enough, would you go along with that? >> yes, sir. >> okay. i had a meeting with some of your guys in dallas. they said 23%. you like that number better than 25%? i bet you do. >> i do like 23% better than 25%, yes, sir. if you can make that happen, that would be terrific. >> mr. schichtel, given that time warner is a capital intensive business, would you care to comment on that as well? >> yes, thank you. we care tremendously about timing issues like accelerated depreciation. for us, it's enormous. well, we have crunched the numbers and we've looked at all the different policy proposals that are out there. we clearly care about the impact on cash flow. i think lowering the rate clearly does improve our cash flow over 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 could get rid of all the other -- >> yes. >> okay. i'm glad to hear that. >> look, i'm not delighted to. i would love to keep it. but i'm a realist as well. >> ms. hanlon, in his testimony mr. heenan argues that promoting investment accelerated depreciation is, perhaps, a more powerful tool than lower overall tax rates. you, however, say with respect to targeted tax incentives such as bonus depreciation, 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 a purchase of equipment to a period that's earlier, say, by december instead of january. there's also evidence that firms

will purchase a different class of asset. but 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's just timing. part of it's just shifting. and 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 that tries to look at aggregate effects, you really find very little. it's just the weight of the evidence in a large sample. >> have you done any studies on eliminating all the incentives and just lowering the tax rate? >> not directly, no. >> thank you, mr. chairman. >> thank you. mr. davis is recognized. >> thank you, mr. chairman. i'm very interested in this discussion on both counts, having worked many years in manufacturing before coming to the house of representatives. and i ran into -- first, i'd

like to preface my question with i agree with the macro concern that professor hanlon talked about, that a rate reduction overall is certainly more beneficial in the long term. and certainly support that. but i'd like to come back into manufacturing or operations capital investment, a question on trying to balance this out inside of -- or underneath the umbrella of strategy. i worked with many clients. i was discussing earlier three in particular before some of the bonus depreciation issues came out after 9/11. and in subsequent years. where they were very reluctant due to market cycles to make investment in machine tool technology, other systems that would be very helpful to them. this is particularly smaller businesses. under $100 million manufacturing firms. but surprisingly a number of my clients in the fortune 500 had that same experience on a reluctance based on market cycle, particularly with 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 from both a tax perspective, but also having this incentive for investment is a bigger question. i guess considering the long term, if we were able to work out a mechanism, and i'd like to hear thoughts from all of you, but specifically professor hanlon and mr. heenan on this, since you both have been talking about this the most, if we were able to adjust depreciation schedules within the intent of the overall tax strategy that would provide the ability knowing that the tax liability would be the same to your company 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 water, the idea of let's go ahead and make this capital investment to be leaned up and ready for more

difficult times, being able to control costs when you've got the ability to invest in those technologies, knowing that there will be a down cycle eventually, i'm thinking heavy manufacturing, energy industry, areas that i saw that were very reluctant to get involved and make these investments. or, say, maybe you had a great year. small $50 million company can invest in $800,000 machine tools and write it off in one year. knowing they're going to take that, certainly a lower profit. the idea longer term is those jobs are protected and they become more competitive. where this gets particularly challenging to me is looking at a lot of our international manufacturing contrary to a lot of politics in washington, we are very robust, very strong and competitive in manufacturing. there's still reluctance of tier one and tier two producers to make these decisions. if they could reduce it down say into a two, four, seven-year schedule, if they want to go to

longer term schedules that's perfectly acceptable. how would that work inside the idea of rate reduction if they could manage that to keep things revenue neutral and what would the impact of that be from a wider standpoint? >> just to get on your bonus comment and make sure i understand your question, are you saying maybe we slow down -- >> i'm thinking about giving the -- what i'm talking about is allowing the manufacturing company who's getting ready to make these capital investments -- i'm not talking all asset classes. i think that would be a grave error and would just totally stir up the tax system. but some specific areas that are very critical to our strategic manufacturing economically is that the employer would simply have the ability to pick the schedule -- or the company would pick the schedule that's most advantageous to them. rather than have these boom and bust cycles on policy, have that fit into the overall tax strategy so that in a good year

in one sector, say you can make the investment that maybe a fedex might not make based on what they're doing, or vice versa. but within those time frames. but coming back to how would you work that as well with inside of the rate structure keeping that lower rate because of the longer term implications. >> i think i understand your question. just to focus on praxair, as i mentioned earlier 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. and so it's -- what we really need is a consistent process that we can follow, consistent rules. frankly, bonus has not been something that's been a advantageous for us. bonuses coming and going is not in the law today. we need something, whether it's the current system or another rate schedule that we can depend on. because we have sort of a long

cycle time, and we have to think forward two and three years and make sure that the law then is going to be the same as the law today. and if we can't, a're not going. when we sit around the table and we make our investment decisions, we're not going to put something in, say, you know, they may reup bonus in a couple years. let's throw that in here. >> you're looking for predictability. >> we're looking for predictability. accelerated depreciation has been a long time in our code. it's in our sort of model today. bonus is not. >> the gentleman's time has expired. mr. rangel is recognized. >> thank you, mr. chairman.r co down and giving us this testimony. one of you congratulated chairman camp for moving in this direction. and if he were here, i would congratulate him, too. because what we are doing is keeping the idea alive. but it just seems to mth outstanding representation from

some of the nation's 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 absolutely 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 believe me, earned income tax credit, low income housing credit, whatever we can do for our veterans, whatever it is, we have allowed probably a half a trillion dollars to get involved in what they call extenders.

