until it's realized. it may never be realized in his liech time. in he passes it on to heirs they may never realize those shares. this is why we have huge wealth disparity in your country. it favors those that never realize their shares. they're able to borrow off those shares in order to maintain their living standards. maybe there's 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 more competitive. 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 would recommend is probably putting you guys out of business. you guys would probably lose your jobs as far as corporate tax. i'm hearing the lower the better and maybe zero might be ideal. that would be a game changer

rather than us going through this kabuki dance with no detailed proposals. further my last concern is listen, if we get to 28% by eliminating all the expenditures on the c side, what does that do to domestic manufacturing? who rely very heavily on depreciation for 199 manufacturer tax credit? is that going to help or hurt domestic manufacturing if we take expenditures away from them. will that leave us less competitive in the way to invent things and create things in our own country here. those are some of the issues that we're raising. maybe you could help us figure out a way of supplementing lost corporate tax revenue get to a zero rate and keep it progressive and fair. >> the gentleman's time is expired. >> thank you mr. chairman. 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. i'm not sure i've had this much fun on the year i've been on the panel. >> the gentlewoman is redefining fun. >> this is good stuff. since the focus on the hearing has been on the areas of book and tax differences and where they diverge, do you 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's some benefit there. i would caution about going to

the extreme and putting control of the tax revenues in the hands of the accountants. to the extent 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 and confirmity the gaap and international standards. i don't think they're reflective of real economic lives. when you look at different industries and different classes of assets the lives that we have for tax purposes are much more consistent with reality than what you see from a gaap reporting perfespectiveperspect. i do believe 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. 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 and this arena it's not that all of them cause problems. it's just that the permanent kind are better than the temporary kind that allows you to increase your earnings. the first thing is accounting is very conservative in their rules. that means we make expenses, we acue expenses very early before they happen in cash flow. for example, bad debt expense and so forth. i think you know the tax code generally has not favored such treatment. also there's a lot of evidence in the literature that book tax confirmity would reduce the information that is contained in financial accounting earnings. the rules are set up for two purposes. accounting earnings, the rules

are set in order to inform stake holders and the evidence based on the 1986 tax reform act when a certain set of firms were required to increase confirmity and several other stud yeses show that the information will go down if you conform those earnings. i share the concern about who would make the rules after the conformity would happen. i think that would be very hard for the u.s. to handle the international accounting standards board determining our tax base. so i think there's a lot of reasons while book tax conformity wholesale is a bad idea. i think there are certain things that are different between book and tax. i think wholesale conformity is not a good idea. >> i guess i would agree with dr. hanlon's comments as an example the discussion about moving to ifrs has impacted in terms of some of the discussions

about u.s. tax reform. if you move to ifrs lifo would not be allowed. it would eliminate the current ability of some firms to use last-in, first-out accounting. i think there is clearly different goals for the accounting rules and as the tax writing committee you have different goals including revenue that are your objectives. >> i agree with most of what was said before me. i think really there's -- the accounting rules are there for something completely different than what our tax rules are there for. it's to get revenue, it should be done in a manner that promotes growth, investment, jobs. those are two completely different worlds. so i would encourage us to keep them separate. >> okay. and i have just a few second left so could the businesses just quickly talk about -- we have 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 think status quo is where we want to be. >> i think we're seeing the results in the committee as far as what happens if you do nothing. i think tax 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. >> mr. pollton is recognized. >> thank you, mr. chairman. i enjoyed the testimony this morning. i follows on the heels of a full year of hearings on tax reform. the message has been clear from the folks today and in the past about to testify surgeonity for

companies that are investing their kpap tal on a five yoor and ten-year horizon rather than dealing with temporary tax extensions or extenders that can create a lot of difficulties not only for the companies planning but for the accounting side of the equation as well. the u.s. is trying to play catch up now to make sure we have a tax code that's competitive along with the fairness and simplicity component. it is important to focus on the competitive side on the progrowth side. here's my question, i know that the united kingdom is moving forward with tax reform as well. they've staggered, kind of move forward slowly lowering their tax rates. are we better off to 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 doing. which is the way to go? >> i think there's a tension there from the business 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 kwaegs or solution. >> i agree. i think resetting the baseline do it once and then move forward provides predetectiblity. there may be some items as far as transition rules. i think overall, it's time to just do it and do it now. thanks. >> i mentioned earlier we spend $2 billion in capital. we look at our projects. if we miss it's a big deal. if we spend $200 million in the wrong place it's a big deal.

