been instances, i think, the chrysler emergencier a few years ago was driven at least in part by tax considerations. that was one company that did end up with headquarters overseas. and certainly in the 90s, early 2000, was driven by tax considerations, perhaps not all of it, but i do think it was a major consideration. >> i think congress has taken care of that movement for tax purposes offshore. and it's more as -- you just have offshore companies getting bigger is what you're seeing. >> right. >> i would agree with all those things. i think tax is one factor. 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 happen generally where the foreign acquirer will acquire the u.s. company. you wouldn't want to acquire a u.s. company. it would be hard to acquire a foreign company and then pull that foreign company into the u.s. tax system. it also depends on where the investment goes based on the tax rates. some companies just have to go where their customers are, but more tangible-based company can move around more easily. taxes will be important drivers for those kinds of companies. >> maybe you can speak of the phenomenon of japan in the sense that stagnation has paralyzed that economy for decades. if we were sitting here 15 years ago, the argument we're currently making about china would have been the argument we were making about japan. are you arguing it's their tax

rates that have kept them from growth? >> there are a lot of similarities. in the 1980s, you know, congress was facing not only intense competition from japan, but also large deficits. and, you know, i was impressed in 1982 and 1984, leading up to the 1986 tarks reform act that, you know, congress did address the deficits. it did show that there could be some tax increases, which set up, i think, the right dynamic far revenue neutral corporate and individual tax reform in 1986. clearly japan's high corporate tax rate that now is going to fall below the u.s. as of april 1 i think was a factor in terms of companies not being as successful in the world markets, in addition to all the other

problems that occurred in their lost decade. i think a lower corporate tax rate can definitely be helpful in terms of economic growth. when i look at the top 50 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're all here interested in not just tinkering in the number -- to tinker with the 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. the topic of discussion today is tax policy. i want to focus on hopefully three issues very quickly. one is the rate, two is the cost

of the compliance and three is the potential alternative. we talk about the corporate rate being the highest in the industrialized world. that's astounding. all we're doing is punishing businesses who are trying their best to stay in business here. i'm not so certain that -- so that's a disincentive to expand or to create a business here. the average isn't just a break even, it isn't just a wash. if folks are looking at their balance sheet and saying well, if it's 25, 28% and that's the average of oecd, countries of industrialized 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? >> i couldn't agree with you more. actually the most destructive

tax that can be levied from an economic growth standpoint is the corporate income tax. though oecd has a good study on that. in an ideal state, you take it to 0, 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. 3%, 4%. so you're at 28, 29. but at least it's a lot closer than where we are today. maybe good old american ingenuity can bridge that gap. i don't know. >> i've got great faith in american ingenuity if we don't stifle it from here. isn't 0% really the greatest pro growth rate for business and job creation? >> i would argue it is. >> i agree. >> come on down. >> yes, i think the lower the better. >> and 0% would be the most pro growth policy we could have as

it relates to business? >> yes. >> i think there are important government services -- >> without a doubt. >> the highways, the airports, the feds. and so i'm not sure a 0 rate is what necessary would be the best. >> but pro growth policies as it relates to businesses? >> i think businesses are looking at more than just the tax rate. they're looking at all the factors that would make the american economy successful. so i guess i'm not convinced that a 0 rate is the optimal rate. >> let me ask you about the cost of compliance of our current code. do you have any sense about what that is and how that challenges you in your business? >> it clearly is very significant. and anything to the 39.1% marginal statutory rate, you also have to factor in a very high cost of compliance and cost of uncertainty in our current

u.s. tax system. you clearly have a benefit by simplifying and making more certain the code that in combination with a lore corporate tax rate and a simplifications could be, you know, very significant. >> do you have a sense about the magnitude of the cost of compliance? is it another percent? is it another 10%? another -- >> i think i have seen some estimates that, you know, the efficiency costs including compliance costs could be as large as the entire corporate income tax. >> as large as the tax itself? astounding. which brings me to the alternative. what would a consumption tax, doing away with the business tack. what would a consumption tax do for your businesses and job creation and the economy. do you have any thoughts on that? >> from a very high level, i think a consumption tax is

probably close to a corporate income tax. a corporate income tax in effect penalizes work, productivity will. consumption tax penalizes consumption. whether it's realistic or not -- >> or incentivizes savings and allows consumers to make their own choices. things like that. yeah. >> i agree with mike's overall statement, 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 regr regressivity that should be consid looked at, but overall, i think it's something that should be considered. >> mr. smith is recognized. >> thank you, mr. chairman and thank you to our panel. it's interesting as we look at these issues, i don't think

anyone can pretending that they're simple or we've got an easy answer here. but i do want to reflect a little bit on -- i guess the interrelated nature of a lot of these businesses. and i won't ask whether time warner uses fed ex or ups. that's not what i'm getting at here. you do? okay. nonetheless, is there any concern in knowing that fed ex, for example, 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 -- the products or services that you use within your own companies and outside your own companies would have an adverse impact if we don't get this right?

