helpful to them. particularly small businesses under $100 billion manufacturing purse, surprisingly in number of my colleagues from the fortune 500 have that same experience and a reluctance based on market cycle, particularly with shareholder expectations based on the long-term. i guess the question that i would like to understand is how we address this issue of appreciation from a strategic standpoint with the long-term bringing the rates down. it is certainly important to me from both a tax perspective but also having this incentive for investment is a bigger question. considering the long-term affordable to the figured out

kamala like to hear from all of you, but specifically michelle hanlon and timothy heenan the above been talking about this the most. before it will to adjust depreciation schedules within the intent of the overall tax strategy that would provide the ability knowing that the tax liability would be the same to your company and -- in the longer term. in a great year the well is full of water, let's make this capital investments of the blame the up and ready for more difficult times, control costs in the have the ability to invest in those technologies knowing that there will be a downside eventually, the in this -- energy industry, areas that i saw that were reluctant to get involved in making reelected -- investments or if he had a great year, a company can invest in a couple of machine tools and written off in one year, but know that they're going to take that, a lower profit, but the

idea longer term is that those jobs are protected and they become more competitive. where this gives a particularly challenging to me is looking at international manufacturing contrary to a lot of politics in washington. very robust and strong and competitive in manufacturing, is this reluctance with the tier one and to producers to make these decisions, and if they could reduce it down, say, into a two, four, 7-year schedule. if they want to go longer term, that is perfectly acceptable, but how would that work inside of this idea of reaction every good man is that to keep things revenue neutral deferrals revenue neutral and what would that be for wider standpoint? >> just to get on your bonus, then make sure we understand your comment. slowdown appreciation a little bit and keep bonus and. >> what i'm talking about is

allowing the manufacturing company getting ready to make these capital investments. i'm not talking all asset class. i think that would be a grave error that would totally stir up the tax system, but specific areas that are very critical to our strategic manufacturing economically is that the employer would simply have the ability to pick the schedule or the company would put the schedule that is most advantageous to them. other than have these boom and bust cycles. have that fit into the overall tax strategy said that in a good year in one structure you can make the investment that may be a fedex might not make, but within those seven friends. coming back, how would you work that inside of the structure? >> i think i understand your question. just to focus their, we have fairly large capital projects. it could take a couple of years

before you start the process until you finally find somebody and sell an employment. so what we really need is a consistent process that we can't follow, consistent rules, and frankly bonuses have not been something that has been advantageous because we have a bonus that is coming and going not in the lots a day. we need something to mull whether it is a current system more another rate schedule that we can depend on because we have sort of a long cycle time. we have to think forward to a three-year and make sure that the law then will be the same as the law today. if we cannot we will not model that. when we sit around the table and make our investment decision we will say, well, make real up in a couple of years. let's throw that in. >> you looking for. debility. >> here looking for predictability, long time, and it is in our model today.

>> the zeroth time has expired. mr. rangel is recognized. >> they cue, missed a share. they all of you for coming down to give us this testimony. what you congratulate the chairman for moving in this direction. i want to congratulate you. "we are doing is keeping the idea alive . but it just seems to me with the outstanding representation from some of the world's most successful businesses that while the chairman has opened the door for reform, it is going to be your responsibility to put your foot in that open door and not let it closed. if absolutely no profile for all of us to say, reduced the

corporate rate and expand the base. but not my base. i came down here as a tax reformer. believe me, a tax credit, income housing credit, whenever we could do for our veterans, whenever this, we have allowed probably a half a trillion dollars to get involved and what they call expenditures. anyone know what that is? those text divisions that expire tomorrow least we say there going to expire, and all their want to do is get them in the code. someone said seeing tax law made it is like seeing sausage made. you just don't want see it. no, what i am suggesting is that if this outstanding group of corporations that you have

listed, how often do you meet this group deferrals what is the name of them? >> reducing americans deferrals. >> yes. because our problem here is that the lobbyists represent the best tax interest of the client. reform is not on their agenda. if they came back the vice-president and presidents and say what a great talk i had, we will have to give up and accelerated depreciation, among other things, but this is a fairer system. you would get fired. this job is to broaden the gap or to create one temporarily, but never allowed to sunset. so what we do need a people that have the kind of ability that you guys have and ladies to get in the room and to find out what

we can get away with as elected officials. nobody is talking about getting rid of charitable organizations and churches for exemption. it's a lot of money there. of course if you talked about mortgages you have to narrow the amount of people, the number of deductions that are and there, who is going to bite the bullet to get rid of them in order to have a more fair system. i am asking fedex and time-warner, what can you do to get people in their room to say, we are not agreeing to anything. all we say, this will be the impact economically. how can we take this to the next step because we need -- i was year 1986. we had a tip o'neill. all he knew was how to get along with republicans.

why, i don't know, but that was the way he worked in him. we had ronald reagan, and he was blinded by party lines. they were able, we were able to get what we thought at that time was reform. it's difficult to talk about reform. it's a who is being bored, so it doesn't surprise me that if you make 35 percent tax, what does surprise me is that you're not out raised to melt raids. don't think us. what are you going to do about it? because you have a great argument in terms of equity : nobody is going to be out front saying that we are going to get rid of some of the things to put an. some of which we have forgotten. and when we extend this whole package, and you can see some of the things that my colleagues

are talking about, just to pay for the holiday texts. they have the imagination. but it is not -- so, mr. chairman, i was trying to negotiate you go above my time is over. i was not persuasive, but could one of you just say what you could do in terms of taking this to the next step? >> absolutely. first off, would like to commend you and the efforts that you put forth. >> the gentleman's time has expired. maybe she could respond. mr. noonan is recognized for five minutes. >> mr. chairman, i yield my time. >> thank you. very interesting comment. i do want to point out just for the audience and for the record what the former chairman

mentioned that nobody is talking about the charitable contribution that actually in the presence prior three budgets the president has kept the deduction of the charitable contribution. i just wanted to remind the settlement regarding the president's last three buzzing and what he proposed. obviously it was not adopted by the congress, but there was one person in washington who was talked about, the issue in the context of reducing that charitable contribution. i wish mr. lewis were here because the end i were chairman of the five to be caucus and have both opposed to that as co-chairman of the fallen to the caucus. to the witnesses today, starting on the left, those of you who are vice-president for companies dealing with tax issues, can you tell me who your major competitor is and how of the current tax code causes you to make decisions based upon investments starting to left?

>> sure. the united states postal service , ups, their tax profiles are fairly similar to ours. we have several international competitors and others. as an example of their reported e t r effective tax rate over the past ten years has hovered around 20 percent bees of the heart 36, 37%. that is why i say as paying what we are right now is a competitive disadvantage because they have additional after-tax was that they can continue to reinvest in their global networks that we don't have. >> and they compete with you here and abroad. >> our main competitors are the two big boys, at&t and verizon,

directv. as far as the impact of a communications industry i think verizon and at&t are much more similar than even this satellite companies, although the difference is not that large. we are all capital-intensive companies, and for us tax reform is more about getting this economy stabilized and the growing because that is really where our growth will come from. >> so even though you don't compete -- i'm trying to get more of an answer from you. at belmont to put words in your mouth, but let me tell you what i'm trying to do. even though you don't have a "and "international competitor you are competing internationally for capital so the tax code impact you how? >> if you look at some of the analysis and resources has been done, companies with lower effective tax rates to have an advantage when it comes to gun reinvestment from the global capital markets. so, from our vantage point that

is clearly an issue. also, from -- it just the perspective of raising capital and also being able to invest more and grow our business, an economy that is more robust is going to help us on both fronts. >> so because capital can go anywhere in the world, it's going to go -- >> it is going to go where they believe the highest return is of their investment. >> so even though you are a company investing in the united states in terms of jobs and more jobs in ohio, thank you very much. >> thank you. >> even though you are a domestic company, domestic jobs, that international competition in terms of tax rate is very important to the growth of your business in america. >> it is commanded is also very important to our customers. our highest growth area is in the commercial services arena, and our customers, small, medium , and large, they do compete intensively in the

global markets. our success is tied to their success. >> thank you. back there. >> good morning. i think in the u.s. we have, you know, we are competing against their products, u.s.-based multinationals. outside the u.s. we have french and german companies. and we look at the u.s. where we are doing business, all competing at the same rate. as you said, capitol can move, so when you looked at the foreign projects, what we really want to mend a think we have today, maybe not perfectly, is to have a level playing field on the tax rates of short. so if we are looking at a project in mexico or france or germany we want to be on a level playing field with a competitor so that we can win our share of those projects. headquartered in bamberg, connecticut. have our r&d in new york.

