would be some rate close to the oecd rate with 100% expensing and i think you'd see tremendous new investment, additional global expansion, u.s. expansion and job growth. absolutely. and even if you went with a base-broadeners you talked about chairman camp, if you got down to a rate of 25%, no doubt that would also increase growth. >> i would love to keep our tax incentives like accelerated depreciation. i would love to see expensing extended as part of an overall tax reform that lowered the rates to 25%. but i don't see how that's possible in a revenue-neutral fashion. i think for the short term, until we have corporate tax reform, i think expensing, extending bonus depreciation is tremendously important and impactful. certainly from our vantage point

and the vantage point, it's tremendously important. that being said, if we all put everything on the table and we start working toward a targeted and a simpler code, i think we'll see more growth and for us, that will definitely result in more jobs and more investment. >> all right. >> i've got a question for ms. hanlan and mr. neubig. in congress we measure by looking at cash stackses over a ten-year period without using a discount rate. and that's very different from how public companies calculate under gaap and very different than how public companies calculate cash flow benefits. if this committee succeeds in designing a program that's revenue-neutral over a ten-year period the way congress measures it but in the aggregate,

increases company's 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? >> i guess the main thing i would say to that is if you would, you know, remove the mitigating effect of financial accounting, there seems to be no negative effect that would come from that so to the extent doing the tax side of the it would increase jobs and investment releasing it from mitigating effect from accounting could only help those incentives. >> mr. neubig? >> i think the companies are going to be looking at a lot of different measures of taxes. and you mentioned that although it might be revenue-neutral over a ten-year period from a government-scoring standpoint, it might be higher total taxes

on the corporate community. i think there would certainly be concern about that, having some adverse effect. there's certainly lots of benefits from a lower corporate tax rate. but they are going to be looking at the total tax burden in the u.s. so you factor many the other -- >> sorry about the microphone problems. >> the other tax-based issues so it's really the who will tax reform package that they'll be looking at. >> to the two of you again, some commentators say cash is king and that investors are so fist kated enou sophisticateded enough to look through this. 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 earnings management, for example. the first thing to recognize is

accounting is used for two purposes, equity markets and contracting purposes. debt contracts and compensation contracts and to the extent those are written based on accounting numbers you'll see managers respond to those same incentives. equity markets, these contract writers, they're not stupid or not savvy enough, i wouldn't say, in using the accounting earnings because that's general, like a score card. account earnings can predict future cash flows better than current cash throws so it's reasonable for these people to use accounting earnings. and finally, the other thing is that investors may be savvy but they're still only human so there's a long line of behavioral finance research show investors have limit add tension and limit prod saed processing in a complicated situation. >> all right. >> there are differences across

the different companies and accelerated depreciation and the cash flow benefits. >> maybe you should borrow someone else's microphone. -- >> cash-constrained companies can certainly benefit from the cash flow benefits from a number of the timing provisions so i think it not all companies are alike. there's going to be a number of companies, as dr. hanlan noted. if you look specifically at the financial statement earnings and book earnings i found that in terms of my discussions with a number of corporate executives but there's a number of corporations that do the 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 and to the extent that accelerated depreciation is

really a zero interest rate loan from the federal government, the benefits of accelerated depreciation at the current time are modest for those that have access to capital. >> thank you. mrs. hanlan, finally, you mentioned in your testimony the important point that some of the analysis that we've been talking about today doesn't really apply to closely-held businesses. could you just explain how closely-held businesses might analyze tax reform differently than publicly-held companies? >> yes. there's a long line of literature and accounting research that examines this book tax tradeoff and what we can find if we can get the data, we'll line up brooiv vat companies and public companies and essentially you'll find private companies are much more responsive to takes incentives and tax-reporting incentives in our public companies and the idea is that the public companies have the financial constraints so it's true that private company also respond to

these incentives more than the public companies will. mr. levin? except for the last few questions, we've been really discussing broader issues of tax reform and not book and tax accounting issues. we may be relieved by that because we need to look at it. they're 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 ahold of a specific figure without looking at its consequences. because according to the joint tax analysis, when we asked them, they said if the rate 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 of expensing accelerated depreciation, that doesn't really fit. and it was interesting in the testimony of the first two of

you, that you in the testimony - you know this well. you said our investors applaud capital incentives like expensing. capital investment can be up to 35% less than it would be otherwise in the first year. of course, that evens out. that's kind of a broad embrace. your testimony, if i might, you know it well. i'll just read it. this is important for us to have a full intelligent discussion of this vital issue.

