>> we believe we can accelerate our investments in terms of bringing products and services that are solution toss that problem that will improve the health of those that we serve and at the same time lower the overall cost of health care across the country. a second example i would cite, i think many of you know that we operate the largest number of in-store retail clinics. today we have about 600 of them and we have plans to double the number of clinics over the next five years. we believe that provides an important source of primary care, acknowledging there is a shortage of primary care physicians across the country, and that is expected to get worse over time. we believe, for example, we can

accelerate our business in growth and provide service to americans across the country. >> thank you. my time is expired. senator hatch? >> thank you, mr. chairman. this question is for the entire panel. ideally tax policy should not distort business decisions, but unfortunately the tax code does exactly that. it is categorized by a high statutory rate, lopsided incentives that encourage the use of debt instead of equity. actually it discourages or penalizes u.s. and multi-nationals from repatriating foreign earnings back to the united states where they can be invested to create jobs. is it true that lower corporate taxes would create lower investment opportunity in the united states? >> it would seem to me that a

lower u.s. corporate tax rate makes it more likely that proposals for investment would meet your targeted rate of return. >> to build on mr. duke's comments, a lower tax rate lowers or cost of capital, and that makes more projects attractive. as we look at how to help our capital resources, lowers rates would make more products attractive in the u.s.

for a global business, lowering the effective tax rate allows us to invest in the u.s. without being penalized, and i think today is a penalty. >> senator, from the c.v.a. care mark perspective, acknowledging we are a domestic company, this would help accelerate our company in terms of bringing products and services to mark faster and in a more robust fashion. >> a follow-up question. you noted in your testimony that there have been proposal recently to "move the u.s. tax system farther away from competitive global norms." by ending deferral of u.s. tax on a u.s. company's foreign earnings. that has been a suggestion by some in this administration. this would actually burden u.s. companies with an even higher tax rate. it seems to me that we can't create the type of jobs we

desperately need if we punish the companies currently headquartersed here? would you comment on the effect this would have on your company and the economy? if there were a tax rate reduction significant enough, would that make the repeal of deferral acceptable? >> you are right that ending deferral would

>> you are willing to have a broader tax base, meaning you are willing to get rid of deductions and credits, et cetera in return for a lower tax rate. that is an interesting deal. however, i do have a concern that i wanted to probe to see if you had any similar concerns. what if you agree to get rid of a lot of tax expenditures and you get the corporate rate down to 25% or lower for the first year of tax reform? but what if congress over the course of the next few years increases the corporate tax rate up to 30% or back up 20 -- to 35% without the expenditures? are you concerned that a good part of the deal might only be temporary but the bad part might be permanent, and how do you get past that concern? mr. duke? >> sir, we are not competitive today. american companies are at a disadvantage today. we do believe we need to move ahead with the comprehensive

tax reform. clearly i believe it would be important to remain competitive, and it would be very, very important to measure over time the competitiveness and to ensure american companies stay competitive. it would clearly not be in the interest of american jobs to increase over that time, and we would clearly not want to see that. >> to build on mr. duke's answer, one of the challenges of running a business today is the level of unsencht out there, and uncertainty on tax policy doesn't help. we would hope that comprehensive corporate tax reform would be coupled with policy decisions to keep american companies competitive in the global marketplace and keep it that way for a long time. >> mr. lang? >> i think that certainly is similar to the example i gave earlier on the r and d tax credit expiring 13 times over the last decade.

it is difficult to plan your business having to go through that question mark over the years. >> i would empa thesis there. having certainty and predictability in terms of being able to make our business decision is one of the key elements of overall tax reform and would certainly encourage that. >> thank you very much. >> thank you, mr. chairman, very much, and welcome to each of you. i want to follow on and relate to r and d tax credit. i couldn't agree more. it should be permanent. a number of us have worked on that trying to make that happen. when we talk about the three bronx that each of you are talking about in terms of tax reform, one of them is eliminating tax expenditures or spending through the tax code. how would you recommend that we evaluate tax expenditures or

tax credits as an expenditure. when we evaluate all of this, to me it is very much about focusing on incentivizing, innovation, research and development. i also think incentivizing manufacturing in this country is very important coming from a state that makes things. in the recovery act i helped champion manufacturing tax credit to incentivize 30% tax cut for making things here, clean buildings and clean energy. as we are reforming tax expenditures and looking at all of this, how should we decide which ones to keep and which ones to eliminate? i am assuming you would not want to eliminate all of them. >> thank you for your support and recognizing the importance

of this part of our tax code. i believe that the challenge on the tax code in general is a multifaceted challenge, as you are well aware. >> right. >> our base and interest is getting into a point where the package, the overall system, is something that allows us to compete globally. so when we are talking about r and d incentives, as well as the corporate rate and the territorial system, we should be looking at how we as a country can enable our companies to compete most effectively. that is the form of many dimensions, but very clearly r and d innocentives are being targeted aggressively by certain countries who would like to have our r and d jobs relocated to their countries. it is imperative for us not to let that happen but to put a competitive system in place at

home and not be penalized for doing that? >> how do we do that? >> we are thinking on the same wave length? how do we do that? we are talking about lower the tax rate and incentives, yet we have a big one that is very important. i would argue looking at other countries who we are competing with, like germany, which is actually high wage and cost, but major manufacturing incentives. they are taking our new clean energy manufacturing. i would welcome anyone else who would want to respond as well. how do we do that while legitimately dealing with the other issues you raise, at the same time knowing that we are competing because there are tax incentives in other countries? >> i guess i will speak next. my advice, and this is not an easy challenge you are facing, is to focus on getting the rate