that offshore growth comes back here to the u.s., so it is important for us to remain competitive on offshore projects >> thank you, thank you, mr. chairman. >> mr. brady is recognized for five minutes. >> thank you all for being here today. first appreciate the chairman holding this hearing. secondly at think the proposal on territory ellen lower rates was laid out and has been very positive and helpful movement toward fundamental tax reform. all of the witnesses today have opened up a lot of questions on how we move forward and doing it with the most pro-growth impact, weighing both the book and the accounting tax the type of requirement that you are under. i wanted to ask, if i could ask all of you about a dozen questions, i wanted to ask our two business representatives from fedex and time warner.

both of you rightly make the case that in addition to lowering corporate tax rate that there is a need for capital investment in sectors -- invent -- investments. you're willing to put everything on the table recognize looking at the last 40 and 50 years the single strongest correlating driver for new jobs, you know, is private business investment. you are building new buildings combining software, new equipment and technology, jobs on main street, growth. so my goal is at the end of the day, i want the lowest possible tax rate, but i want the strongest possible pro-growth tax code, one that allows us to have the largest economy in the world, not until china catches us or someone else, but for the next 100 years. i want to ask, as you are

willing to put everything on the table, which i think is very important to promote what are the strongest -- looking at the cost capital and investment, what is the strongest capitol investment incentive that ought to be considered to remain in the tax cut? >> from our perspective 100 percent on a permanent basis would be extremely strong. investment tax credit can be crafted in a similar manner if there were some issues. expensive works quite well. it does not address the financial reporting tech issues that michelle hanlon was talking about earlier, but it still affects cash flow and has a tremendous effect on our environment and others for the companies like us. >> 100 percent expensive would be -- >> yes. >> all right. mr. mark schichtel. >> for us the biggest driver when it comes to investments is

a growing economy. so i think if we can get their, all else -- all other problems will eventually improve and rectify and remedied. as far as immediate short-term policy, clearly bonus appreciation expanding is tremendously important right now we are being hit by the reversal of prior year benefits and bonus appreciation, just as our economy is struggling to pick up a little bit of momentum. i think now is not the time to have those reversals take full effect. i think overall if you can get to a low enough rate it will encourage growth and it will more than make up for the loss of some of the tax incentives, including evening ends up -- even accelerated depreciation, but that means getting to a much slower rate, somewhere around a

45%. >> clearly 28 percent, getting down will be, you know what i mean, will be a thoughtful discussion. with little time i have left, can i ask the other witnesses your thoughts on the strongest pro-growth tax cut? >> just a little bit different than profiles and some of the other companies as i mentioned earlier, bonus appreciation is not helpful. if it were to be a permanent fixture in the tax code we would put that into our decision. >> which is what we are seeking, a permanent tax revisions rather than temporary. >> but i think we recognize that would be extraordinarily expensive, and we need revenue, so i think that current provision like that is accelerated depreciation, so that would be the one that, practically speaking, you might be able to keep if you go to a permanent data structure. you're going to have a very costly solution. we'd be happy to take it, but i

think it would cause too much for the country. >> we are running short. >> looking at permanent bonus appreciation or permanent 100 percent. first you right off, generally argue that you would also need to repeal the interest deduction in order to prevent-effective tax rates. the need to think about not only expensing, but also the impact on the interest deduction. >> thank you. >> mr. mcdermott is recognized. >> thank you. i want to the audience and the witnesses to recognize that this is a day in which we have all gathered here today with sober faces for holy pictures. we are all for tax reform. everybody in this room is for tax reform. we do tax reform, right?

now, mr. johnson has asked you, have you studied how low you can get the tax rate if you eliminated business tax expenditures, and none of the witnesses -- all the witnesses said that they have not. i just want test you to enter into the record the study from joint tax dated 27 october 12 which talks about what you would really have to do if you're serious your. now, the study suggests that roughly half of the cost of the seventh reduction from 35 down to 28 would come from the repeal of depleted -- accelerated depreciation that all the companies have said is very important. don't take away our exhilarated depreciation. you can only finance about the

3 percent reduction, three and a half percentage. this report says that you're going to bring it down to 28%. you have to come up with $960 billion, of which 560 comes from the appreciation reaction i wonder what you would actually support because as mr. riegle suggested tax reform in 1986 occurred after ronald reagan came in and played golf with tip o'neill for five years. it was before the global economy had really taken hold. so we are talking about a new world that we are trying to reform than the one there are talking about in 1980. what would your views of what we

should do? what are the things that are most important that you are willing to give up or shift off on to somebody else? yes. >> yes, congressman mcdermott, we elected to join a committee estimate from october, and we looked at the provisions of the estimated end scored in terms of base broadening, and they represented $209 billion of of the total corporate tax expenditures, 545 billion, so it was only 40 percent that they actually stored. there was another 185 billion, both corporate tax expenditures that eight have not yet estimated, so i am actually relatively optimistic that when you really take a hard look you can get down to 28 percent and even possibly 25 percent. when i look at 1986 tax reform

act and a look at the base broadening that occurred from tax expenditures it was only 60 percent of the base broadening. a 40% of the corporate base broadening in 1986 was not from tax expenditures. i think the tax treasury and elsewhere, if they look card will be a will to find additional base runners beyond just the tax expenditure list. >> net 195 billion you talk about, can you tell me, what other pieces and that you have to get rid of? >> i can't. we have a link that to the tax expenditure less. 40 percent of the estimated tax expenditures have not yet been

estimated. >> i think that we would appreciate it because everyone would appreciate if you would give us what your estimate, at this anybody else have any ideas how to do this? >> i would like to echo the comments, sort of a quick fix answer is difficult to give. i think we have to look line by line that each of the expenditures and balance that and weighed against the benefits of tax rate reduction. certain expenditures will be more important for growth, and that will equal jobs and we will want to retain those. others we can look at a pro way. i think everything should be on the table and we have to have a very serious conversation about which ones we want to take out and which ones who want to keep. ..

>> or particular sectors of the economy. do you agree that primary objective of tax reform should be to address these kinds of distortions in tax laws? >> well, i think tax reform really should have the goal of trying to make our tax system much more pro-growth, simpler, and fair. and in 2010, the house as part

of the expiring provisions, include a provision that was not ultimately enacted a record the joint to record the joint committee on taxation to look at all the expiring tax provisions and an analysis in terms of the cost benefit analysis, who the beneficiaries were. i think it's that type of analysis that really is important in terms of looking at all these provisions. the congress has previously enacted. some of them, you know, very well may be keeping as part of tax reform. others through analysis, may be outdated and should be eliminated. >> thank you. >> i agree with tom. i thin think the affair, simpler approach would be the best approach to take. what i have most companies an action is that they are willing to make these trade-offs. they're willing to put things on the table. they would rather not that they're willing to do it if it

will get into a lower rate. we conducted a survey of executives and we asked them point blank, we said is the u.s. corporate tax rate into your competitiveness. almost 80% of them suggest unequivocally. so i think these things are very important i think a permanent lower rate, a stable tax structure that is predictable, i think that's the best way to go. >> so the cost benefit analysis, a thorough review of pro-growth policies, simpler tax code and a fair tax code, would that be accurate? i see nodding of heads but i see ms. hanlon hesitating. >> i'm not hesitating. >> you are supposed to say yes. >> i become it certainly wouldn't help -- hurt job creation, that's for sure. >> the second question, according to train force written just when, since 95% of the world's population and 70% of

its purchasing power is today outside the united states, it goes without saying that global markets are a critical component of the future growth and success of the united states businesses. how does the success of the u.s. global businesses impacted jobs in the united states? >> i think we are a great example of that, mr. ryder. also in my written test what i concluded some statistics about our growth since 1989 when we first got into the international, start growing our global network in earnest. and u.s. member can't has grown from 56,000 members to 290,000 members today. it's symbiotic. global growth in u.s. growth have increased in tandem, as our global networking has gone. and we've seen that with our customers as well. as you point it out, 75% of the world's purchasing power is outside the united states.