we're strongly influenced by tax incentives that improve our reporting ingi inin ining metri. such as our taxes and earnings per share. there are differences that permanently reduce our taxes paid and affect our tax rate thereby encouraging new investment. let me just indicate. i was looking, as we were reading over your testimony last night, at marty sullivan's analysis of winners and losers, if there were a reduction in the rate to 30% with slower depreciation repeal the domestic

production credit and repeal the research credit. this is interesting and not very surprising the industries that benefit from that, and i'll just read a few, they apply to you, i guess. surts, insurance, retail trade. these are winners. bank holding companies, real estate. other services. mining essentially evens construction. and then those who are losers, food manufacturing, utilities, other manufacturing chemicals, minerals and machinery

manufacturing, transportation, internet. i don't quite understand that. but agriculture, technical services, computer and electronics, very dramatically transport equipment and electrical products. i think since these are most the technical stuff in the announce. of our hearing, i think your testimony today underlining the importance of 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?

it's easy to say let's put everything on the table. the real issue is what's taken off and what's left. we welcome your testimony and hope today's hearing is another step towards our comprehensively looking at these issues so that we can come out with a proposed revision tax code. we need to look at tax reform in terms of how we promote a continued growth in services and agriculture and the like. but also in the industrial

sector of the united states. i think that's a well-rounded response. >> how long before you guys can take over the postal service. >> do i have to answer that question? >> well, you're doing a good enough job right now. >> you deliver to the door and the postal service doesn't even come. >> well, if you have a problem, just call. >> you say the idea of reform would lower the rate to at least 25% and include incentive for investment such as bonus

debreesh yags. however, you also say you're willing to put all base broadeners on the table for significantly central reform tax code with materially lower tax rate. what rate would that be if you have to give up all the other nicks? >> it really dpepds on what's in the package. but given our competition overseas, we think it would have to be close to the oecd rate. if you get there, assuming that doesn't continue to decline, as chairman camp asked earlier, i think it would be a good place to be. does ma mean r&d tax credit, eliminate them if you got the rate low enough? >> i'm sorrier sir? >> if we got the rate low enough, would you go along with that? >> yes, sir. >> you know, i had a meeting

with some of your guys on dallas, they said 23%. you like that number than 29? i bet you do. >> i do like better 23 better, yes, sir. if you could make that happen, that would be terrific. >> would you care to comment on that as well? >> yes, thank you. we care tremendously about issues like accelerated appreciation. for us, it's enormous. well, we have crunched the numbers and weave looked at all the different policy proposals that are out there. we clearly care about the impact on cash flow. i think the rate does improve cash flow in the long run. if you get to a low enough rate, i think somewhere around a rate that's consistent with the developed world, say 25%, i think it's a clear winner for us as well as the economy.

>> and you can get rid of all the other -- >> yes. >> look, i'm not delighted to. i'm a real list as well. >> you say with targeted tax insentives, there's very little evidence that these policies have spurred any investment. can you comment on that? >> yeah, my statement is based on the, you know, the weight of the evidence and the literature. and basically, there are papers that will show there's a time effect. so firms will shift the purchase of equipment to a period that's earlier, say by december instead of january.

what we can't tell in the literature and what is very difficult to parse out is whether these are, you know, part of it is just timing. sort of it is just shifting. some of it could just be a change in reporting. in other words, when you say a certain class of asset gets a certain benefit, they might just now record different assets differently. we can't tell that in the literature. the research really finds very little. it's just the weight of the evidence and a large sample. >> have you done any studies on elimb gnawing all the incentives and just lowering the tax rate? >> not exactly, no. >> i'm very interested in this discussion on both counts having worked for many years on manufacturing before coming to the house of representatives.

agree with the macro concern that a rate reduction overall is certainly more beneficial in the long term. and certainly support that. i would like to come back to trying to balance this out inside the umbrella of strategy. i work with many clients in subsequent years, they were very reluctant due to market cycles based on investment and technology, other systems that would be helpful to them. this is particularly smaller businesses, under $100 million manufacturing firm, but surprisingly a number of my clients in the fortune 500 had that same experience on a reluctance based on market cycle, particularly for shareholder expectations in the long term.

and i guess the question i would like to understand is how we address this issue of depreciation from a strategic standpoint within the long term, bringing the rates down is certainly important to me i guess considering the long term, i would like to hear thoughts from all of you, but specifically from professor hanlin and mr. heenan. if we were able to adjust depreciation schedules within the overall tax strategy that would provide the ability, knowing the tax liability would be the same for your company in the longer term, but to do it on a more proportional basis. when there's a great year and the well is full of watt e, the idea of let's go ahead and make this capital investment to be leaned up and red dwi for more difficult times, being able to control costs.