anyone here doesn't know what the extenders are? those tax revisions 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 am 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. >> yes. >> because our problem here is that 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

accelerated depreciation and a whole lot of other things, but, wow, would this be a fairer system, he'd 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 warner, what can you do to get people in a room to say, we're not agreeing to anything, or we're saying 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 whose ox is being gored. so it doesn't surprise me that if you're paying 35%. what does surprise me, that

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's 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 law. so, mr. chairman, i was trying to negotiate with 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. mr. rangel, first off, i would like to commend you and the

efforts that you have put forth in this whole effort. >> the gentleman's time has expired. >> may i ask consent to let our guest -- >> mr. neubig has been recognized for five minutes. >> mr. chairman, i yield the balance of my team to mr. tiberi. >> thank you. very interesting comments. i do want to point out just for the audience and for the record, one former chairman mentioned nobody's talking about getting rid of the charitable contribution. that actually in the president's prior three budgets, the president has capped the deduction on the charitable contribution at 28%. i just wanted to remind the gentleman from new york regarding the president's last three budgets and what he proposed. obviously it wasn't adopted by the congress. but there is one person in washington who has talked about the issue in the context of reducing that charitable contribution. i wish mr. lewis were here, because he and i as the chairmen

of the philanthropy caucus have both opposed that as co-chairch of the philanthropy caucus. to the witnesses, starting on the left, those of you who are vice presidents for companies dealing with tax issues, can you tell me who your major competitor is and how the current tax code causes you to make decisions based upon investments? starting to my left? >> sure. well, the united states postal service. they don't pay any tax. ups. their tax profile is fairly similar to ours. and we have several international competitors. dhl, tnt and others. as an example, dhl's reported etrs, effective tax rates over the last ten years, have hovered around 20%, vis-a-vis our 36%, 37%. that's why i say us paying at

what we are right nowetit ie di. they have additional after tax funds they can continue to reinvest in their global networks we don't have. >> they compete with you here and abroad? >> yes, sir. >> our main competitors are the two big boys, at&t and verizon, as well as the satellite companies, directv and dish. obviously we compete globally for -- in the capital markets for investments. and as far as the impact on the communications industry, i think verizon and at&t are much more similar to us than maybe even the satellite companies, although the difference isn't that large. we're all capital intensive companies. for us, tax reform is more about getting this economy stabilized and growing, because that's really where our growth is going to come from. >> even though you don't compete -- i'm trying to get more of an answer from you. i don't want to put words in your mouth. let me tell you what i'm trying

to do, then maybe you can answer. even though you don't have a quote, unquote, international competitor, you're competing international for capital? >> yes. >> so the tax code impacts you how with respect to that? >> well, i think if you look at some of the analysis and research that has been done, companies with lower effective tax rates do have an advantage when it comes to garnering investment from the global capital markets. so from our vantage point, that clearly is an issue. also from, you know, just the perspective of raising capital, and also being able to invest more and grow our business in an economy that's more robust is going to help us on both fronts. >> so because capital can go anywhere in the world, it's going to go where it -- >> it's going to go where they believe the highest return is at. >> on their investment? >> yes. >> so even though you are a company investing in the united

states in terms of jobs, and more jobs in ohio, thank you very much. it was just announced. even though you're a domestic company, domestic jobs, that international competition in terms of tax rate is very important to the growth of your business in america? >> it is. and it's also very important to our customers. our highest growth area is in the commercial services arena. and our customers, small, medium and large, they do compete intensively in the global markets. and our success is tied to their success. >> thank you. praxair? >> good morning. i think in the u.s., we have -- you know, we're competing against air products, u.s. based multinational. outside of the u.s., we have french and german companies. when we look at the u.s., when we're doing business here, we're all competing at the same rate. but as you said, you know,

capital can move. when we look at foreign projects, you know, what we really want, and i think we have today, maybe not perfectly, is to have a level playing field on the tax rates offshore. so if we're looking at a project in mexico or france or germany, we want to be on a level playing field with our competitors so we can win our share of those projects. we're headquartered in danbury, connecticut. we have our r & d in new york. that offshore growth comes back here to the u.s. it's important for us to remain competitive on the offshore projects. >> thank you. thank you, mr. chairman. >> mr. brady is recognized for five minutes. >> thank you all for being here today. first, i appreciate the chairman holding this hearing. secondly, i think the draft proposal on territorial and lower rates, the way it was laid out, has been a very positive and helpful movement toward

