of the tax revenues in the hands of the accountants, with all due deference to the cpa, ma'am. but to the extent that you get 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 fasbe as well as efforts 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 that we have a for tax purposes are much more consistent with reality than what you see from a gap reporting perspective. but i do believe that if we move towards greater reform and a 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 a temporary kind because that allows you also to 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. i think the tax code generally has not favored such treatment. also, there is a lot of evidence in the literature that book tax conformity would reduce the information that is contained in financial accounting earnings. the rules are set up for two different purposes. and basically 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 set of firms were acquired to increase our conformity, the international evidence, and several other studies basically show that the information that is 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, fasbe or the international accounting standards board. and i think that would be very hard for the u.s. to handle the international and accounting boards considering our tax base. thing is a lot of reasons why book tax conformity wholesale is a bad idea. i think there are different things we could look at. but wholesale book tax conformity is not a good idea. >> i guess i would agree with dr. hanlon's comments. just for example, the example of moving to ifrs has impacted in terms of some of the discussion about u.s. tax reform. because if you move to ifrs,

then lifa would not be allowed. it would automatically eliminate the current ability of some firms to use last in-first out accounting. there clearly is different rules for the accounting rules. and as a tax committee, you have different goals including revenue that are your objectives. >> i'd agree with most of what was said before me. really, the accounting rules are there for something completely different than what our tax rules should be there for our tax rules. it's to get revenue, but should it be done in a man they're promotes growth, investment, jobs. and those are just two completely different worlds. and so i would encourage us to keep them separate. >> okay. and have i 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 briefly talk about if we do nothing, the cost of inaction to your business if we keep the status quo? >> personally, i don't think that's a good option. i don't think 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. paulsen 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 hearing 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 fife-year and a ten-year and a longer horizon, rather than dealing with these temporary tax extensions or provision or extenders that can create a lot of difficulties, not only for the companies' planning, but the accounting side of the equation as well. u.s. is trying to play catch-up now to make sure we've got a tax code that is competitive, along with the fairness and the simplicity component. and it is important to focus on the competitive side and the pro-growth side. sheer my question. i know that the united kingdom in particular is moving forward with tax reform as well. other countries are doing. this they've kind of staggered, kind of moved forward slowly, lowering their tax rates. we better off to sort of 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 in? should it be gradual as the united kingdom or other countries might be going?

which is the way to go? >> i think there is a tension there from a business perspective, from my business's perspective, and i think from our economy's perspective, it's better off doing it quickly, making a large scale reduction in the 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. it provides the predictability. there may be some items you 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, you know, i mentioned earlier we spend $2 billion in capital and we look at our projects. and if we miss, it's a big deal. if we spend $200 million in the 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. so i agree that we should move quickly, but i think we 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. >> mr. neubig, please? >> i guess two points. phasing down the corporate tax rate is what has been done in canada and the united kingdom. i guess 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 to a 23% corporate tax rate by 2014-'15. one interaction in terms of the financial accounting rules is my understanding 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 lost carry forwards and some of the compensation, and lower corporate tax rate would reduce the value of those deferred tax assets. and so they have decided instead of going from 28 to 23 in one fell swoop, they're going to announce, but they're going to 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 announced today a phased-in process i think we have to be cautious about, does it really give us certainty? other countries have announced phased-ins, and the economy turns south or the revenues aren't there, and the phase-in becomes a freeze. so going back to the certainty theme, the challenge of a phase-in is are we going to be convinced as business has that is going to be there in two, three, four, five years. will the phase-in really happen? or will we sort of 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. yield back. >> thank you. mr. stark is recognized.

>> thank you, mr. chairman. thank you for the hearing and 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. >> well, you will. if you dig 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 is of accomplishment

and academia. i got there in a different manner. up until 1953, m.i.t. 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 -- improved the appearance of the sloan school magnificently and made accounting look a lot more attractive than i remember it being from what the -- whatever was next to the window. i want to thank you. but in some 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 some place in your literature, has anybody done any study as to the usefulness of whatever is created through these tax expenditures? and i give as the example the idea that orrville redenbacher got the r&d tax credit to develop microwave popcorn. now you could make a case, if it doesn't stick in your teeth of maybe that was a good help to society. but in all seriousness, i would

love it if you know of or could dig out in the accounting research if anybody has done a study on what the actualusulnes society has been in many of these tax expenditure areas. and if you would be willing to spend a few minutes of your spare time and dig out something like, that i would sure love to have it. >> i can certainly look at that for you. but 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 dataer, they might see what looks like an increase in spending. but what has been looked as, you know, is that really more r&d that results in more products or is it, say, a rise in the input prices. and there is actually one study that shows that all the increase in r&d spending actually goes to

salaries, r&d. so it's not more r&d, it's just paying the engineers more. whether the input providers actually demand a higher price for the inputs when they know the other party has an r&d credit that part has been looked at. and there is some mixed evidence on it. but i don't know of a study, because that would take some researcher, you know -- >> okay. i 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 name steve jobs, 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 with 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're going to go ahead and develop these things whether or not they get the r&d tax credit. so that perhaps we're not getting much bang for our buck in that area. thank you, mr. chairman. >> thank you. mr. berg is recognized. >> thank you, mr. chairman. one of the most frustrating things for me out here is the uncertainty. and it seems like there is 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 that feels that way, my question for ms. hanlon is do you think this instability in the tax code creates a problem both a book and a tax problem? >> yes, i would agree that the 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. >> 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 this has been a long hearing. my question, maybe if we can just go through and there is some specifics that you could relate to the committee where you see the temporary nature of taxes creating a problem for the fact that certain incentives have expired, and then gone back in and reinstated, if there is any anyspecifics that anyone on the panel would have. mr. fryt, would you? >> i think the biggest one in that regard right now for us, some of these extenders, we actually have several of the extenders that apply to us.