today, there's a huge market. and its increasing. and it seems to me to be something that we need to tap into very effectively in this country to address some of our revenue issues. >> anyone else like to comment? >> yeah. i would reiterate those comments, and we, our headquarters in denver and connecticut, our r&d is in new york. when we grow globally, when we wind projects globally, we get jobs here. those folks are working on those projects, and it's not as good as a project here in the u.s. in terms of how many more jobs, but it is adding jobs. so global competitiveness is critically important. >> one of the things we struggle with here in this committee and in congress is, we want to see the united states trade, right, 95% of our work as we said is outside this country. we can't all by american here in

the nested. we want other countries to buy american. my time is up on a want to ask your help. please deliver the message that trade is good for our global economy, global economy good for the united states economy equals jobs. thank you. >> mr. pisano is recognized. >> think mr. chairman. i want to clarify something that came up during dr. mcdermott's line of question. and that is the joint tax analysis that was done. and mr. neubig pointed a couple things out but i think this bears emphasis, reemphasizing these facts about that specific report. first and foremost, the estimates are not complete. and secondly, they are not comprehensive. and, in fact, only 60 out of 150 measures have been scored, and those are preliminary. that consistently rate of 28%. so i'm optimistic that we can actually get to a lower rate once we have a full analysis of

all these measures. so i think we need to keep that in mind, that the joint tax analysis is not comprehensive at this stage, and incomplete, and her committee will have to continue to work to get to that point. professor hanlon, we have all been very concerned about the vast number of temporary provisions in the tax code, and the uncertainty it's created that oftentimes these get renewed retroactively, creates a lot of problems. certainly from a compliance standpoint. i would like you to elaborate on how do deal from a financial accounting standpoint with these, and talk about some of the problems that very in line with these temporary measures. >> the temporary provisions i think cause similar difficulties on the attack site and in the book side in a way that they are just unpredictable. so it's hard for companies to

plan. it's hard for them to make long-term investments, given these fits and starts in the tax code. and a counting just will fall out in a sense accounting just account for whatever happens. but again it's hard for them to reject what the effective tax rate will be come and their benchmarks often on the effective tax rate. other companies so for. so i think it's unpredictable for them. it's hard to make decisions when things are in flux like that. >> thank you. gentlemen, you all are looking at this from the private sector. could you comment on an investment decisions, and just the general uncertainty that arises as result of these temporary provisions? >> uncertainty is definitely a huge impediment to investment, and to i think rational growth and overall development of the economy. it's very difficult for my boss, the cfo, and for our coo and ceo

to figure out what we're going to do over the long term and try to figure out how to analyze the impact of tax policy from both a book and tax perspective, much less explain it to our investors and our analysts. and so it is always an issue that has brought out each quarter on our earnings calls, and it is always brought up by the analysts when our investment relation folks are meeting with them a. >> okay. would the gentleman yield? >> i will yield to you. >> my understanding that the joint tax study that i talked about and that you responded to, the chairman said that they should only analyze domestic tax expenditures, not international ones because he intended to use the international ones for reform of international tax structure. i don't know there's a single

domestic tax expenditure still left on the table. unless you do. >> we need to recognize, we have incomplete information at this time. and just to proceed cautiously based on that. >> thank you. >> mr. neubig, in your testimony you pointed out the growth of intangible assets. this is clearly a new area, or and expanding it we need to be looking at as we go forward. and clearly lowering the corporate tax rate would bring down effective rates for both classes of assets, tangible and intangible. elaborate all of it on the difficulties in applying appropriate tax policies to intangible assets. can you further elaborate on that? >> well, i think the economy is clearly change from the 1986. in addition to globalization, what we have seen is a very significant increase in the amount of not coming in,

property, plant and equipment, but the intangible in terms of the programming, the copyrights, patents, the r&d. and recent federal reserve board economist study showed that investment and intangible assets was as large as the investments in the property plant and equipment. and you look at the companies and they're concerned about intangible investments and their tangible. and so, a lower corporate tax rate is a positive effect for both of those investments. and, in fact, if they're really high returns that are earned by the u.s. companies that are doing that type of r&d, they will benefit significantly from a lower corporate tax or. it has both the benefit of try to keep those intangibles in the u.s. versus offshore. >> thank you. anybody else want to comment? >> the gentleman's time has expired a. >> thank you.

>> mr. neal is recognized. >> thank you very much, mr. chairman. the common theme this morning is twofold. you're certainly asking for a lower rate by 2004 you're asking for greater certainty. and how we go forward. i have just been reading bruce bartlett's book. i always find how liberating it is for former staffers to leave the hill and then deride what they deem to be a more truthful version of events. dave stockton as we all know has taken the same position, forcing himself amok, happened here in terms of embracing theology as opposed to reality of trying to administer government. mr. schichtel, you indicated that u.s. has lost 46 fortune global 500 company headquarters in 2011. and why do you think those companies specifically moved outside of the united states?

and perhaps just as important, we're tax considerations the only reason for those companies leaving? >> i don't think taxes are the only factor, the only driver. i do believe that lower tax jurisdiction and the ability to produce greater returns for their shareholders have played a huge role in driving a lot of companies overseas. >> any other -- the other panelists? >> if i was the author of that analysis, fortune global 500, i don't think we found in the u.s. companies actually leaving the u.s. that is talking about the number of companies that happened to be in the top 500 around the globe. and what we are seeing is there are an awful lot of large companies from the bric

countries that now are among the top 500. and they are now larger than the number of former u.s. companies. so it wasn't that companies were actually leaving. at least in terms of this particular study. it's that we're dabbling in the global environment where u.s. companies are competing much more with companies from other countries, not only in europe also in china, brazil and india. >> production can happen anywhere now. what about the other panelists? would you care to -- >> mr. neal, i know there have been instances, i think the chrysler merger of two years ago with daimler-benz was driven at least in part by tax considerations. and as you know, that was one company that did end up with headquarters overseas. and certainly in the '90s, early 2000s we saw some expatriation. some of that was driven by tax

considerations, perhaps not all of it, but it do think it was a major consideration. >> ms. hanlon? >> i would ago the comments. the rules now in terms of leaving the united states are pretty harsh. congress has taken care of that movement for tax purposes offshore. and it's more, as we've said, offshore companies getting bigger is what you're saying. >> all right. ms. hanlon? >> i would agree with all these things but i think tax is one factor but the research is quite clear that investment is attracted to lower tax rates, but it is only one factor. there's a lot of other things that companies consider. acquisitions do happened generally whether for and acquire will acquire the u.s. company but oftentimes because of the tax considerations, you would want to acquire a u.s. company would want to acquire foreign. it would be hard to acquire foreign company and poll that foreign company into the u.s. tax system.

and is also depends on the type of business whether investment, how much tax drives, where the investment goes based on the tax rate. some companies just have to go where their customers are. but more tangible based on hickenlooper and more easily so taxes will be more important driver for those types of companies. >> mr. neubig, maybe you could speak to a phenomena of japan in the sense that stagnation has paralyzed the economy for decades but if we were sitting here just 15 years ago, the argument that we are currently making about china would be the argument, the topic we're making about japan. are you arguing it is tax rates that have kept them from -- >> there are a lot of similarities. the 1980s, you know, congress was facing not only intense competition from japan but also large deficits. i was impressed in 1982, 1984 leading up to 1986 tax reform act that congress did address

the deficits. it did show that there could be some tax increases, which set up i think the right dynamic for a revenue neutral corporate and individual tax reform in 1986. clearly, japan's high corporate tax rate, now it will fall below the u.s. as of april 1, i think was a factor in terms of the japanese companies not being as successful in the world markets, in addition to all the other problems that occurred to their lost decade. i think a lower corporate tax rate can be helpful in terms of economic growth. when i look at the top 15 economies in the world, the u.s. as of april 1 will have the highest combined corporate tax rate. >> the gentleman's time has expired. >> thank you. >> mr. price is recognized. >> thank you, mr. chairman. we are all here, interest in not

just tinkering with the number to tinker with a number. we're interested in getting our economy growing as rapidly as possible so that people can get back to work and realize the benefits of their labor. and their own dream. i would suggest to deficit spending at the current level is a huge drag on the economy, but that's not the topic for the discussion today. the topic is tax policy, and i want to focus on hopefully three issues very quickly. one is the rate. to is the cost of compliance, and three on a potential alternative. we talk about the corporate rate being the highest in the industrialized world. after april 1. that's astounding. all we are doing is punishing businesses who are trying their best just to stay in business here. i'm not so certain -- so that's a disincentive to expand or to

create a business here. i'm not so certain that getting the 25 or 20% or whatever the oecd average is isn't just a breakeven. isn't just a wash. if folks are looking at their balance sheet and they're saying if it's 25, 20%, that's the average of oecd, countries, and a slice nations, then everything else being equal doesn't make a whole lot of difference. wouldn't it be better for us to have a much lower rate than the average of the oecd countries? >> couldn't agree with you more, mr. president actually the most destructive attacks that can be levied with an economic growth standpoint is the corporate income tax growth. oecd has a good study on that. in an ideal state, just take it to zero. get rid of it. make the business community more productive. but to your point of 25%, if that's what it was, you have to add to that the state rate as well, three or 4%, so your 20,