fundamental tax reform. all the witnesses today have really opened up a lot of questions on how we move forward in doing it with the most progrowth impact weighing both the book and the accounting tax type requirements you're under. i wanted to ask -- so i could ask all of you about a dozen questions. i wanted to ask our two business representatives from fedex and time warner both of you rightly make the case that in addition to lowering the corporate tax rate, that there is a immediate for capital investment incentives. and you want to put everything on the table but recognize looking at the last 40 and 50 years the single strongest corelating driver for new jobs is private business investment. you're building buildings, buying software, new equipment,

technolo technology, jobs along main street growth. my goal is at the end of the day, i want the lowest possible tax rate, but i want the strongest possible progrowth tax code. one that allows us to have the largest economy in the world not until china catches us or someone else, but for the next 100 years. i want to ask as you are willing to put everything on the table, which i think is very important, what are the strongest looking at the cost of capital in investment, what is the strong education capital investment incentive that ought to be considered to remain in the tax code? >> from our perspective 100% expensing on a permanent basis is extremely strong.

an investment tax credit can be crafted in a similar manner. expensing works quite well. it doesn't address the financial reporting type issues that we were talking about earlier, but it's still affects the cash flow and has a tremendous impact on our environment and other companies like us. >> 100% expensing is the -- >> yes, sir. >> mr. shiktle. >> for us, the biggest driver when it comings to investments is a growing economy. i think if we can get there, all other problems will eventually improve and rectify and remedy. as far as immediate short-term policy, clearly bonus deparisian, expensing is tremendously important right now. we're being hit by the reversal of prior year benefits from

bon bonus depreciation just as our economy is suffering to pick up momentum. now is not the time to have reversals take full effect. i think overall if you can get to a low enough rate, it will encourage growth and it will more than make up for the loss of some of the tax incentives including even accelerated depreciati depreciation. >> clearly we know what to do to get to 28% getting down that final three points will be a thoughtful discussion with what little time we have left, can i ask the witnesses your thoughts on the strongest progrowth tax code. >> i just a little bit different than the profile of some of the other companies. bonus depreciation isn't helpful for us because it comes in and

out. if it were to be put in permanent. >> which is what we're seeking permanent tax provisions rather than temporary ones. >> i think we recognize that would be extraordinarily expensi expensive. the current provision is accelerated depreciation. i think that one the one that maybe able to keep to a permanent bonus structure you're going to have a very costly solution there. i'd be happy to take it, i think it would cost too much for the country. >> we're running short, but please. >> when tax policy analysts look at permanent bonus depreciation or permanent 100% first year write off, they generally argue that you would also need to repeal the interest deduction in order to prevent negative effective tax rates. so, you need to think about not only expensing, but also the impact on the interest deduction. >> thank you. >> mr. mcdermott is recognized.

>> thank you, mr. chairman. i want the audience and witnesses to recognize this is a day in which we've all gathered here with sober faces for holy pictures. we are all for tax reform. everybody in this room is for tax reform. we're on the ways and means committee. we do tax reform. now mr. johnson has asked you, have you studied how low you can get the tax rate if you eliminated business tax expe expenditures and noall of thens with say they haven't. i want to center the study from joint tax which talks about what you'd really have to do if you're serious here. now, that study suggests roughly

half of the cost of a seven point reduction from 35 down to 28 would come from the repeal of depleted accelerated depreciation. yet all the companies have said this is very important. don't take away our accelerated depreciation. so you want to retain that. that means you can finance about a 3%, 3.5% reduction. this report says you're going to bring it down to 28% you're going to have to come up with $960 billion of which $506 billion comes from the depreciation reduction. i wonder what you would actually support. as mr. rangel suggested, tax reform in 1986 occurred after

ronald reagan came in in 1981 and played golf with tip o'neill and others for five years and it was before the global economy had really taken hold. so we're talking about a new world that we're trying to reform now than the one they were reforming in 1980. so what would you give me your views of what we should do? what are the things that are most important that you're willing to give up, or shift off on to somebody else? yes. >> yes, congressman mcdermott. we looked a at the joint committee on taxation's revenue estimate from october. and we looked at the provisions that nay estimated and scored in terms of base broadening. they represented $209 billion out of the total business tax --

corporate tax expensetures of $545 billion. it was only 40%. that they actually scored. there was another billion of corporate tax expensetures that they had not yet estimated. so i'm actually relatively on the optimistic when you really take a hard look that you can get down to 28% and possibly 25%. when i look at the 1986 tax reform act, and i look at the base broadening that occurred from tax expenditures it was only 60% of the base broadening. 40% of the corporate base broadening in 1986 was not from tax expenditures. i think the tax, treasury and elsewhere if they look hard will be able to find additional base broadeners beyond the tax

expenseture list. >> do you have that list? that $195 billion you talk about? can you tell me what are the pieces in there that we would have to get rid of? >> i don't have those with me. we've gone through the entire jct revenue estimating list and they have lots of provisions that were not yet estimated. and we've linked that to the tax expenseture list. 40% of the estimated tax expenditures are not yet been estimated. >> i think i would like to echo the comments. sort after a quick fix answer is difficult to give. you have to look line by line at each of the expenditures and balance that. we need to weigh it against the be