as low as you can and to get competitive with global economies around the world. the marginal rate is where a lot of investment decisions get made. having a low marginal rate is more important than incentive packages. when it comes between a low marginal rate or lower incentives packages, i would choose the lower rate. >> i think having a competitive rate is important, and i think the r and d incentives for research in this country have been the foundation for the i.t. industry that has really pro prelled growth over the last couple of decades. we need to be competitive as a country or we stand to lose something that was invented here. >> not to be argumentative, but that is our dilemma, looking at competitive rates globally, but

at the same time the incentives given around the world. we are losing because there are incentives being given in our countries. again, mr. chairman, on the manufacturing front, which i know you know i care deeply about, we are facing dilemmas because of financing mechanisms and tax incentives around manufacturing. i want to make sure that once you are done with your r and d, that you are making everything here as well. that is my question, as to how we do that. thank you. >> senator nelson, you are next. >> mr. lang, that you for recalling that the semiconductoror industry is so important. you remember about 20 years ago when all of that business was about to go off shore. when the united states decided that it was going to stop that

trend, it put together a consortium, and the proof's in the pudding, which you just told us. so congratulations. i wanted to ask mr. duke, in your testimony you said in our view the bold commission's tax proposal represented a good start because it endorsed these three components of reform. there is a version of that that is circulating right now, which is the gang of six, and it basically gives huge deficit reduction back to the committees of jurisdiction. the biggest deficit reduction would come back to this committee. tax reform, what you all have testified to, health reform, et

cetera. now, a big part of that tax reform is taking all of these tax preferences, otherwise known as tax expenditures, and getting rid of a lot of them, and instead taking that revenue that you gain from that and then allowing the tax system to be reformed and to do just exactly what all four of you have testified. which is bring down the rates for everybody and simplify the tax code. as a matter of fact, one proposal is simplify it into three brackets for the individuals and lower all the rates considerably as well as the corporate rate. now, my question to you all is,

you are going to be stepping on some sensitive toes when you get rid of all those special tax breaks, otherwise known as tax expenditures. i would like your comment on it. >> senator nelson, first i have to say i am not familiar with the specific discussions that you refer to that are taking place at the moment. so the details of the current dialogue i couldn't speak to. what i can speak to, though, is this broad topic that you are really asking about, and we do believe that comprehensive reform does mean that willingness to put everything on the table, including all of those tax incentives that you are referring to. we think for the overall rate to be lowered, and needs to be in that mid 20% range to be competitive with other countries we are competing

with, then it will require some difficult decisions around those innocentives. we do think comprehensive reform involves reviewing all of those in a very thoughtful way. >> senator nelson, i guess i would build on that and say our nation is facing a crisis, and in a crisis, you can get amazing things done. every one of us as a c.e.o. have faced that in our business at some point. you can drive things and get things done that once were thought as impossible. i would advise you to be bold and come up with a tax system that is bold. >> it is kind of like the package, the whole, becomes greater than the sum of its parts. but the sum of its parts are a lot of specific tax preferences for individual interests that are not going to want to give it up, including preferences

that go to the benefit of your companies. >> to be specific, senator, we do most of our r and d in the u.s. i take advantage of the credit. i take advantage of the manufacturing credit. i would trade growth of those off for a competitive global statutory rate. >> you have a separate area. if this all came to pass, and it came back here to the finance committee, and we had to start doing some serious looking at where you take things out of the health care system, particularly medicare and medicade, do you want to make some suggestion sns >> well, i think that, similar to the discussion we just had to the previous question in terms of there are going to be puts and takes, that is also true with our health care system, specifically medicare and medicade.

i acknowledged one of the challenges that we have, and i think that we have many opportunities to address the cost of medicare and medicade and at the same time address some of the none necessary costs and wasteful spending that we are seeing. the example that i gave earlier, $300 billion annually suspend on unnecessary costs as a result of poor prescription cost and compliance. i would look at potential solution toss that challenge, recognizing there are things we can do to take cost out of the system and at the same time keep americans healthier. >> thank you. >> senator? >> thank you, mr. chairman. this has been a very helpful hearing. i want to know that as the parent of 3-year-old twins, i'm still stocking up on those

diapers. >> thank you for your business. i hope we have 100% market share nuri household. >> we are trying. >> you are getting a check. >> i am. [laughter] >> senator, you put your hand on the key question that people are talking about, and that is how is this going to affect jobs. i think people in this country -- that is what everybody is focused on at the kitchen table and anywhere you go. i want to ask a very specific jobs question. if you all as part of tax reform were to give up tax deferral, that is the break of course that you get when you are doing business overseas. you defer paying tax until you bring the money home. and all of that money, all of that money, was brought back to our country and used to slash rates dramatically when you are

doing business in the united states so that we would be able to say you are then competitive with everybody around the world , wouldn't that be a significant boost for job creation in the united states? let's start with you, mr. duke. >> sir, i think our position has been that each of these steps would be important, but it is important to look at the whole picture. that is why we have continued to focus on comprehensive reform operating on a global basis. we are growing in the united states already, and we want to continue that growth. i would say that competitiveness here is very, very important also. one of the retailers, our competitors, that has been growing in the united states in recent years is tesco, a

u.k.-based retailer that has a lower overall rate. growth in the united states and around the world is important, and we believe all of it should be looked at together. >> the reason i asked the question, the finance committee said that your effective tax rate for 2010 was around 32%. if you abolished deferral and used those dollars for creating what i call red, white and blue jobs, jobs in this country, your effective rate would go down considerably. you would be certainly in the mid to low 20's. that is why i am asking the question. let's go down the line. >> in my particular situation, if you look at different markets around the world, our categories are growing at different rates. we talk about the young moms in emerging markets that are using five diapers a week that in

