in february of 1952, she ascended to the thrown following the death of her father, george vi. the house of commons, the lay bar party leader, ed miliband had this to say. >> mr. speaker, can i join the prime minister in paying tribute to her majesty the queen as we celebrate her diamond jubilee and her dedication to the country and to public service is an inspiration and an example to us all. and we all look forward to the official celebrations later this year which will enable us to celebrate both her majesty and our country. >> comments from ed miliband and prime minister's questions a lot of focus on health care and you can watch the entire event on sunday here on c-span radio and c-span television. we bring prime minister's questions live on c-span2 every wednesday. we'll continue the

conversation tomorrow morning on the "the washington journal" and among our guests, talking about the issue of energy member of the house energy and commerce subcommittee and a republican from louisiana, he's one of 154 cosigners of the house bill sending a letter to the president asking the president to reverse the contraceptive mandate and talk about that excel keystone pipeline and some of the issues tomorrow morning on "the washington journal" heard live hire every day at 7:00 a.m. eastern time and 4:00 for those of you on the west coast. enjoy the rest of your evening. business executives testified today about whether they'd be willing to give up all corporate tax breaks in exchange for a lower tax rate. that hearing is next on cspan3. after that, a look at security issues at u.s. chemical plants.

later, federal reserve chairman, ben bernanke testifies about the economic outlook. in the morning, the senate judiciary komt will debate a measure that requires u.s. supreme court proceedings be televised. in addition to the legislation, lawmakers and media organizations including c-span have asked the court to televise the five and a half hours of oral argument on president obama's health care law scheduled for the the end of march. the hearing's live on cspan3 tomorrow at 10:00 a.m. eastern. next, executives from frooirfedex and time warner talk about how these taxes affect businesses. they testified before the house ways and means kochl. the committee chairman is michigan congressman, dave camp. this is two and a half hours.

good morning. today we're 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 like generally-accepted accounting principals of gaap. and we'll examine how the interaction affects the way in which publicly-traded companies respond to tax policy. later, special challenges eheld by small and less held businesses and ta tremendous complexity dealing with tax accounting and related rules. during today's hearing, we'll consider how public companies evaluate tax policy options in light of financial accounting or book considerations. and as such, we'll examine whether tax legislation works as intended when congress does not consider the effects of

financial accounting. when companies profit -- 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 leveeing the federal income tax. these two functions are not necessarily consistent and in some cases, may even be at odds. for publicly-traded companies focused on earnings per share, in addition to cash flows, changes in tax policy might not produce intended results if the effective tax policy on earnings per share is not well understood. as a recent tax notes article suggests, when presented with an option between targeting tax benefits and lower corporate rate, many publicly-traded companies might prefer a lower corporate rate over those tax benefits because of the book treatment. similarly, tax provisions that

provide cash benefits might not have the desired affect on behavior. a variety of things can affect companies and their decision-making processes differently. the high u.s. corporate rate is a important factor for companies that use gaap or international accounting standards. if the rate is too high, companies will, all other factors being equal, allocate capital to a location providing more favorable tax treatment. today the current top federal corporate income tax rate is 35% and the average combined federal state corporate income tax rate is 39.1%. the second only to japan's 39.5% rate. however, fewer than 60 days, effective april 1st, 2012, japan will lower its combined corporate rate to 38% leaving 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 in businesses here at home.

not all employers have the same tax profile. the impact can did verge significantly from the impact of the same policy on a company's tax liability. we need to understand better how companies respond to tax policy when such did virge yens occurs. and 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 to have some of those businesses here today along with members of the academic community who have done extensive research on how financial accounting affects corporate behavior and i look forward to hearing from them all. with that, i'll yield to the ranking member for purposes of an opening statement. >> thank you very much and welcome. when h hearing was scheduled, on

the international tax and accounting on tax reform. i thought i would take out my accounting book from law school. fortunately, i could not find it. i remember so well the course that was taught by a brilliant teacher and it convinced me that i never wanted to be an accountant. that was the main lesson i learned from his brilliance. it's useful to have this hearing to discuss these various techniques important as they are. and their impact on tax reform. i think we they'd to continue to talk about -- 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 tax reform and what would be the impact on what our needs are? and this is why i think it's so essential that we not jump to conclusions or essentially, embrace, i think rather simplified alternatives. as we know, we asked 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 eliminated 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're beginning to understand fully the importance of manufacturing in the american economy. i think we've kind of lost that understanding. and now i think that with the return of the auto industry with the help of the patrfederal government, not the run the companies but to get them all 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