but the biggest one is probably expensing, deappreciation. that does have an impact. if we had that in there permanently, or in 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 would have any further comment. >> then again, i'm looking for examples that you see day in and day out that again are 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 is 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 bake this into our investment analysis and the 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. 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 business decisions that are based on something that they can understand and count on. >> international that's one of the reasons why there is 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. and so 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 good investment to too much uncertainty.

>> well, it's not just on the business side. a number of commentate verse commented that we have almost an entirely temporary tax system with so much expiring at the end of 2012, tax rates not only for the top income earners, but throughout the entire tax schedule, a number of tax credits 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 in late 2010, in anticipation that the rates and other things might be changing. >> all right. >> i just -- i 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 the issues that are coming up december 2012 sooner or december

31st of 2012? you don't need to answer that. i'm assuming that done in a logical process where people can engage in the debate makes 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 they've had, 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, in and out, and he comes in and asks my question last minute. since i'm the last one here, mr. chairman, it does not seem fair. but all that aside, this has really been a very helpful. and much of your written testimony has also been helpful. i do want to add or 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. frank, that i thought was

interesting. you said you wanted to compete on the merits of business and not on the tax code. let me take that a little further and ask you with the temporary tax incentives how you see those as affecting competitiveness. because i will say just as a sidebar, between the hearing that we have had in this committee, this year, which have been very, very helpful, and then those business round tables that we have had, i've had a number of businesses say that because of the complexity of the tax code, that not always are they aware of maybe some of those opportunities that they could possibly 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 incentives do affect competitiveness. >> you've hit a hot button issue

in our company. i cannot tell you how many times my ceo, cfo and others in executive management, 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 is 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 job could be called tax translator. that's a big part of what all do. it becomes even more of a challenge for medium-sized companies that may not have all the resources that 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 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 shore, 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. >> 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 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 really should be doing is focusing on their business. but instead they spend a lot of time worrying about, you know, how should they compensate themselves, how should they structure their business, where who they structure their business, 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? >> 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 different business decisions really is very powerful. so when people talk about the bang for the buck in terms of a lower corporate tax rate, sometimes they worry about lower corporate tax rate applying to old capital. but i think they really are missing so much of the power of a lower corporate tax rate that would also be simple and more predictable. >> thank you, mr. chairman. and if i may make one final comment? >> yes. >> since there are very few of us. what i continue to think about as we look at the complexity and the costs of the business, i think about how the service or 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 cost borne. so 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 couple of items. there has been some question about a joint committee on taxation estimate. i want to note for the record i did not request the estimate. and also of the 90 remaining items, virtually all of them are domestic items. i think we want to have the record be clear on that. again, thank all of you for being here. this hearing is now adjourned. next on c-span 3, the head of a federal program in charge

of securing dangerous chemicals. then federal reserve chairman ben bernanke testifies about the u.s. economic outlook. this is c-span 3 with politics and public affairs programs throughout the week, and every weekend american history tv. 48 hours of people and events telling the american story. get our schedules and see past programs at our websites. and join in the conversation on these social media sites. next, house republicans and democrats question the homeland security department about a memo detailing problems at the agency in charge of chemical facility security. dhs under secretary rand beers testified before a house energy subcommittee last week. this is an hour and 45 minutes.

>> the subcommittee will now come to order. we'd like to welcome our panel, and i'd like to begin with an opening statement. in my time serving in congress, i have learned as oftentimes is the case that the initial problem isn't as big a deal to people as a poor explanation of a problem can be. further cover-ups are the best hope of people who know they're in the wrong and the worst move for those who get found out. people try to hide problems or minimize their existence usually face a swifter and more ferocious corrective response from congress and the public than if they had simply come clean. it is with great surprise and disappointment that i read the internal memorandum about the operation of the division implementing the chemical facility and anti-terrorist standards act, cfat and its

program at the homeland security. have i been a strong supporter of this program. i believe the statute is sound and the regulations reasonable. in fact, the anderson memo calls for only one legislative change, long-term extension of the program. the cfat program was not meant to be another epa-style program designed to find people or a bureaucratic back door to overregulate chemicals. it was meant to be a collaborative effort to secure high-risk facilities with facility-appropriate measures based upon risks presented. congressional intent was that cooperation would get facilities into compliance. we did not intend to increase federal revenues through enforcement actions. i hope dhs is not looking to abandon our original intent. last month i acknowledged cfats was a work in progress, but i felt security was being enhanced and significant public and private investments were being made to implement the program. i still believe secur