five years using five diapers a day. we will be doing a billion dollars in china to meet the demand of consumers. we have free flow of capital. economies that have that generally thrive and prosper. to have a good corporate tax rate would be the underpinning of that? >> mr. lmp ang, we -- mr. lang, we touched on that yesterday? >> yes, we did. that can only be positive. having those dollars overseas does nothing for us. so bringing them home is something i strongly agree would be a positive for u.s. jobs. i think the key question, though, comes down to what is that rate? is something in the low 20's really going to make it competitive with the other markets where we compete. i think we all have different places we compete. in our business, most of the

places we compete are in the 15% to 17% statutory rate, and with all special incentives, those rates can be substantially lower. my view or concern about that would be finding that rate that would make it competitive or neutral, and it would be below the low 20% range. but the concept would simplify life and bring backs dollars and put them back to work in the u.s. >> acknowledging that we are a domestic company, some of your question really doesn't specifically apply to -- >> you are at a 38.9% effective tax rate according to the finance committee's figures. so under this, for job creation in the united states, you would be one to see a very, very substantial rate reduction. >> and i think that supports

our goal of doing more in terms of products and services and accelerating growth in infrastructure and creating jobs. the question to my other parnlists, i certainly concur with them, and i think overall tax reform that does benefit multi-nationals in terms of bringing those dollars back to stimulate economic growth, accompanied by a meaningful corporate rate reduction makes all the sense in the world. >> my team is up. i am interested in working with you, mr. chairman and senator hatch on that point senator hatch made with respect to when we have a balk us patch tax reform bill, that we have some way to try to keep in place that good work that we don't unravel it again. i thought senator hatch's point was a good one. i am very interested in working with you on it. >> thank you.

senator menendez. >> thank you, gentlemen. i have with interest read your testimony. mr. duke, you have my former chief of staff working for you now. i have come to be pro's la tiesed. talk about branding. i will tell you. it is ingrained. but he does a great job for you and did a great job for me. let me pick up on a point. we had a hearing yesterday, and it was a deficit hearing. my colleague, senator conrad, made what i thought is a very good point. he pointed out that interest rates matter. he said a sustained one point increase in interest rates

would cost the federal government more than $1 trillion over the next decade. that is from the governmental side. i noticed you were one of the c.e.o.'s who signed the chamber of commerce letter warning of the danger of default. it says it increases the cost of financing not only for companies, but other areas. it would cause a host of unintended con conferences. my question is, beyond what it will cost the government, what would be the impact of a default on interest rates for your customers? and if they are increased by this self-inflicted wound of a default, which we still hope and pray we can prevent, what do you think that would do to the purchasing power and on your sales with companies like you?

>> thank you. and i appreciate the training that you provided. that worked very well. related to this, i would have to first represent our consumers, our customers that are shopping in the store. across america they are watching the events take place here in washington. there is both a real and a perceived, and i think both reality and perception have to be considered. higher interest rates would have an effect on consumption. to the ability of the consumer to regain confidence and to start reinvesting themselves as family across america is important. a default and the ripple effect would be impactful, and representing our consumers, we think that would be very, very difficult for the american economy to withstand at this point in time in our history. the other factor is consumer confidence. i am out every week talking to

customers in our stores. wednesday i'm talking to the customers that are shopping in our stores, i'm not getting a sense of confidence. i measure my own consumer confidence when i'm out talking to the consumers. and with the situation in the economy, with the job situation and other factors facing consumers, i think a default at this time would be devastating in that both reality and perception of consumers. >> i appreciate that. mr. merlo, i want to follow on what my colleague was referring to in terms of the repatriation of foreign profits. i understand that c.v.s. care mark is not necessarily in that category. you are paying at almost a 35% rate. in essence, by paying a high effective rate, it seems to me

that your company and others similarly situated is basically paying for the burden of loopholes and avoidance behaviors of other companies. so, do you believe that aggressive use of avoidance methods by competitors or the ability of companies to be able to take their overseas earnings and convert them into tax benefits here at home that ultimately provide them with a much lower effective rate, and you still paying a higher effective rate is a fair set of competitive standards? >> well, i think it certainly does create some competitive challenges for us. acknowledging that we compete with domestic companies as well as foreign nationals that have the opportunity to have a lower tax rate, and i think that it goes back to the theme of this hearing in terms of we support

an overall corporate tax reform review that would reduce our overall rate. i would like to go back and just tag on to something that mr. duke mentioned about consumer confidence and bring us back to the health care space, because we do see evidence of consumers today making decisions about when to get their maintenance prescription for a chronic condition filled. we see evidence that they are getting it filled later, which means they are not taking their medications as prescribed, and in many cases dropping off those therapies. we would be very concerned with any additional deadlines in consumer confidence and the impact that that would have on the health of americans. >> i appreciate that. i would like to work, mr. chairman, in our effort to repatriate foreign assets and do it in a way that would

induce companies to do so. but when i hear the choice is 5% as the rate to return that money on, it is very hard to tell a person from new jersey, who is paying 25% or higher, that we are going to do a 5% rate of repatriation of foreign corporate assets. and unless there is some connection with job creation that is tangible because the last time we did this on a holiday basis, we didn't really get the jobs, and it is problematic. sign me up on the column as one of those though wants to find a way in which we can have nearly $1 trillion in our country repatriated, but in a good way. thank you, gentlemen, for your testimony. >> thank you, mr. chairman, for holding the hearing today. we appreciate our witnesses