manufacturer, you should get a bigger tax cut. if you're a higher tech manner, we should double the tax deduction you get for making your products here. and if you want to relocate in a community that 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 credit and here we are many, many months into this new session, a year-plus month now, in the r&d tax credit seems to be in jeopardy. so i think we very much welcome the testimony. i think at first, some of us were somewhat perplexed whether

we would ever understand what you're talking about. we'll try. >> thank you, we're pleased to welcome our panel of experts all whom bring a wealth of experience from academia or the private sector and their experience and insight will be helpful as we focus on the inner action of tax policy and financial accounting rules. first, i'd like to welcome and introduce michael frit, fedex corporation. he's spent the last 30 years as a tax attorney for different corporations and comes to us from fedex's headquarters in tennessee. second, we'll hear from bhooirk shiktall, the senior vice president and chief tax officer tore time warner cable responsible for all areas of tax at time warner cable including policy planning, financial reporting and compliance. and third, we welcome michelle handland, massachusetts

technology sloan school of management and she focuses on the intersection of taxation and financial accounting. fourth, tomorrow newbig, the national director of quantitative commission and statistics of earnst and young and the chief economists for the treasury offers of tax analysis. he leads a group of 24 quantitative analysts who assist clients with tax and economic policy issues. and finally, mr. timothy heenan, at prax air, the largest provider of gases in north and south america. he joined in 2004 from earnst and young specializing in the development and implementation of international tax strategies. thank you all very much for your time and the committee has received each of your written statements and they'll be made part of the formal hearing record. each of you will be recognized for five minutes for your oral remarks, followed by questions. so mr. fritt, we'll begin with

you. you're recognized for five minutes. >> good morning. chairman camp, ranking member levin and members of the committee, i very much appreciate this opportunity appear before you today to discuss the importance of tax reform to fedex. we believe 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 and grow. before i tell delve into the details of how we analyze tax reform i'd like to make a couple of points about fedex and our business and our tax profile. with respect to our business, through our global expedited 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 billings or cleveland to somewhere we can do it

without them having to invest billions of dollars without them building their own distribution network. our business is based on this global network. if our global network is competitive it will grow. so will we, both around the world and in the united states. with respect to tax profile we're a full-rate taxpayer. we are effective tax rate has not been below 45% in more than 20 years. this is a real competitive disadvantage for us. we're also troubled by other aspects of the current corporate tax code creating distortions and economic decision-making and diverts 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 evaluating 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 our company. overall, we believe the ideal corporate tax system would include materially lower tax

rate. something at least close to the average oecd rate, along with capital vimt incentives like 100 percent expensing. we've said, however, if tax reform must be revenue neutral, so be it. we're willing to put all base broadeners including expensing or accelerated depreciation on the table in exchange for a materially lower tax rate. doing so, however, would come with a cost. both macroeconomically 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 chart i attached to my written testimony. there's an almost perfect correlation between new investment and jobs in this country. the from our company's perspective, we would generally expect is lower tax rate to increase our tax flow, bottom-line earnings and

earnings-per-share and to the contrary, reducing capital incentives would have a generally greater adverse affect on our cash flow. this is important because as is often said, cash is the life blood of any business. our investors paid close attention to our cash flow as well as to 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, assuming business tax reform must be revenue-neutral, the 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 can't get us to a materially-lower tax rate you will not address our

competitiveness issues. particularly if capital cost incentives are reduced as part of the deal. one other thing that needs to be considered in the mix of tax renorm is the mix of 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 and we think it is an excellent starting point and we urge you continue your efforts to lower the corporate tax rate to be consistent with the oecd average and to simplify. we need to get back to the basics. where businesses compete on the basis of the merits of their products and services but not on the basis of what the tax code says. thank jew into thank you, mr. frit. >> 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, mark schictel. i'll tell you about the tax policy on time warner cable and i'll explain why we believe that less complexity and a lower rate will benefit our investors, employees and customers, as well as 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 14.5 million customers. we have over 48,000 employees in 29 states. we offer our workers secure jobs and 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're part of our nation's

communication's backbone that enables domestic companies to compete rooij naturally, 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're continuing 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 our cash tax is paid is 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 magnitude, along with our programming, employee,

financing and capital outlays. although difficult to quantify and allocate, these taxes are ultimately bourn by our investors, workers and customers through lower returns and wages, less investment and training, and we do benefit from targeted incentives like research dplet section 199. given our capital intensity, however, we currently rely, even more heavily, on timing incentives that don't impact gaap financial accounting such as expensing and accelerated depreciation which significantly enhances 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 to produce a tax code and related regulations that are read in small print and measured in volumes. each enacted policy objective is accompanied by nuance 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, fits, stops, changes and uncertainty that frustrate business leaders, analysts and investors alike. often, the benefits are very large. swaying 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 heaping on an extra helping for another. it's time for american businesses to put aside our industry specific wish lists.