>> absolutely, mr. smith. and i think you have put your finger right on one of the pressure points here, is that our current tax code has so many different provisions that attempt to direct economic activity one way or another. my personal feeling is we leave it up to the economy and the business community and try and minimize that as much as possible. you mentioned about manufacturing having r&d, or 199. in effect, fed ex is part of the manufacturing business as well. but we're not generally categorized as a manufacturer. but we're in the distribution chains for a lot of manufacturers. we don't qualify for 199, for example. why did that line get drawn quite that way? but it's those kinds of issues i think you're exactly right. >> anyone else? go ahead. >> i think you're right. i mean 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 is 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 way from this level of complexity and all of the different provisions, you can have a situation where fairness really fits in nicely with the overall free enterprise market. and let the economy decide. let markets decide where things should go. >> okay. mr. heenan? >> i think our sole focus should be about growth and how do we get growth and jobs. so i think sometimes there is a difference between equal and fair. and we should be focusing on growth. so while i think a lower tax rate certainly for us would put more cash in our pocket to spend on new investments, some of the

targeted tax expenditures that are out there may have a bit more leverage than a lower tax rate. so we have to look that very closely. what is right i think is what promotes growth and 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 thank the panelists for your testimony today. always very illuminating and interesting. let me just raise a couple concerns and get your reaction on a few things. 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, it doesn't take into consideration the vat systems that they have in place right now to supplement lost revenue from the lower

corporate rates there is no discussion about a possible va 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 is 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. fryt and mr. schichtel, a 28% rate, and eliminate every expenditure on the corporate side. would that be enough to make us more competitive globally? >> i don't think it would, mr. kind. >> mr. schichtel? >> i agree with mike. >> well, then we're going toy for the additional 3% to get to 25. if the proposition here is that we're going to go to the pass-through side, where a majority of entities are structured in this country, i don't think they're going to be that enthusiastic for pass-through entities, small business owners, s-corp.s, individuals to pay higher tax

rate 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 then in order to get to the 25% if the goal is to make this deficit neutral. that's where it's going to get difficult. that's why you don't have a detailed plan from the majority on what specifically they're proposing because they know they're going to have to get into the weeds immediately overnight, and the political pushback is going to be tremendous. i wanted to pick up what mr. price was addressing because i think it's very intriguing. the numbers from last year, the federal government collected total revenue of roughly $3.2 trillion from all the revenue sources. of that, $181 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 tying ourselves up into knots trying to figure out a way to lower the rates when we're talking about roughly 7% of total federal revenue to begin with. maybe we should explore further,

just 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 income families that will have to spend every dollar they earn through the consumption tax. maybe there is a different way we could pay for it through some form of wealth tax. i don't know how many of you had chance to see "the new york times" op-ed page today. david miller i thought wrote a very interesting article. did anyone see mr. miller's article today? it's called the zuckerman tax. zuckerman is going to get about $28 billion worth of shares most of which he'll never pay a dime of tax on. what mr. miller is advocating is why not market those shares in a given year and have him pay taxes on it, rather than waiting until it's realized, which may never occur in his lifetime. if he passes it on to his heirs,

they may never realize the gains from the shares. this i think is one of the reasons why we have huge wealth disparity in our country, because it favors those that are accumulating wealth through shares primarily that never get realized. they're able to borrow off those shares in order to maintain their living standards. so maybe there is a way for us to explore 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 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. what i'm recommending would probably put you guys out of business. you guys would lose your jobs as far as corporate tax is concerned. but what i'm hearing from you is the lower the better and zero might be ideal. and that would be a real game changer around here, rather than us going through this kibuki dance with these hearings with no detailed proposals because of what that is ultimately look

like. my last concern is 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 rely very heavily on depreciation for r&d, for 199 manufacturing 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 just some of the issues that we're raising. and maybe you guys can help us try to figure out way of supplementing lost corporate tax revenue, get to a zero rate. but let's keep it progressive and fair, ultimately. >> thanks. >> the gentleman's time is 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.

>> i'm glad the gentlewoman is redefining fun. >> 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 in book tax and you all have touched on it briefly. so can everyone on the panel just let me know your thoughts on the idea of book tax conformity. >> to some degree, i think there is some benefit there. i would caution about going to the extreme and putting control 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