being willing to offer your expertise and insights. i think it is interesting that all four witnesses today agree on the urgent need for tax reform as well as the urgent direction we need to move, and that is a lower corporate rate and a territorial system that doesn't impose a second layer of taxation on the foreign earnings of a company. the united states has the second highest corporate tax rate in the world and of the g-8 nations, we have the high rate. that makes it difficult for u.s. companies to compete. as we look at reshaping a tax reform bill, i hope we look at things provided by our witnesseses today and look at lower the rate, broadening the base and putting american companies in a better position to compete globally. this may be a tough question to

answer, and i would throw it out there to anybody, but i would be interested in knowing from each of you if there is any targeted tax benefit that you would be willing to give up if it were necessary to do so to lower our tax rate low enough to be competitive and move toward a territorial tax system. if we close some of those loopholes, in order to be able to lower rates, we may have the necessity of closing some of those loopholes or doing away with some of those targeted benefits. i would be interested in to know if you have any observations about things you would be willing to give up? >> we are willing to look at every benefit and think they all should be on table. we are not into heavy r and d

investment as a retail company, but there are benefits we think should be looked at at part of an overall comprehensive plan. >> i would add i believe it is possible to have a revenue neutral plan. i think everybody should be on the table. i would err in favor of lowering the rate. if we can get the combined state and federal rate down to 25%, which would imply a federal rate of 22% or 23%, then i think a lot of these incentives become much less important. >> one of the hallmarks of the increasingly global nature of the u.s. economy, is a larger portion of the revenue is earned outside the united states. there are those who view this as a negative and as an indication that u.s. companies are moving operations abroad.

there are others, i think, who believe it is a necessity in a world where 95% of the consumers and 75% of global purchasing power are outs our borders. could each of you describe briefly or discuss what this greater reliance on foreign revenue means for u.s. jobs, and do you view that as a positive or negative thing? >> well, i will start. in the semiconductoror industry, we are already about 80% overseas. so we kind of live and breathe this type of international footprint every day. i don't view it as a necessity. i think it is an opportunity. it is an opportunity for us to take things that we invent here or that we grow here and offer those products and services around the world and benefit from that and leverage u.s. jobs and u.s. efforts to realize those gains. this is certainly not evil and not a necessity.

it is a wonderful opportunity, because the growth potential outside of the u.s. far exceeds what is available inside the u.s., and we should be pursuing all of those. >> anybody else care to comment on foreign investment? good thing, bad thing? >> it is a good thing. we want u.s. companies to be competitive players in the global economy. as economies outside the u.s. are growing faster, we want u.s. companies to be winners in those markets as well. that has to be good for jobs in the u.s. market in the long-term. >> this is for mr. duke or mr. merlo. because your companies are in the retail business, you both have high effective tax rates. what does it mean when you compete abroad against companies that are not u.s. based? i guess it comes back more specifically to the question that -- who you are major

competitors, and what challenges does the tax system present for you as you seek to expand new markets around the world? >> senator, i could quickly name three large multi-national retailers that we compete against around the world. tesco from the u.k., carfor from france, and metco from germany. we are often competing for specific real estate sites to build new stores in markets around the world. that means there is an advantage in the calculation of return on investment. their return would be at a lower rate. an example of tesco in china we would compete against frequently and the 25% rate in china would be all that they would pay. we would pay the 25% and then the additional 10% as far as the u.s. rate. also, and it comes into play in

even acquiring a business. tesco is now building stores and growing in the united states. we are actually opening the door for foreign retailers to have an easier entry to keep in the united states against u.s. based retailers. >> and senator i think mr. duke is spot-on. the only thing i would add is we have other companies out there that operate as food-drug combos in the u.s., and the same principles mr. duke mentioned apply. >> thank you. my time is expired. thank you, mr. chairman. >> senator conrad? >> thank you, mr. chairman, and thank you very much for holding this hearing. i think it is so important. i was part of the fiscal commission, as was the chairman of the committee. i have been part of the group

of six. both of them concluded you have to have fundamental tax reform to broaden the base, to lower rates, help us be more competitive. at the same time, to raise some additional revenue, to couple with entitlement reform and to couple with domestic spending reductions in order to get our debt down. that is the fundamental framework of both the fiscal commission and the group of six. i would like quickly to ask each of you does that fundamental framework make sense to you. mr. duke? >> senator, the fundamental framework of debt reduction and fiscal responsibility certainly makes sense. the comprehensive corporate tax reform we think is important. we do believe auto of -- all of this should be looked at long-term. others mentioned the uncertainty. that is why our interest is in

a long-term comprehensive plan that we think would be able to lay out what the future would look like for american companies. >> very important. let me just say fundamental tax reform i don't believe can be done in six weeks or six months. i believe fundamental tax reform is such a complicated untaking, would take us well into next year, and joint taxes told us they cooperate score fundamental reform in the next months because they don't have a model that would allow them to do that. mr. faulk, in terms of a basic structure, do you favor what the commission and the group of six have proposed? >> yes, it makes sense to me. i would echo mr. duke's comments. it has taken he is more than a generation to get to this point. there are a lot of things that will have to be dealt with to correct our problems and get our fiscal house in order moving forward. >> mr. lang?