29. but at least it's a lot closer than where we are today. >> so it may be good old american ingenuity can bridge that, i don't know. but it is a fair point. >> great faith in american ingenuity if we don't stifle it here, and that's one of the concerns i have it isn't a superset with the greatest pro growth rate for business and job creation? >> i would argue it is. >> i agreed to come on down. mit. >> yes, but i think the lower the better. you and your% would be the most pro-growth policy we could have as it relates to business? >> just. >> i think there are important government services -- >> without a doubt the. >> highways, airports, defense, and so i'm not sure if they euro rate is what can would necessary be the best. >> but for pro-growth policies as relates to businesses, isn't

0% the best speakers i think business are looking more than just the tax or. they are looking at all the factors to make the american economy successful. so i guess i'm not convinced a zero rate is the optimal rate. >> let me ask you about the cost of compliance. what is the cost of compliance of our current code quick do you have any sense of what that is and how that challenges you in your business? >> it clearly is very significant, and in addition to the 39.1% marginal statutory rate, you also have to factor in a very high cost of compliance. and the cost of uncertainty in our current u.s. tax system. i don't have the exact figures. other academics made those estimates, but you clearly have a benefit by simplifying and making certain the code that in combination with a lower corporate tax rate and the certifications could be very significant. >> do you have a sense about the magnitude of the cost of compliance?

is it another percent? is it another 10%? >> i've seen some estimates, yeah, the efficiency costs including compliance cost could be as large as the entire corporate income tax been as large as the tax itself? s. done. which brings me to the alternative. but with the consumption tax, doing away, what would a consumption tax do for your businesses and for job creation and the economy? mr. fryt, any thoughts on that? >> from a very high level, i think a consumption tax is probably prefer to corporate income tax because orbiting contacts in effect penalizes work, productivity. consumption tax penalizes consumption. whether it's realistic or not is different. >> for it incentivizes savings and allows consumers to make their own choices, things like that. >> write. >> i agree with mike's overall state of but i think it does require a great deal of study

and analysis because of the impact on prices and on consumers, consumers that have limited discretionary income to buy our services as well as others. also, there is an element of progressivity that we need to be addressed. but overall it certainly should be something that is considered. >> thank you, mr. chairman. >> mr. smith is recognized. >> thank you, mr. chairman. and thank you to our panel today. it's always interesting as we try to work with these issues. i don't think anyone is pretending that they are simple or that we have got indeed the answer here. but if you want to reflect a little bit on ideas the interrelated nature of a lot of these businesses, and i won't ask whether time warner uses fedex or ups. that's not what i'm getting at here, but -- [inaudible] nonetheless, is there any

concern, knowing that fedex, for example, it is a consumer of manufactured products and that the manufacturing industry, domestically, you know, has a bias in favor of the r&d and tax credit i would understand. is there any concern that maybe the products or services that you use within your own companies and outside your own companies would have an adverse impact? ..199, for example, why did

that line get drawn quite that way. it's those kinds of issues that you're exactly right. >> anyone else? go ahead. >> i think you're right. i mean, all of -- all of our businesses are interconnected in one fashion or another. it just depends on the degree of separation. that being said, i agree with mike here as far as the complexity and the inability to predict what's going to come from all these various different tax policies and also a very real concern as far as fairness. you have a situation here -- if we can move away from this level of complexity and all of the th

may have more -- a bit more leverage than a lower tax rate and we have to look at that very closely and we ought to do it -- what's right, i think, is what promotes growth in jobs and that might not be equal but it's probably fair for the country overall. >> okay. thank you, i yield back.

>> mr. kind is recognized. >> thank you, mr. chairman, i want to change the panelists for your testimony today. always very illuminating and interesting. let me just raise a couple of concerns and get your reaction on a few things because sometimes we're not really comparing apples-to-apples. i think everyone is in agreement that the goal should be to try to lower the base, simplify -- expand the base, lower the rates and simplify the tax code and if the goal is 25% according to the oecd countries, it doesn't take into consideration the v.a.t. systems that they have in place right now to supplement lost revenue from the lower corporate rates. there's no discussion about a possible v.a.t. in this country in order to attain that lower level. so if we're going to do this in a deficit neutral fashion we're going to need a way to pay for it as well. here's one of the concerns i've been raising consistently. the best we can do on the corporate side eliminating every tax expenditure, every tax credit is moving from 35 to 28% rate. would that be sufficient, mr. fright and mr. schichtel, a

28% rate and limit every expenditure. would that make us competitive. >> i don't think it would. >> mr. schichtel. >> i agree with mike. then we need to pay for the additional 3% to get to the 25 and if the proposition we're going to go through the pass-through side where the majority of entities are structured, i don't think they will be that enthusiastic, small businesses, s corp. in order to pay for lower corporate tax rates in this country, that ain't going to sell politically in this country. so we're going to have to find a different revenue source in order to get to the 25% rate if the goal is to make this deficit neutral. that's where it's going to get difficult and that's why you don't have a detailed plan for the majority on what specifically they're proposing because they know they are going to have to get in those weeds immediately overnight and the political pushback is going to

be tremendous. i wanted to pick up what mr. price was addressing 'cause i think it's very intriguing. here are the numbers for last year. federal government collected total revenue of roughly $2.3 trillion of all the revenue sources of that 180 billion was on the corporation side, roughly 7% of federal revenue was collected on the c side. that's roughly 1.2% of gdp. so we're tieing ourselves up into knots trying to figure out how to lower the separates when we're talking about roughly total 7% revenue to begin with, maybe we should explore further eliminating the corporate rate entirely but we're going to have to pay for it and that again is going to be the rub of how we do it. mr. price talked about the consumption tax, i don't want to do it in a regressive fashion. my fear is that a consumption tax is going to be very regressive. it's going to hurt low-incomed families that have to spend every dollar that they earn through that consumption tax so maybe there's a different way that we could maintain

progressity and pay through some sort of wealth tax. i don't know how many of you had the chance to play the op-ed tax but david miller wrote a very interesting article. did anyone read the article, it's called the zuckerman tax. it will get about $28 billion worth of shares, most of which he'll never pay a dime of tax on. and what mr. miller is advocating why don't to mark-to-market on a given share and pay persisted which may realize which it doesn't occur in his lifetime and he if he pass it is on those heirs they may never gain those shares and that's why we have huge wealth disparity in our country because it favors those accumulating shares that never get realized and they are able to borrow off those shares in order to maintain their living standards so maybe there's a way for us to explore and trying to eliminate the corporate tax rate entirely given the small percentage of revenue it ultimately brings to the country, helping our

countries be more competitive but keep progressity in the tax code and make it fair and start exploring ways to tax wealth to a greater extent to pay for lower or no corporate tax rates in this country. we would probably put you guys out of business. you guys would losses your jobs as far as corporate tax is concerned. what i'm hearing you lower the better and zero might be ideal. that would be a real game-changer around here rather than us going through this kabuki dance with these hearings with no detailed proposals because of what that's ultimately going to look like. and then further -- my last concern is, listen, if we even get to 28% by eliminating all the expenditures on the c side, what is that going to do to domestic manufacturing who depends on depreciation, for r & d and for 199 tax credit. is that going to help domestic manufacturing or hurt domestic manufacturing if we take those expenditures away from them and will that leave us less competitive in our ability to make things and invent things

and create things and to grow things in our own country here. so those are some of the issues that we're raising and maybe you guys can help us try to figure out a way of supplementing lost corporate tax revenue get to a zero rate and let's keep it progressive and fair ultimately. >> thanks. >> the gentleman's time has expired. ms. jenkins is recognized. >> thank you, mr. chairman. and thank you for holding this hearing. as a cpa who used to practice in this area, this has been a real delight to have you all here this morning. i'm not sure i've had this much fun in the year that i've been on the panel, so thank you. [laughter] >> and -- >> i'm glad the gentlewoman is redefining fun. [laughter] >> this is good stuff. and since the focus of the hearing has been on those areas of book and tax differences and where they diverge, do you all have some suggestions as far as