you've got the ability to invest in those technologies, knowing that there will be abdown cycle eventually. i'm thinking heavy manufacturing, the energy industry, areas that i saw that were very reluctant to get involved and make these vems. or say maybe if you have a great year, a small $50 million company could invest in $8,000 machine tools and write them off in one year, but know they're going to take that but the idea longer term is those jobs are protected and they become more competitive. where this gets particularly challenging to me is looking at international manufacturing, contrary to a lot of politics in washington, much of it is very robust and strong and competitive, but still reluctant with many of the tier one and tier two producers to make these decisions. and if they could reduce it down, say, into a two, four, seven-year schedule, if they want to go to the longer-term schedules, that's perfectly acceptable. but how would that work inside the idea of rate reduction if we

could manage that to keep these things revenue neutral. >> if we could bring bonus in and out to encourage bonus investment. >> i'm talking about allowing the manufacturing company ready to make these capital investments. i'm not talking about all asset class. i think that would be a grave error and we would totally stir up the tax system. but areas that are very critical to our strategic manufacturing, economically. the employer would simply have the ability to pick the schedule -- or the company would pick the schedule that's more advantageous to them. rather than have boom and bust cycles on policy, have that fit into the overall tax strategy so in a good year in one sector, you can make the investment that

maybe a fedex might not make based on what they're doing. or vice versa. >> we have fairly large capital projects. these could take a couple of years before you finally sign somebody up and you sell and implement it. bonuses aren't something that's been advantageous for us. coming and going, they're not in the law today.

we have to make sure the law in two or three years is going to be the same as it is today. we're not going to model that. when we sit around the table, we're not going to say well, they may re-up bonus a couple of years. let's throw that in our decision. >> so you're looking for predictability. >> we're looking for predictability in our code and it's in our sort of model today. bonus is not. is. >> thank you, mr. chairman. and thank you all of you for coming down and giving us this system. -- testimony. one of you congratulated chairman camp for moving in this direction. and if he were here, i would congratulate him, too. what we are doing is keeping the idea alye. but it just seems to me with the outstanding representation from some of the nations and the world's most successful

businesses that while chairman camp has opened the door for reform, that it's going to be your responsibility to put your foot in that open door and don't let it close. it's no profile in courage for all of us to say reduce the corporate rates and expand the base. but not my base. i came down here as a tax reformer. and believed me, earned income tax credit, low income housing credit, whatever we can do for our veterans. whatever it is, we have allowed probably $500 million to get involved in what they call extenders. anyone here who doesn't know what the extenders are? or those tax provisions that

expire? or at least we say they're going to expire. and all they want to do is to get them in the code. someone said seeing tax law made is like seeing sausage made. you just don't want to see it. now, what i'm suggesting is that if this outstanding group of corporations that you have listed, how often do you meet? this group, what's the name? >> reducing america -- >> yes. because our problem here is the lobbyists represent the best tax interests of their clients. reform is not on their agenda. if they came back to you vice presidents and presidents and said what a great talk i had with ways and means people, we'll have to give up

depreciation and a lot of other things but wow would this be a fairer system, he would get fired. his job is to broaden the gap or to create one. temporarily, but never allow it to sunset. so what we do need are people that have the credibility that you guys have, and ladies, to get in a 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 exemptions. there's a lot of money there. and of course, if you talked about mortgages, you've got to narrow the amount of people -- the number of deductions that are in there. who's going to bite the bullet to get rid of them in order to have a fairer system? i'm asking fedex and time warn

er what can you do to get people in a room and say we're not agreeing to anything or this will be the impact economically? how can we take this the next step? because we need -- i was here in 1986. we had tip o'neill. all he knew was how to get along with republicans. why? i don't know. but that was the way tip worked. we had ronald reagan and he was blinded by party lines. and 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 question of ox is being bored. it doesn't surprise me if you're paying 35% tax. what does surprise me is you're not outraged. outraged. don't thank us.

what are you going to do about it. because you've got a great argument in terms of equity, but nobody is going to be out front saying that we've got to get rid of some of the darn things that we put in the code. some of which we've forgotten. and when we extend them, it's the whole package. and you can see some of the things that my colleagues are talking about just to pay for the holiday tax package. they've got imagination. but it's not good. so mr. chairman, i was trying to negotiate for you an extended time period. i know i wasn't persuasive. but could one of you just say what you could do in terms of taking this to the next step? >> absolutely. i would like to commend you and the efforts you put forward in this whole eor