>> i would agree with the comments made here. it would be a physical kelly responsible approach. >> mr. merlo? >> i agree. there's no question that comprehensive reform is going to have to be thoughtful. it has a lot of elements to consider. to emphasize the point about predictability and certainly is a key bye product of the decision >> making process. >> i appreciate that. let me go to a question on repatriation. i have asked my staff to look into what happened in the last repatriation. here's what they report to me. a number of empirical analysis had been van gundy taken to assess the use of rea patriot repatriated earnings and growth in u.s. jobs. these studies found no evidence that firms used these earnings to significantly increase domestic capital investment,

employment or research and development. rather, earnings were largely used to benefit company shareholders through stock repurchase programs even though this was explicitly prohibited by the measure. the memo goes on to say researchers also found specifically with regard to employment the number of firms repatriating funds actually reduced employment in their domestic operations in the period after they repatriated funds. offense, tax economist martin sullivan found the top three firms in turms of repatriation reduced employment in the u.s. in 2005 and 2006. i won't name the companies, but we have it all laid out here. i would just say to you that clearly fundamental tax reform needs to include how we are dealing with worldwide income.

in the reagan administration i served on a commission on taxing international corporate earnings. it was one of the most negotiation i was ever a part of. it made this negotiation on the debt ceiling look relatively easy. let me just say that the argument that has been made by some and repatriation that is going to create jobs here. we did it, and it didn't produce jobs here. that is the overwhelming evidence. that doesn't mean we shouldn't do fundamental tax reform, because if we are going to be competitive, we have to get in the game. our tax exode was designed at a time -- code was designed at a time when we did not have to worry about the trade position of the united states. fully dominant when they did this. i don't think anybody if they were going to sit down and develop a tax code in 2011 or

2012 would come up with anything that looks like this one. my time is expired. >> thanks, senator, for your work on the commission, the gang of six. it is clearly time to overhaul an antiquated tax code, that is clear. but it is not going to be easy. one thing i have learned around here, abstractions are easy, but sometimes abstractions are cruelty because it is the specifics that really count. for example, a lot of talk about lowering the rate and broadening the base. the current corporate rate at 35% federal. by how much could the rate be lowered if all expenditures were lowered. you don't get very far. let's stick with the territorial system. maybe you get down to 29%

approximately. the next question is what about interest expense. do you want to eliminate interest expense. then we start making head way in getting the rate down. i suspect in other countries, the other tax systems allow them to raise revenue as a% of g.d.p. clrks is probably hire in those -- higher in those countries compared to the united states. it could be a combination of income tax, value added tax and so forth. so it is not easy to get the rate down to the levels that people talk about, say a 25% corporate rate or lower. it is not easy at all. the next set of questions is which potential expenditures

are you willing to give up? theoretically, everybody gives up everything, but there are specifics. i know mr. duke at wal-mart, tax credits are important to your company, and mr. falk, i suspect section 199 is important to your question, and to you, mr. lang, tax credits are important. are you willing to give those up for your companies as long as everything is given up? then we get to questions that i think senator stabenow touched on. if canada is giving such a great incentive to r and d, and we give a credit, will a lower rate make us competitive enough

to off set that canadian incentive. i would like you all to tell me the degree to which you are willing to give up the things you use currently. mr. duke? >> mr. chairman, with the lower overall corporate tax rate that would be competitive in the global marble place, such as in the mid 20's, then we would be able to look at every aspect of those incentives we participate in, and we pleeg all should be on the table for discussion. >> so you are basically saying you would be willing to give it up as long as the corporate rate is mid 20's or something like that? >> yes, sir. if we are competitive against other markets we are competing against. >> mr. falk? >> i would give the same answer. we take advantage of the r and d credit and the manufacturing credit.

we spend about $500 million in capital this country. as the rate drops from 40% to 22% or 23% or 25% -- >> talking about the federal right now. i can't speak for the state and local. >> those innocentives are a lot less valuable. >> mr. lang? >> in the semiconductoror industry working group, we have had this exact conversation, and i would agree that everything should be on the table. we should look at it as a whole package and look at what the end result is. there were a number of things from manufacturing innocentives to acceleration on depreshes -- depreerks that at the rate rights could be put aside. we should look at everything. at the end of the day, the overall system should be competitive and allow us to compete. >> we are going to look at everything, but after we look, we have to make some decisions. i am kind of asking for guidance here.

your industry, is 25% sufficient to compete against the cansians who have that break, assuming you don't have that break? >> for our industry, the primary competitors are in asia, and the statutory rates there are 15% to 17%, often lower than that on an effective basis. i am concerned that when we look at the details and go through the details, a mid 20% rate won't be competitive in our industry. >> so your concern is that mid 20's might not compete in asia or worldwide? >> yes, that is my belief. >> mr. merlo? >> i agree with everything that has been said. everything should be on the table. that is going to be comparative in terms of simplifying the tax code as well. >> my time is expired. senator hatch? >> thank you, mr. chairman. it is nice to talk about everything being on the table,

but there are certain things that do make it competitive with the rest of the world, and without any guarantee that the corporate rates are going to stay down. we have to consider all this and how this works in the future as well. let me ask this question for the entire panel. in considering corporate tax reform, the focus is typically on the corporate tax provision ns our code. how important is it to focus on the impact corporate tax reform will have on the company's financial statements? offense, if the corporation has a net operating loss that it carries forward from year to year, this n.o.l. canoff set tax income from future years. it can be a very valuable asset to your companies. the n.o.l. can reduce taxes in future years. if the corporation has a $100 n.o.l., it will reduce the 35% rate by 35 dollars.

then the rules rightly state that $100 n.o.l. the corp holds is worth $35. but if it were reduced, this n.o.l. asset is worth only $25. the corporation would lose $10. this reduction would immediately show up as a $10 reduction in the corporation's net income and would lower the corporation's earnings per share. i am very supportive of a corporate tax cut. there is no question about that. i would hope the effort to reduce the corporate tax rate would not be slowed down by conscience considerations. however, i am concerned that these are real concerns that you have to be concerned with. the r and d tax credit is absolutely critical.