reform goes to address that because it appears -- what we've been talking about to this point has been to move towards having less differences on tax and you have all briefed on it and can you all give me your idea on book tax conformity? >> so some degree i think there's some benefit there. i would caution about going to the extreme and putting control of the tax revenues in the hands of the accountants, fasbs with all due deference to the cpa, ma'am. but to the extent that you give simplification out of that process, yes, i would agree with that. >> okay. i agree that i certainly wouldn't want to see control ceded to the fasb and to achieve conformity with gap and

international standards because i don't think they're necessarily reflective of real economic lives. i think when you look at different industries and different classes of assets, the lives we have for tax purposes is more consistent for reality than what you see from a gap reporting perspective but i do -- i do believe that if we move towards greater reform and low enough tax rate that some of the differences -- the large differences between book and tax would have to be eliminated in order to fund that. and that consistency probably would be beneficial overall. >> okay. this is a great question. i think one thing to notice is that book tax differences -- when we talk about them in this arena it's not that all of them cause problems. it's just that the permanent kind are better than the temporary kind because that allows you to also increase your accounting earnings. i've done a lot of research on book tax conformity actually and i think it's a bad idea. the first thing is accounting is

very conservative in their rules so that means we make expenses, we accrue expenses very early before they actually happen in cash flow, for example, bad debt expense and so forth and i think, you know, the tax code generally has not favored such treatment. also, there's a lot of evidence in the literature that book tax would reduce tax accounting in the earnings. the rules are set up for two different purposes. the accounting earnings are made -- the rules are set in order to inform stakeholders and the evidence based on the 1986 tax reform act when a certain amount of firms are set to increase their reformity and the evidence and several other studies basically show that's in accounting earnings will go down if you conform those earnings. i also share the concern about who would make the rules after the conformity would happen, if it would be congress, fasb or the international accounting standards board and i think that would be very hard for the u.s.

to handle the international standards accounting board determining our tax base and so i think there's a lot of reasons book tax conformity wholesale is a bad idea. i think there are different things between book and tax we can look at but wholesale book tax conformity is not a good idea. >> i guess, i would agree with dr. hanlon's comments. just as an example the discussion about moving to ifrs has impacted in terms of some of the discussions about u.s. tax reform because if you move to ifrs then lipa would be allowed and it would eliminate the ability for some firms to use last in first out accounting. so i think there's clearly different goals for the accounting rules and as a tax-writing committee you have different goals including revenue are your objectives. >> i'd agree with most of what was said before me.

i think really there's -- the accounting rules are there for something completely different than what our tax rules should be there, for our tax rules it's the revenue and it should be done that promotes growth, investment, jobs and those are just two completely different worlds and so i would -- i would encourage us to keep them separate. >> okay, and i have just a few seconds left so could the businesses just quickly talk about -- we talked about reforms and the challenges to reforms. could you just talk about the cost of inaction to your business if we keep the status quo? >> i don't think that's a good option. i don't think the status quo is where we want to be. >> all right. >> i think we're seeing the results in the economy as far as what happens if you do nothing. i think taxes -- although it's not going to be the only factor that drives economic growth it's

tremendously important and i think our lackluster growth and difficulty in coming out of the recession are in part due to our overall tax structure and lack of competitiveness. >> thank you. i yield back. >> okay. >> mr. paulson is recognized for five minutes. >> thank you, mr. chairman. i've really enjoyed the testimony this morning and i think it just follows on the heels of a full year of hearings we've had on tax reform and the message has been pretty clear from the folks here today as well as the folks that have testified in the past about the need to provide certainty for companies that are investing their capital on a 5-year, 10-year and a longer horizon rather dealing with these temporary tax provisions or extenders that can create a lot of difficulties not only for the company's planning but the accounting side of the equation as well. and, you know, the u.s. is trying to play catch-up that we have a tax system that's fair as well as a simplicity component and it is important to focus on the competitive side and the progrowth side. here's my question, i know the

united kingdom is moving forward with a tax reform and other countries are doing this. they doing it staggered and lower their tax rates, are we better off to sort of just rip the band-aid off, do this fast? lay out where we're going to be in the long term? and, you know, take the pain, if you will, of what might be the effect in the short term of a year of some of the changes that will be out there or should we phase it? should it be gradual as the united kingdom or other countries might be doing? which is the way to go? >> i think there's tension from our business and my business' economy and the economy's perspective it's better off doing it quickly, making a large scale reduction in a corporate rate. there are some arguments to the other side that you save some revenues by ratcheting it down slowly over time and maybe that helps you get to a revenue-neutral equation or solution.

>> i agree. i think resetting the baseline, do it once and then move forward provides the predictability. there may be some items you may want to look at as far as transition rules but i think overall it's time to just do it and do it now. thanks. >> mr. heenan? >> yeah, i mentioned earlier we spend 2 billion in practical and when we miss it's a big deal. if we spend $200 million in the wrong place it's a big deal. i commend chairman camp for taking on this difficult task. i would just say this is a big deal. and if we miss on how we do this, we're going to regret it. i agree that we should move quickly but i think we really have to be cautious in looking at the specific expenditures and the specific way we do this. we don't want to miss on this one as a country. >> i guess two points. you know, phasing down the corporate tax rate has been done in canada and the united

kingdom. if the alternative is not doing a lower corporate tax rate i think phasing down would be much preferable. in the case of the united kingdom they have a parliamentary system, and they have announced that they are going to get a 23% corporate tax rate by 2014, '15. one interaction in terms of the financial accounting rules is my understanding is that they have not officially enacted the 23% rate. they are doing the reduction from 28 to 26 and now to 25 in the current year on an annual basis. and part of that is an interaction with the book accounting because when you lower the corporate tax rate, there are effects in terms of deferred tax assets and deferred tax liabilities. it's a benefit in terms of the companies with deferred tax liabilities. the majority of the top 50 companies have deferred tax liabilities so they would benefit. there are some companies that

have deferred tax assets from loss carry forwards and some of the compensation and lower -- lower corporate tax rate would reduce the value of those deferred tax assets. and so they have decided instead of you go from 28 to 23 in one fail swoop, they're going to, you know, announce it but they're going to, you know, enact it through parliament over the next four years. >> if i could just -- >> one quick comment that just came to mind, you know, one of the things -- if we announce today a phased-in process i think we have to be cautious about it. does it really give us certainty? other countries have announced phased-ins and the economy turned south or their revenues isn't there and their phased-ins become a freeze. so, you know, going back to the certainty theme, the challenge of a phase-in are we going to be convinced as businesses that's going to be there in two, three, four, five years? will the phase-in really happen or will we put it on hold when

revenue needs overweigh the tax reduction. >> do you want to close? >> i think the one time noncash impact from repricing our deferred tax liabilities and deferred tax assets will be largely a nonevent from the investor and market perspective. what they'll look at is the long-term impact on cash flows and operations. >> thank you, mr. chairman, i yield back. >> thank you, mr. stark is recognized. >> thank you, mr. chairman. thank you for the hearing and i thank the witnesses very much for their participation. i wanted to ask professor hanlon if she knew how much she and i had in common? >> no, i don't but i'd like to hear it. [laughter] >> well, you will.

if you signature out the 1953, long before you were born, catalog of the sloan school, you will find at the very bottom of the list my name as a teaching assistant. now, you got there through a resume that's of accomplishment and academia that is outstanding. i got there in a somewhat different manner. up until 1990 -- 1953, mit had a perfect record of placing its graduates with general motors and general electric and all the companies, but they came to the end of the list in about september and one stark was

still unemployed. well, they solved that problem. they said, we'll make him a teacher. and i must say you have improved the has a of the sloan school magnificently and making accounting more attractive than what i remember being -- whatever was next to the window. and i want to thank you. but something in more seriousness, i'm concerned about some of the issues that we create tax expenditures for, and their usefulness. and i'm going to ask you -- you may not know now but you may know someplace in your -- in your literature, has anybody done any study as to the

usefulness of whatever is created through these tax expenditures? i give as the example as orville redenbacher got the r & d tax credit to develop microwave popcorn. you couldn't make a case if it didn't stick in your teeth but it could help the society but in all seriousness, i'd love it if you know of or could dig out in the accounting research if anybody has done a study on what the actual usefulness the society has been in many of these tax expenditure areas. if you would be willing to spend a few minutes of your spare time and dig out something like that, i'd sure love to have it.