i commend the chairman for taking on this difficult task. i would just say this is a big deal. if we miss on how we do this, we're going to regret it. so i agree that we should move quickly. i think we really 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. >> i guess two points. phasing down the corporate tax rate is what has been done in canada and the united kingdom. 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're going to get to a 23% corporate tax rate by 2014-2015. one interaction in terms of the financial accounting rules is my understanding is 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 trms of deferred tax assets and deferred tax liabilities. it's a benefit in terms of companies with deferred tax liabilities. the majority of the top 50 companies have deferred tax liabilities. think would benefit. some companies have deferred tax assets from loss carry forwards and some compensation. and lower corporate tax rate would reduce the value of those deferred tax assets. they have decided instead of going from 289 to 23 in one fell swoop, they're going to announce it, but they're going to enact it through parliament over the next four years. >> if i could just add one quick

comment. >> one of the things about a phased in process does it really give us certainty? other countries announce phased in and the phase in becomes a freeze. going back to the certainty theme, the challenge of a phase in is are we going to be convinced as businesses that that's going to be there in two, three, four, five years. will the phase in really happen or will we put it on hold when revenue needs to overweigh the talk 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. i yield back. >> thank you, mr. stark the

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 o, 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's of accomplishment and academia that is

outstanding. i got there in a somewhat different manner. up until 199 -- 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 accept and one stark was still unemployed. they solved that problem, they said we'll make him a teacher. and i must say you have improved the appearance of the sloan school magnificently and made accounting look a lot more attractive than i remember it to being from what the -- whatever was next to the window. i want to thank you. in some more seriousness, i'm

concerned about some of the issues that we create tax expenditures for in their usefulness. i'm going to ask. you may not know now, you may know 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 that orville redenbacher got the r and d tax create to develop micro wave popcorn. now you can make a case if it doesn't stick in your teeth of maybe that was a good, good help

to society. i'd love it if you know of or could dig out in the accounting research if anybody's done this study on what the actual usefulness seriously to society has been. in many of these tax expenditure areas. if you would be willing to spend a few minutes of your spare time and dig out something like that, i'd sure love to have it. >> i can certainly look at that for you. i think the one thing that has been looked at in the literature in an a and d study when they look at the data they might see what's looked at as an increase in spending. what's looked at is that really more r and d that results in more products or does it arise in the input prizes. there's one study that shows that all the increase in r and d

spending goes to salaries r and d. it's not more r and d it's paying engineers more. it's whether the input providers demand a higher price for the inputs when they know that the other party has an r and d credit. that part has been looked at. there's some mixed evidence on it. i don't know of a study that would take some researcher -- >> okay. i thought you might have come across. i would add there are people who i think would have advantage of it. i hung around in the tax area with a guy named steve jobs probably before you were born. he didn't really pay much attention. 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 what 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. i suspect that's true of most innovators. they're going to develop these things whether or not they get the r and 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's recognized. >> thank you, mr. chairman. one of the most frustrating things for me is the uncertainty. it seems reich there are a lot of taxes that are short-term. we miss a lot of deadlines and go back and reinstate tax incentives and et cetera. so just to make sure i'm not it be only one who feels that way. my question for miss hanlon do you think this instability in the tax code credits 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 long-term investments. i think a stable tax policy would be a lot better from both the tax and accounting side. >> i think i heard those comments. i mean, whatever it is if it's fair, if it's reasonable, lore or flatter keep it there. then we can make business decisions around that. i know this has been a long hearing. my question, if there are some specifics that you can relate to the committee where you see the temporary nature of taxes creating a problem or the fact that certain incentives have expired and then gone back in and reinstated, if there's any specifics that anyone on the panel would have? >> i think the biggest one in that regard right now for us some of these expenditures we have several of them apply to