13 times we have failed to reup it. both the chairman and i have worked very hard. i would like to make that permanent because i think it would give you a competitive advantage in the rest of the world because of the inventiveness and creativity of the american scientists and workers, especially in your industry. i would like for you to share with me your thoughts on this business of how you handle these accounting matters? should corporate tax reform take into consideration the financial accounting impact of reform? >> senator, first i think in the whole discussion of lowering the overall rate say from 35% to 25%, as we discussed, even related to the incentives and credits, we recognize there has to be trade-offs for the formula to work. we believe the same would apply to your question about the n.o.l. it is worth it to have a

permanent, long-term corporate tax comprehensive revision that would have a competitive rate in the global marketplace, and that transition related to the questions n.o.l. as well as credits we think would be worth the challenge. >> any comment, senator, would be i would say do the right thing for the country, and the accountants will figure it out. i won't worry about the financial accounting of this. far more companies have a net tax liability from taking acceleration. so they would enjoy an economic benefit from the change. i wouldn't let the accounting get in the way of making the right economic decision for the united states of america. >> we are one of those companies who has n.o.l.'s on our balance sheet. i would agree with the statements here, that we should do the right thing to make

america competitive and do the right thing for the long-term structure of the business and let the accountants figure out how accounting is impacted. >> i am certainly not an accountant, and i agree with my colleagues in terms of letting the finance folks figure it out. we will have our staff get back with your staff on any further comments on that. >> that would be great. there are a lot of complementities in trying to change the tax code. it is not too complex to realize that we have to be competitive with the g-8 and g-20. i would like to be more competitive. if we do that, you folks would create more jobs, create more opportunities and products to sell. i have seen you all these years. you are terrific in what do you. there are always a lot of trade-offs in these type of issues. we will just have to see what we can do. this has been particularly a

very valuable panel as far as i am concerned. i want to thank you all for being here. >> thank you, senator. senator white, it is all yours? >> mr. chairman, i just had one other question. >> go ahead. >> all right. mr. duke, i was struck by your point with respect to your ultimate desire to have a tax rate in the mid 20's. to me that is very much in the ballpark for tax reform. i have tried to work with my colleagues on this for a lot of years. let me walk you through how i'm looking at the math. we would like to work with all of your focus on this. because deferral is so much money, like $500 billion over 10, you get rid of that, it is such a large amount, and you

use that to slash rates dramatically in the united states, and i am absolutely convinced you could get in the mid 20's, and you also have the benefit of less gaming and a more straight forward system. my concern about going to a territorial system -- and i have put myself to sleep at night trying to understand all the aspects of territorial -- is that you'll keep a lot of the complementity in the system . you will have lots of gaming and really permanently. the question of transfer pricing where somebody generates a sale one place, books the profit somewhere else. but especially you will have more business overseas rather than what chairman bachuus

started us off with in terms of jobs in the united states. i personally think it will be pretty hard to get the rate into the mid 20's if you go to that kind of system. i wasn't able to figure it out, and there are a lot of people a lot smatter than me. is it fair to say that at the end of date that you are willing to work through these concepts so that we have more american jobs and a great level of competitiveness in these tough markets, and you all are still open on the design of some of these components? >> yes, sir, we are clearly open for discussion and development of these. i would tell you, sir, that even though we talk in about our growth outside the united states, this year more than half of our capital investment is being invested here in the united states. we will invest between there

$12.5 and $13.5 billion, and over half of it here. we have expressed our desire to build more store and grow in the urban united states where jobs and product are needed. we are clearly wanting to grow here in the u.s., but we have opportunity to grow and help american companies by growing outside the united states. we would love to work with you and discuss in more detail. >> i think the chairman has to wrap up. i want to give you a question for the record in writing about tax policy and its effect on exports as well. this is another opportunity for growing more jobs. the chairman has been very patient this morning, and i thank him. >> we don't have much time. the question curse to me what about turning this around? i would change the code to get

more foreign investment in the us in addition to more domestic investment. this has been the subject of the hearing. how do we get more foreign investment? we don't have the time. i am opening pandora's box here. >> some of the same answers. you lower the marginal rate, you will make the u.s. a more attractive investment for companies all over the world. >> simplicity, predictability, those are keys we have been talking about all morning. >> how much do we make ourselves less competitive because we have a system so complex in --? it is my understanding that our system is more complex than other countries. is that a -- does that put america at a competitive disadvantage on margin? >> certainly a simpler system would attract more business and

growth. >> thank you very much. this has been a very helpful hearing. i think we will have a lot more discussions. thank you very much. the goal is to get us to a much more competitive system. thank you very much. the meeting is adjourned. [captions copyright national cable satellite corp. 2011] [captioning performed by national captioning institute]

the speaker pro tempore: without objection, so ordered. mr. pence: mr. speaker, this is a difficult time in the life of the people of this country. families are hurting. our economy is struggling. the economic policies of this administration have failed to turn around this great recession as it has come to be known. and i believe that run away federal spending, deficits, and debt are a barrier to our economic recovery.