>> i can certainly look at that for you. i think the one thing that has been looked at in the literature is in an r & d study, for example, when they look at the data, they might see what looks like an increase in spending. but what's been looked at is, you know -- is that really more r & d that results in more products or does it say a rise in the input prices? and there's actually one study that shows that all the increase in r & d spending actually goes to salaries, r & ds so it's not more r & d it's just paying engineers more. you know, whether the input providers actually demand a higher price for the inputs when they know that the other party has an r & d credit. so that part has been looked at and there's some mixed evidence on it. but i don't know of a study -- because that would take some researcher, you know -- >> okay. i just thought you might have come across. i would add that there are people who i think would have

advantage of it. i hung around in the tax area with a guy named steve jobs, who was probably before you were born, and he didn't really pay much attention -- i mean, he would take advantage and he came to this committee to get some tax relief for giving computers away, but that didn't stop him from developing the iphone and all these gadgets my kids want regardless of whether or not he got the investment tax credit. he was just an innovative guy, and i suspect that's true of most innovators, they are going to go ahead and invent these things whether or not they are getting our tax credit. so perhaps we're not getting much bang for our buck in that area. thank you, mr. chairman. >> thank you. >> thank you, mr. chairman. one of the most frustrating things for me out here as is the uncertainty and it seems like

there's a lot of taxes that are short term. in fact, we miss a lot of deadlines and go back and reinstate tax incentives and et cetera, et cetera. so just to make sure i'm not the only one feels that that way, my question for ms. hanlon, do you think this instability in the tax code creates a problem, both a book and a tax problem? >> yes, i would agree that unpredictability and the uncertainty creates a lot of problems for companies when they try to make these long-term investments. i think a stable tax policy would be a lot better from both the tax and the accounting side. >> well, i think i heard kind of those comments. i mean, whatever it is, if it's fair, if it's reasonable, hopefully, lower, flatter, keep it there, and then we can make business decisions around that. so -- and i know it's been a long hearing. my question -- maybe if we could just go through and if there's

some specifics that you could relate to the committee where you see the temporary nature of taxes creating a problem or the fact that certain incentives have expired and have gone back in and reinstated, if there's any specifics that anyone on the panel would have. >> i think the biggest one in that regard right now for us -- some of these -- we actually have some of the extenders that apply to us but the biggest one is probably expensing depreciation and that does have an impact if we had that in their permanently or any of these -- permanency and certainty i agree with you is almost paramount. as long as it's a good code but it's very important to us. beyond that, i don't know that i have any further comment. >> again, i'm just kind of looking where there are examples you see day in and day out that

again are, you know -- as we talked about, maybe creating more costs and problems than really the incentive or disincentive was worth in the first place. >> definitely. it comes up all the time. i had a conversation with my old boss, who's now our president and chief operating officer, about some activities that do qualify for the section 199 domestic production credit and he was absolutely delighted and said, fantastic, we're going to bake this in into our investment analysis and our return analysis and i had to caution him and say, wait a minute, i think we need to be careful. you probably can count on it for the next couple of years, beyond that, i'm not so certain. those types of issues come up all the time. >> uh-huh. >> whatever we do, it needs to be permanent and consistent to allow my boss and the ceo and

the rest of the team to make big decisions, you know, that are based on something that they can understand and count on. >> i believe that's one of the reasons why there's a lot of money sitting on the sidelines right now. people run their analysis but they can only see clearly one year out or two years out. they have to put so much risk in the remaining eight years or however long they do their analysis that it drives it from being a potential of good investment to too much uncertainty. >> well, it's not just on the business side. a number of people have say we have a complicated tax system so much expiring at the end of 2012, tax rates not only for the top income earners but throughout the entire, you know, tax schedule, a number of tax credits, you know, that are also going to be significantly changed. so it's a very important issue.

when there was that possible expiration in 2010, there was clearly activity that was occurring, you know, late 2010 in anticipation, you know, with the rates and other things might be changing. >> i just -- i'd just echo all the same comments. certainty is going to help us a lot. >> i just have a rhetorical question. is it better to address those issues that are coming up december, 2012, sooner or december 31st of 2012? you don't need to answer that. i'm assuming done in a logical process where people can engage in the debate would make more sense. i'll yield back, mr. chairman. >> thank you. ms. black is recognized. >> thank you, mr. chairman. now, that all the questions have been asked and people have said how much fun, i do start to question some of my colleagues about what their definition of fun is. but it has been very educational to have you all here today.

and mr. berg has been running in and out and in and out and he come in asked my question last minute since i'm the last one here, mr. chairman, it does not seem fair but anyway, all that aside, this has really been a very helpful and much of your written testimony has also been helpful. but i do want to add -- or just tag on to what mr. berg has said about the stability. and i want to go to -- one of the statements that you made, mr. fryt you want to compete on the merit of business and is not on "the today show" and let me take that a little further and ask you with these temporary tax incentives how you see those as affecting competitiveness because i will say just as a side-bar between the hearings we had on this committee this year which had been very, very helpful and then those business round tables that we've had, i have a number of businesses say

because of the complexity of the tax code that not always are they aware of possibilities that they could have and, therefore, they're not as competitive with someone else because either there isn't that competition naturally in there for them or they don't know about it. could you talk about especially since you've made that statement, mr. fryt, about how the temporary tax incentive do affect competitiveness. >> you have hit a hot button issue in our company. i cannot tell you how many my ceo, cfo and others and executive decision-makers have lamented what my ceo likes to call an arcane tax code, with all of these temporary extenders that come in and out and special provisions here that apply to us, you know, or maybe don't apply to us and apply to others.

overall, there's no question in my mind, they would like to be unburdened from all of that, do their business, conduct their business, take all of those, if we can, reduce the tax rate as far as we can so that they don't have to pay attention to any of that. pay the revenue that is appropriate, whatever is decided and move on. that's our feeling. >> thank you, mr. schichtel? >> i agree. my title really could be changed to chief tax translator. that's a big part of what all tax directors do. and i think complexity becomes even more of a challenge for medium size companies that may not have all the resources we have, clearly, from a financial perspective, the compliance burden, the difficulty in dealing with all of it are a huge drag. i just went through another budget season and it's always painful. and everyone is frustrated that

we have to spend so much just to comply with the law, not even optimizing. i'm just talking just basic compliance and then every time we have a transaction, the level of risk and uncertainty and complexity in the law -- it's just enormous. and really should tax be a high risk area just because of the complexity and difficulty in applying laws? >> good point. >> it certainly makes doing transactions more difficult and i can't imagine what it's like for companies that don't have the kind of resources that we have. >> uh-huh. ms. hanlon. >> i would agree with all these statements. i think the complexity takes a lot of time as tom was saying earlier with the compliance costs. they're very high. and i'd also agree with the small business. i think small businesses have a very hard time with the complexity. they don't have the internal tax departments and what they should really be doing is focusing on their business but instead they spend a lot of time worrying

about, you know, how should they compensate themselves and structure their business, where should they structure their in the u.s. or somewhere else because of the tax code and i think making a more simple, more fair system would help the u.s. >> thank you. mr. neubig, do you have a comment? >> well, again, i think this is another example of where oftentimes the economists don't give lower corporate tax rates the full benefit that would happen if there was a broader base and lower corporate tax rate, that uncertainty, complexity and how lower corporate tax rates affect so many business tax decisions is really very powerful. so when people talk about the bang for the buck in terms of, you know, a lower corporate tax rate, sometimes they worry about, you know, lower corporate tax rate applying to old capital but i really think they are missing so much of the power of a lower tax rate that would be

simpler and more predictable. >> thank you, mr. chairman. and if i just may make one final comment? >> yes. >> there are very few of us. what i i continue to think about as we look at the complexity and the cost of the business, i think the business and the product -- the cost of the service or the product is raised because of this complexity. and how ultimately it's the end user that has the costs borne. thank you, thank you, mr. chairman. >> thank you. well, i very much want to thank all of our witnesses for a very good hearing this morning and for all of your time, all of your effort, all of your testimony. i appreciate it very much. i do just want to clear up a couple of items. there's been some question about a joint committee on taxation estimate. i just for the record want to note i did not request the estimate and also of the 90 remaining items, virtually all of them are domestic items. i just think we want to have the record be clear on that. but, again, i thank all of you for being here. this hearing is adjourned.

[inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> the u.s. senate is not in session today to allow democrats to attend the party strategy meeting taking place here in washington, at the national baseball stadium. president obama is among the speakers at this day-long meeting. senators will be back tomorrow at 9:30 am eastern for general speeches and then at 11:00 am they will start debate on a surface transportation bill. live coverage of the senate when they resume here tomorrow right here on c-span2. [inaudible conversations] >> that are faa certified for -- >> and now transportation secretary porcari talking about

gps technology in the aviation industry. gps is being used widely in aviation but will soon replace radar as the primary surveillance method. this hearing is looking at the benefits and safety concerns of using gps technology in aviation. the bill that allows the u.s. to switch from radar to gps passed in congress this past monday. it now heads to president obama for his signature. we join live coverage. >> we think going forward having the consistency and prohibitibility of spectrum interference standards will help all parties involved. >> thank you, sir. i'll put this question to etch aof you. what impact might protectionists for gps have on the marketplace for radio spectrum a and, b, how does this bear on the question as to whether or not gps warrants protections? either of you is fine. mr. galotti, we'll start with

you. >> thank you, congressman. i guess there are various figures that exist as to the number of jobs and the view of spectrum. and as i've said earlier, there's tremendous pressure from the telecommunication providers who have significant figures on jobs, but on the other hand, aviation globally -- i believe the number that's out there is worth about $3 trillion to the global economy a year when you consider the economics, the tourism, the aviation industry itself, the business, carriage of goods and other things. so probably a good case could be made that economically aviation is critical but there will be more and more pressure from -- particularly the telecommunication providers. >> particularly from who? >> the telecommunication providers.

>> i didn't hear you. >> thank you, sir. >> you want to weigh in? >> yes, congressman, i don't know the values of the spectrum in itself. i would point out that the national investment we've made in gps first from a military-only perspective and now from a combined military civil perspective has been enormous. it's one of the more precious and important pieces of national infrastructure we have, even if you can't see it and feel it, it's also a u.s. national leadership issue. i would point out in the aviation context, i argued that one of the single best safety advances we made in the last 20 years, which is the terrain avoidance warning system, 20 years controlled flight into terrain for both commercial and recreational aircraft. the avoidance warning systems that are gps enabled are -- have taken controlled flight into

terrain from a leading cause of accidents into something that's way down on the list. another example is -- as of today, part of our next gen system adsb is off the gulf of mexico where we had no radar coverage and we have thousands of flight operations during the day, for example, serving offshore petroleum rigs via helicopter that had no radar coverage before that are now served by adfb so it's important we understand the value on both sides of the equation including the enormous national investment that has been made in gps which has gone far beyond military uses, has gone far beyond aviation uses and for precision farming construction, safety of our train systems, those are not possible today without gps. >> thank you, mr. chairman, my red light is about to illuminate so i'll yield back.

>> thank you, mr. duncan. >> i want to thank you, mr. chairman and this is my first real involvement with this so there's much of it that i don't really understand but mr. secretary, i have read this statement from this assessment it says by the deputy secretaries of the department of transportation and the department of defense and i assume that's from you? >> yes. >> and it's a very strong statement that you put out about 3.5 weeks ago. and you say there that -- you mentioned light squared had an original proposal and then they modified it. can you explain to me in layman's terms how much of a change they made in their original plan? and it also tells us in our briefing papers that they're disputing your findings or your

assessment. >> i'll be happy to, congressman. in layman's terms is all i'm capable to do. i'll try to do that in that sense. the original light squared proposal of roughly a year ago, january of 2011, proposed up to 40,000 ground-based transmitters that would effectively blank out the gps signal in large stretches of the u.s. and in some very critical areas. there's some early testing done both by the department of defense and the faa. it was clear from that testing that there's an interference issue. the forum for this is a relatively obscure group that position navigation and timing executive committee which the deputy secretary of defense and i cochaired, deputy secretary

carter representing the military users and myself representing all the civil users. through that committee, which includes all the executive branch agencies which includes others including the federal communications commission as an observer, we -- it was clear that additional testing of a -- of a different proposal was in order. we worked with light squared. they were part of developing the testing protocols. they were part of the testing itself and the results, i think, are very clear-cut. i would point out that those are -- the testing results from both the npef work and separate federal aviation administration work are currently with ntiaa and will be transferred to sec shortly but those results were independently varied by both the idaho national engineering laboratories and the lincoln laboratories at mit.

and from my layman's perspective the result especially with the prison safety of flight, have avionnics the results were -- >> it says based upon this testing and analysis there appears to be no practical solutions or mitigations that would permit the light squared broadband services proposed to operate in the next few months or years without significantly interfering with gps. i understand the dangers or the concerns or the problems, but it is a fastnating thing to me that you could say that there's nothing that they could even do within the next few years. >> it does tell us -- and i have no connection, whatsoever, with light squared. i've never even talked to these people, but it says they dispute

these findings. how do they dispute them? do you know? >> first, i believe the light squared representatives should -- can and should better explain how they dispute the findings. i would point out the statement, congressman, is strong. i believe it's warranted given the circumstances. when we talk about in the next few months or years, remember, there's a very large installed base of gps receivers. just focusing on aviation for a moment there's about 60,000 gps receivers that are used for safety flight things for terrain light systems. each of them is $40,000. if you look on average, if you look at the life cycle of aircraft and avionics they served for decades and the first part of that statement is to point out there's no easy retrofit or filter or any other

kind of retrofit that would -- from a safety of flight perspective make the proposal as proposed by light squared compatible with aviation. >> i'm saying it's a fascinating thing that there was a statement nothing could be done even in the next few years when technology advances as fast as it does so it was kind of an interesting thing. thank you very much. >> thank you. mr. cravat? >> thank you, mr. chairman. and thank you for your testimony today. i can truly tell you as a pilot -- there was a palpable difference in the cockpit when you have terrain avoidance systems using gps. when you're going from the east going into salt lake city and you know you're skirting the top of those mountains, it's also -- it was really a comforting feeling to have the gps in the

cockpit. but light squared has agreed that to a standstill as i understand it on the use of the upper portion of the spectrum. it's the portion that's actually closest to the gps signal and light squared has stated that it would like to work with the gps community to develop mitigating strategies as they put it in order to initiate commercial operations of the upper spectrum within two and three years. is in your opinion -- i understand in your testimony you said there is no mitigating conclusion here. do you think to be able to find some type of strategy in that window? and two, from what we know -- even though we can identify a mitigating strategy, the cost to general aviation to implement that strategy as well? >> thank you, congressman. first, i'd point out, i'm not sure what a standstill means on the upper 10 megahertz. there are no time limits to that

and no technical triggers that i'm aware of on that. there's a fundamental incompatibility between the lightsquared proposal as proposed and the continued use of gps as a precision air navigation use and, again, i would point out that this has been built over -- over decades now where more and more we are dependent on gps for a much higher standard of safety than we were able to achieve with the old instrument landing systems without the terrain avoidance warning systems, without wide area augmentation systems, all of those are very significant safety advances. i can't speculate on the costs because i'm not sure anyone can quantify the cost even if it could be done of retrofits if they were technical viable to

existing avionics uses. >> just to be clear then, there's no time to retrofit or configure any systems to work lightsquared into this bracket; is that correct? >> that is correct, congressman. i would say in contrast, mobile satellite service uses on the adjacent frequencies which is what they were originally zoned for, if you will, have been and will be compatible. >> thank you very much. and i'll yield back. >> thank you. >> thank you very much. and i'm troubled that a terrestrial based system like lightsquared has the potential for interfering with gps. i'm afraid it points out the actual delicate nature of the gps system and its potential

vulnerability to be -- for nothing else an attack. you hear reports of a truck driver with a jamming device degrading the system near newark airport. suppose someone not friendly to this country were to intentionally put up some high powered jamming stuff, we would be in trouble, historically, there has been a backup but it's been dismantled. we have this reliance to gps from my car, to my cell phone, to landing a 777 aircraft in the future. it seems to me that we're creating a vulnerable system with no backups. can y'all comment on that? >> yes, congressman. first, you brought up a very important point. there are by its very nature there are vulnerabilities for

the gps. you pointed out one specific incident where a commercially bought over the internet $99 jammer caused real issues at one of our major airports in the country. one of the things that we've done is a national position jamming architecture study of the national study of architecture, is committed to an alternate p & t research program just as today with our radar-based air navigation system we have vulnerabilities and you basically build defense in-depth with backup systems. we know as we move with the implementation of next gen -- as we move forward with that, that we will -- it will be more and more important to have backups to the gps-based system.