and to work collectively to support a more corporate tax 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, we're willing to put all of our tax incentives on the table and broaden our rate. we advocate for a significantly lower rate, a simpler code and a predictable consistent set of tax rules upon which business can make long-term decisions. america has so many business advantages, yet, we're saddled with an inefficient tax structure and an uncompetitive tax rate. we're 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. committee and its members and staff in dealing with these issues as tax reform progresses. 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 would be happy to answer any questions you might have. thank you. >> thank you, hanland. >> thank you for the opportunity to testify before you today. the main point of my temperature is the responsiveness to tax policies can be affected by the financial implications of those policies. first i'll offer some general examples of the importance of financial accounting to managers of publicly traded companies. one example is in a study of

companies accused by the sec of fraudulently overstating accounting earnings. it tushes out that these companies also overstated their income to the irs and paid taxes on their inflate add counting income. this suggests that the companies were willing to pay substantial sums of cash in order to report higher financial accounting earnings. in the literature we call this "the book tax tradeoff." a second example is in a survey of tax executives of publicly-traded companies. 85% of the tax executives said that top management at their company uses the accounting effective tax rate is more important than the actual cash taxes paid. the tax policy, my written testimony discusses three policies related to investment. as you know the u.s. has one of highest statutory corporate tax rates in the world. with a top rate of 35%. rather than reducing our corporate rates our policies have instead included targeted tax provisions like bonus depreciation and attempts to

reduce economic effective tax rates and promote investment. in addition, we have a worldwide tax system with deferral which has, in part, led to multinational u.s. companies holding a great deal of cash overseas. financial accounting has affected the responses in each of these cases. because the details can become technical quickly i'll discuss only one of these in detail today. accelerated depreciation including bonus depreciation. accounting earnings are competed using the akrooil method of accounting meaning that expenses are recorded n financial statements when incurred, regardless of when the actual cash is paid. the same method of accounting is for income expense. in the case of depreciation most companies eyes straight liable depreciation for book depreciation. however, this is only temporary

in nature because the same amount will be depreciated for financial accounting and tax purposes over the life of asset. the deduction per tax is faster than the expense for book. to compute the income tax expense for financial accounting purposes in this case, the kaunting rules require expensing not just the taxes paid but also, accruing and expense ing the future taxes that will be paid because the company yooised that tax shield early, thus, accelerated or bonus depreciation $not reduce a firm's accounting income tax expense and their reported effective tax rate and does not increase reported earnings relative to the world. 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 income tax expense on the income statement but there would be with a rate cut. in addition, empirical evidence on responsiveness relative to

the investment tax credit which reduced financial akoungts and income tax expense reveals the response was greater than holding the cash value savings constant suggesting that the accounting effect is important and serves to mitigate the responsiveness to accelerated depreciation because there's no financial accounting benefit. in conclusion, the main point of my testimony is that what many consider to be cosmetic accounting effects play a role in responsiveness to tax policy and these financial accounting implications can often mitigate the effectiveness of policies. in addition, as i discussed more fully in my written testimony, sometimes the accounting implications lead to other unintended consequences, like incentives to leave cash overseas and in addition, at times concern over the accounting implications has caused tax policy to be enacted in a particular manner like in

serve, -- thank you for inviting me to testify today and i look forward to questions. >> thank you. mr. nubil you're recognized. >> i was an economist at the u.s. treasury's office of tax analysis from 1980 to 1990 during the development of the 1986 tax reform act. financial accounting issues were not very important then but over the last 25 years, i've seen their importance grow not only at 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% 'write-off of capital investment like bonus depreciation. one might have expected that this plan which many of my

economist brethren claim results in a zero 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 in economists often predict the effection of tax refoirms 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 when many corporate executives evaluate alternative tax retomorrow proposals. i will restrict my comments to several reasons why many corporations may prefer a lower corporate tax rate to more targeted tax reductions. i'll yourself accelerated tax depreciation as one example, since its repeal has been proposed in combination with lowering the corporate tax rate in several recent tax reform plans. also, a number of countries have moved toward economic depreciation to partially