a barrier to putting americans back to work. we have to change the fiscal direction of this government for this generation, for jobs for americans today, and for future generations. who are facing a mountain range of debt. $14 trillion national debt. $1.65 trillion deficit this year lone. what most of my colleagues know, i fought against run away spending on a bipartisan basis. i opposed big government plans when they were offered by republican presidents and in republican congresses. i thought -- fought with equal vigor with the spending, bailouts, and takeovers of the recent democrat congress and this administration. but now we come to another debt ceiling vote. and as the late russell kirk wrote, poliics is the art of

the possible. the american people are looking in and they know if you odette you pay debts. we have -- if you owe debt you pay debts. we have to find a way to pay the bill. the american people also know we have to find a way to set our nation on a course of living within our means once again. now, i am still studying speaker boehner's proposal. but there is much that recommends it. i have long said there should be no increase in the debt ceiling without real and meaningful spending cuts and reforms in the short term and in the long term. and in many respects the deal negotiated with senate leaders by speaker boehner meets that standard. there are no taxincreases in the bill. after adjustments to the bill today there will for certain, according to c.b.o., be dollar for dollar cuts for any increase in the debt ceiling. also there are spending caps, a

commission, and the possibility of long-term entitlement reform. all of this commends the boehner plan as an important first step towards fiscal discipline and reform. you'll also recall at some point vote for a balanced budget amendment to the constitution. it's my belief in the importance of that last element that brings me to the floor today. i rise to urge all of my colleagues to keep an open mind on the boehner plan. but alsoo keep an open mind about bringing a balanced budget amendment to the floor that could enjoy broad bipartisan support. . look, washington, d.c., is not only broke, it's broken. the american people have seen both political parties run up deficits and debt. both political parties live outside the means of the american people and they know in their heart of hearts that something is missing.

i believe that's a balanced buet amendment to the constitution of the united states. now, i've authored the spending limit amendment to the constitution. i support the stout version of a balanced budget amendment that republicans marked up and referenced in the cut, cap and balance bill, a spending limit cap, a supermajority on tax increases. but i don't think it takes any great insight to know that that bill will likely get the 290 votes it needs to send it to the senate and send it to the state. so in addition to voting on that bill with spending constraints and others, i believe the time has come to bring the historic balanced budget amendment back to the floor of the congress. i believe there should be no increase in the debt ceiling unless this congress does everything in its power to send a balanced budget amendment to the senate and to the states

for ratification. and i believe we have that moment. i've talked to some of the most prominent members of the democrat minority in this congress today, and they've expressed support for this amendment. the american people overwhelmingly support a balanced budget amendment to the constitution. and so i urge my colleagues to keep an open mind. keep an open mind to the boehner plan. i'm continuing to study it and seeing if we can embrace it as an important first step on fiscal discipline and reform, finding a way to pay the nation's bills to change our fiscal direction. but i also encourage my colleagues to coider at some point in the near future, let us bring to this floor a balanced budget amendment that culd enjoy broad bipartisan support, to know we can not only make progress for fiscal discipline and reform but we can make history by resring to the national charter or

placing in the national charter those restraints on spending that this nation's

.

>> it would be interesting, at least for me, i would like to know what countries can print money. another question here is we are looking at the potential -- what the rating or what you think the risk of default is. what percentage of a country's government expenditures attributed to interest would begin to cause you to enhance

the potential for default? in other words, some countries, their interest is 5%-10%. some countries, at some point in time are squeezing out government expenditures and forcing either additional taxes or would the interest carry the a factor? >> yes. it is an important factor as is the total debt level, as is the deficit as is the economic growth property. because they all include the trajectory of the growth. so against many indicators we have -- we can look to see if

that question's answer is part of that. >> the debt level is increasing at a faster level than the g.d.p., the growth in the economy, what's the path of that country? >> well, the total debt level is a function of the deficit and economic growth and of course what steps are going to be teen address all these things. so you can change the trajectory by changing a number of the other things and also -- >> would you say this is a fair assumption, that the comments you made recently about the

u.s. debt was not whether we were going to vote on defaulting but what the long-term plan was? >> yes. that is the more important issue at hand. and to your point, that is the more important issue. >> thank you. time has expired. ranking member. >> i just want to point out that i've got the bloomberg news report on the second circuit opinion. apparently foodies and standard and poor's it's saying is underwriters. you're in the business of making professional opinions not underwriting, so i get that the plaintiff made no legal claim. i wouldn't want to get into this mess.

mr. smith, i wanted to pursue another area. i'm not sure whether it's considered in a class of a moody's type of bond. are you in that category? >> as far as an issuer? >> no, sir. >> so you don't get tax exempt? >> we're not a part of the state for the purposes of issuing debt. >> i appreciate that. i've been chasing the credit rating agencies for years before this problem, and it really had to do with, because i was a former mayor, and i wanted to give you a taste of what i got as mayor. when you guys came through the door, i had to jump through hoops to get ratings below what i deserved and then realized i

did jump through hoops to get ratings lower than what i deserved. our credit was spodse to address some of these things and i'd like to pursue whether or not it has. in the last couple of years. up until 2008, i have not updated them. but prior to 2008, the prior ratings of all, triple-a and non-investment grade munis by moody's standards were 97% times less likely to default than corporate bonds yet were rated lower. by s&p standards they were 45 times less likely to default. have you changed your ways? are you now rating governmental agencies as if they were corporations on one thing based on one thing adam one thing which is the risk of default?