they will only be short term backup systems and it's important to point out that we're moving aggressively -- >> could you define short-term backup. >> well, i mean, for short duration. in other words, if we were denied the use of the gps systems for air navigation today, for an extended period of time, it would have severe impacts on the national aerospace system. but if it were for 10 minutes it would be a little bit different. >> okay. so minutes as opposed to days. >> minutes as opposed to days. but, again, you put your finger on a vulnerability in the system -- >> it seems a vulnerability easy to exploit? >> well, it can be and part of it is moving forward of how we design the system of systems that is next gen, we're very focused on this. also i would point out there's an important enforcement side.

there is no legitimate commercial use for a gps jammer. >> all right. and for my information, i've seen press reports about other countries developing their own gps satellite arrays. do we know where that's going? >> thank you, congressman. there was a federation developed in the on 1990s but when the soviet union disintegrated it was not maintained but in december of 2011 they have a full constellation and they've committed to something that is similar to gps. they hope to have that in place by 2014. the europeans have galileo, which two satellites are up. i think the total constellation i believe is 18 and china is putting in place, two satellites in place and they plan to launch six in 2012 and the full complement by 2020.

and that will initially be for east asia and china and parts of europe. >> and if you'll allow me just to geek out for a minute. we have a massive array of radio transmitters in the form of our cell tower network which can contain longitude, latitudual information is there anything to tap into some kind of system as a fallback to gps? >> i don't know. what i'd be happy to research that and get back to the committee. >> i'm just curious. if there's an infrastructure in place you might have a fallback system. >> i'll be happy to check it out. >> my time has expired and thank yo you. >> well, i'm sure we all have a lot of other questions, but i will leave it there for the purposes of this hearing at this point. thank you very much. it's been very, very informative. >> thank you, mr. chairman.

>> thank you. >> thank you, members >> the second panel consisted of thomas hendricks which is part of airlines for america, captain shaun cassidy, first vice president airline pilots association, craig ford, president and ceo of the aircraft owners and pilots association, john m. foley director, aviation gnns technology of garmin e.t., inc. and dr. scott case who's the director of space policy -- the space policy elliott school of affairs, george washington university. i think -- all of you for making the time to be with us today on this very -- somewhat technical to a layman but very important subject for sectors of our economy and our safety and competitiveness as a country.

and we'll begin with -- we'll begin with captain cassidy waiting for mr. hendricks. >> it's still morning, good morning, mr. chairman. and members of the subcommittee. i'm captain shaun cassidy, first vice president of the airline pilots association international and i represent more than 53,000 professional pilots based in the united states and canada. it is an honor to appear before the subcommittee to underscore the tremendous contribution that the satellite-based navigation system makes to ensuring efficient and safe operations in the united states and around the globe. given the vital importance of the global positioning system as a key component of this country's transportation structure it's appropriate and indeed essential for the house transportation and infrastructure committee and the

aviation subcommittee to be fully engaged in protecting the system. as the members of the subcommittee know, over more than two decades the invaluable navgs information available through gps has enabled air transportation to make tremendous gains in safety and efficiency. since 1983, when gps became available to the public at no cost, the system has evolved to become a vital tool for aircraft navigation, all-weather approaches and landings, surveillance, maintaining required separation between aircraft and pilot situational awareness. gps allows pilots to fly aircraft to fly the most safest and efficient routes which benefits all locations but flying over atlantic and pacific and long-range routes where diversion options are very limited. the enhanced actors of gps allows aircraft unparalleled runways to operate independently and safely and arrival rates. in metropolitan areas that are served by several airports gps allows us to analyze the entire air space and base on a regional

strategy rather than by airport by airport. these opportunities to improve flight operations possible only through gps reduced fuel burn, decreased noise and cut c0 quoand other greenhouse emissions while making our economy safer, more efficient and better positioned to meet future demand. let me give you an example of my own flying experience. at the airport at juneau, alaska, at the state capital is based on high terrain. before gps we pilots only had two approaches for approaching landing at juneau and they're both very challenging. the approach from the east and the one from the west both required fairly high cloud ceilings and allow altitude for landing. without gps the terrain and weather conditions forced many flight cancellations. in 1996, alaska airlines pioneered a gps based approach to juneau, alaska, the pinpoint approach to the approach allows me to fly directly over the center of the channel as depicted up on the phone on the screen and stay clear of the high terrain around the channel and the airport. the result enhances safety and

reducess delays and cancellations. since then, the alaska airlines has expanded the gps-based approach to other airports in the country. in 2011, the airport completed more than 1500 flights that would likely have been cancelled or diverted and the net result was $19 million worth of revenue and over 210,000 gallons worth of fuel that was not burned. across the united states, the faa has published more than 11,000 gps approaches to thousands of airports including our own background here at reagan national where highly actor gps-based approaches reduce flight delays, diversions and cancellations. gps signals are low powered by design to allow them to be based on satellites. however, this low energy environment almost also makes them susceptible to interference from other radio transmissions. for this reason only low powered satellite-based signals have historically been permitted and the radio frequencies that are closest to the gps bandwidth.

one of the transmitter in the high radio frequency system that is adjacent to bandwidth raised the alarm that it made to safety transportation and emergency services such as first responders. rigorous industry and government testing demonstrated that if lightsquared proposal had been allowed to go forward gps would be inaccessible over large regions of u.s. and airlines for airliners were this proposal or anything like that to proceed pilots would lose a tremendous proposal with tough terrain and that's a transportation system that helps the u.s. economy and secure tens of thousands of jobs. gps is critical to our efforts to modernize the u.s. air transportation system through next gen. alpa is a future proponent for the to enhance safety increase capacity and efficiency and protect the environment. as part of the next gen initiative the faa has invested in gps technology that is designed to replace radar-based surveillance of aircraft.

as next gen continues to mature, gps will become more important. the pilots of alpa commend the u.s. subcommittee for holding this hearing and allow us to underscore the unmatched benefit that gps provides to air transportation both now and in the future. thank you very much. >> thank you. mr. hendricks? >> chairman, and members of the subcommittee, thank you for inviting us to appear on this timely and important hearing and i do apologize for my slight delay on my push back for my testimony this morning. it's good to speak with you again. the continued integrity of the global positioning system is critically important to the millions of customers who we fly every day as well as to the tens of millions of other people in our country who rely on it. gps will be the backbone of air navigation both domestically and internationally in the coming years. interference with its accessibility and reliability will be catastrophic for civil aviation and the communities that depend on air transportation. we deeply appreciate the subcommittee's recognition and

the faa's reauthorization bill of the importance of this technology and particularly your support for the continued advancement of next gen. with respect to the lightsquared proposal the incontestable fact is that it will create widespread gps interference which will have ruinous effects on aviation. experts have repeatedly reached that conclusion. lightsquared's proposal, therefore, should be withdrawn. this matter needs to be put to where he is once and for all. to be clear, we do not oppose the expansion of wipers broadband services but any expansion cannot be permitted to interfere with existing or anticipated aviation gps use. many of which will significantly enhance safety. we are dependent on that technology, there is no substitute for it. one obvious lesson of the convoluted experience with the lightsquared application is the need for a government-wide policy that protects the aviation gps spectrum. without such an authoritative policy, spectrum encroachment will remain a threat. as the subcommittee remains too

well we have historically relied on a ground-based air navgs system. it's a system that has become increasingly defined by its limitations. users of the aviation -- users of the system have for the most part had to fly from one ground navigation aid to the next with the routings. it wastes time and fuel and it affects the routings which the aircraft can use which in turn constricts the growth. gps is the part of the next gen program which will shift air navigation from outmoded terrestrial system to a moded satellite system. this is a transformational change. all who are involved in it, congress, the federal aviation administration, airlines, general aviation and the department of defense recognize the need for that transformation. this massive effort will result in more precise navigation, safer operations, far more direct aircraft routings, better air space utilization and air space capacity growth. because of these operational

improvements, there will be substantial reductions in greenhouse gas emissions. one existing application of gps has create a breakthrough in the safety of airline operations that's been referred to earlier here. the elimination of controlled flight and terrain accidents for large aircraft here in the united states. enhanced ground proximity warning systems on board aircraft combine gps information with terrain to provide crews with look-ahead warnings of dangerous terrain. this has made air travel far safer than it was only recently. and illustrates the remarkable benefits that leveraging gps with other technologies can achieve. with the next gen capabilities will be the real game-changer. it's integration of gps with other technological innovations will create the satellite based system with air traffic management that we all realize is necessary. gps is the indispensable element of this long needed overhaul. given the central role