us. expensing and dpreegs that does 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'd have any further comment. >> again, i'm looking for are there examples that you see day in and day out that are, again, as we talked about maybe creating more costs and problems than really the incentive or disincentive was worth in the first place. >> definitely. comes up all the time. had a conversation with my old boss, who is now our president and chief operating officer, about activity that is do qualify for the section 199 domestic production credit. he was absolutely delighted and

said, fantastic. we're going it to bake this into our investment analysis and the return analysis. i had to caution him and say, wait a minute. i think we need to be careful. probably can can count on it for the next couple 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 it to allow my boss and the ceo and the rest of the team to make big decisions that are based on something that they can understand and count on. >> i believe that's one of the reasons why there's 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 they have to put so much risk in the remaining eight years or however long they do the analysis that it drives it from being a potential good investment to too mauch uncertainty.

>> it's not just on the business side. a number of comment at a timers have commented that we really have almost an entirely temporary tax system with so much expiring at end of 2012, tax rates for not only the top income earners but throughout the entire tax schedule, number of tax credits that are also going to be significantly changed. it's a very important issue. when there was that possible expiration in 2010, there was clearly activity occurring in late 2010 in anticipation that, you know, the rates and other things might be changing. >> all right. >> i just -- i just echo all the same comments. i mean, certainty is going to help us a lot. >> i have a rhetorical question. is it better to address those 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 would make 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 they have, i start to question some of my colleagues about what their definition of fun is. it has been very educational to have you all here today. mr. berg has been running in and out and he asked my question last minute since i'm the last one here, mr. chairman, it does not seem fair. anyway, all that aside, this has really been very helpful, sp and much of your written testimony has been helpful. i do want to add or tag onto what mr. berg has said about the stable, and i want to go 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. so, let me just take that a little further and ask you with these temporary tax incentives how you see those as affecting competitiveness. i will say just as a sidebar between the hearings that we have had in this committee this year, which have been very, re helpful, and those business round tables we've had, we've had a number of businesses say 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 early there isn't that competition naturally in there for them or they don't know about it. could you talk about, especially since you made that statement, mr. fite, 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 cfo and ceo and other executive management decision-makers have lamented what my ceo likes to call an ar contain t cane tax codes and special provisions that apply to us or maybe don't apply to us and apply to others, overall you know there's 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 center 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. shuttle.

>> i agree. my title could be tax translator. that's a big part of what all tax attorneys do. i think the complexity is more of a challenge for medium-sized companies that may not have all the resources we have. clearly from a financial perspecti perspective compliance burden is a huge drag. i went through another budget season, and it's always painful. everyone is frustrated we have to spend so much just to comply with the law. not even optimizing. i'm talking basic compliance. every time we have a transaction, the level of risk and uncertainty and complexity in the law, it's just enormous. really, should tax be a high-risk area just because of the complexity and difficulty in applying laws? 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 we have. >> miss hanlin. >> i agree with the statements. i think the complexity takes a lot of time with the compliance costs. they're very high. 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 do is focus on their business, but instead they spend a lot of time worrying about how do they compensate themselves and structure their business and where should they structure their business, in the u.s. or somewhere else because of the tax code. i think making a more simple, more fair system would help the u.s. >> thank you. mr. newbig, 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. uncertainty, complexity, and how lower corporate tax rates affect business decisions is really very powerful. when people talk about the bang for the buck in terms of, you know, a lower corporate tax rate, sometimes they worry about lower corporate tax rate applying to old up capital. i think they really are missing so much of the power of a lower corporate tax rate that would also be simpler and more predictable. >> thank you, mr. chairman. if i may make one final comment, since there are very few of us, what i it continue to think about as i look at the complexity and the cost of the business, i think about the service -- the cost of the service or product is raised because of this complexity and how ultimately it's the end user that has the costs borne. thank you, thank you, mr. chairman. >> thank you. i very much want to thank all of

our witnesses for a very good hearing this morning. thank you for your time and effort. there's been questions about a joint committee on tax rags estimate, and i did not request the estimate and also of the 90 remaining items, virtually they all are domestic items. we want the record to be clear on that. again, thank you for being here. this hearing is now adjourned.