>> we have always only had one consistent scale we've tried to adopt across all classes, and as a result, you will see our municipal ratings are generally higher than other types of substitutions. -- types of institutions. and we have made attempts to whether it's financial stuthses or whether it's in the u.s. or europe. so we are striving to get come practice billity across all classes and -- >> the reason i ask is because in 2008. i know it's changed a little bit. but my guess is -- let me ask you this, are you aware that munis have defaulted at a higher rate than corporate bonds? >> well, as i mentioned, we are

aiming to get comparable ratings across all asset classes. >> that means it would be rated at a bb or ba to a triple-a. i would argue that since default rates are really the only thank really matters in the final analysis because am i wrong to think the only thing that matters is the likelihood of getting repaid then munis should be rated triple-a. so you're telling me you've addressed that issue and now all munis are addressed comparable to corporates? >> well, we have recalibrated criteria across many areas including governments and municipals with the aim and

objective to have come practice billity of ratings across alls a credit -- asset classes. >> mr. row wann has moody's made changes? >> yes. moody's has recalibrated to move all on a scale come practiceible. >> based on historic default rates? >> there was a research around the calibration that i can ensure is provided to you. >> my staff will be in touch with both of you to try to catch up on the data. do you do got to the issued -- >> i'm not sure of the data you're referring to but a lot of the municipals were ensured. so you definitely have the skewing of default status. >> well based on that i was not

ensured and i believed then that munis were being chased into insurance that they didn't need. mr. -- do you do munis? could you -- >> we're releasing. yes. we do munis. we're just starting. we'll release a study with munis involving states and cities and we're looking at the actual financials. so we will not be using dated information, sometimes year-year 1/2 -- and a half information to base that on. >> thank you. >> i wanted to follow up on the line of questioning from the chair. dated june 13, secretary geithner acknowledged that he

along with secretary lou met with s&p s&p personnel. are you aware of what was discussed at that meeting? >> congressman, no, i'm not. i know our team, as i mentioned, regularly meets with them. as part of the process, i'm trying to get a better understanding and they met with the treasury. i wasn't even aware that they met with the members you just said. but i know they had a meeting but i'm not privy to people they meet. >> the court documents obtained by this committee two days after david beards reached out to undersecretary goldstein to let treasury know the rating committee's outcome. do you know what was discussed on that call?

>> no i don't. the process would normally be once they make a decision, we write up the decision and inform the issuer of the reading action if there was a change and if there's any publication we do, we do share it with them also. >> so you would have informed the issuer before the public find out? >> we would let them know. yes. >> shortly after that call, mary miller reached out to david of s&p for a direct press release on the outlook change. this was three days before the actual press release occurred. what would be the purpose of sharing a draft press release with the issuer? >> to give the issuer a chance if there are any factual errors or anything in the press release, there's an opportunity to correct that so that we want to give the public a completely

error-free information. so that is the opportunity for them. >> and that's standard operating processes? >> yes. >> do you know whether or not the department made any substantive changes to the press release? >> congressman, i don't know that. >> the next day another treasury official reached out to john chambers and asked if there's a communications director that the press people can connect with and it appears a call did actually take place. do you know what happened on that call, what might have been discussed? >> i don't know specifically, but generally, they may have wanted to quote me as to when we will be releasing the influence so if they had information they wanted to release, they may do so. that's the standard process. if they are going to announce reaction they think is material they may want to quote me as to what they may want to say to the public along the timelines

of us. >> so you don't know what occurred on the telephone call? >> no. >> and you don't know whether treasury asked for any substantive changes in the days before the release? >> no. but as i said. once a rating decision is made, we proceed along the lines. >> do you believe that's an appropriate process? >> yes. because it allows any elimination of any errors that may occur by mistake or for any other reason. but once the rating action is done, we follow the process and we follow it rigorously within our own organization. >> the secretary's letter, would that be made part of the hearing? >> yes. >> would the gentleman yield for a minute? >> yes. >> i want to be clear. as i said as a former mayor, i got phone calls from your agency before you came under

rating. it's everything -- every rating you do, you give the individual that is being rated an opportunity to correct factual errors. mr. rowan does your company do the same thing? >> yes. for the same purpose to ensure there are no -- >> do you do something similar? >> we have absolutely no contact with issuers at all. >> because you don't make public statements of any kind, is that correct? >> yes. >> on the issuer paid side of our business, on the issue of pay, which is our first five transactions, we do the same thing. it's only about correcting any factual error we may have. >> so it's a standard practice?

>> yes. >> yield back two minutes' type. >> i want to thank this panel. it's been a very good hearing and we appreciate your time and thoughtful testimony, and just want to remind the members have additional questions for this panel which they wish to submit in writing the hearing record will remain open to submit questions. if there's no other business, this hearing is adjourned. >> thank you, gentlemen.

>> on c-span today, corporate c.e.o.'s testify at the senate finance hearing about the tax code that's followed by the issue of "washington journal." >> with titles like land iser, god less and guilty and her latest demonic, ann coulter has something to say. the best-selling author and syndicated columnist ann

coulter live on book tv on c-span 2. >> visit charleston this weekend on book tv. featured on book tv and c-span 2. south carolina's -- with the union and charleston during the american revolution, the historian douglas bostic. throughout the weekend discover more about the unique history and literary life with the civil war life and the catastrophic 1886 earthquake. you're watching c-span. bringing you politics and public affairs. err morning it's "washington journal," our live call-in program about the news of the

day connecting you to policymakers and journists. at night congressional hearings and polyforums, also supreme court oral arguments. on the weekends you can see the communicators and sunday, news makers and "q&a." you can also watch our program link anytime at c-span.org and it's all watchible at our c-span online library. c-span, created by america's cable companies. >> at this hearing of the senate finance committee, the c.e.o.'s of four large corporations express the concern for tax reforms that would eliminate loopholes in the tax code known as tax expenditures. wal-mart c.e.o. michael duke also commented on the debt ceiling fight in washington saying a u.s. default would be

devastating to wal-mart. >> the meeting will come to order. benjamin franklin wrote. today many men and women are unemployed. these are men and women who want to work and will work again. our economy rests on businesses big and small providing businesses that the market demands. we're asked businesses providing jobs that are currently in short supply. the unemployment rate is hovering around %. poverty has increased around 14%. around 14% of americans now live in property including 1/5

of all children. many have been searching for work for more than a year. these americans need a job and the certainty that comes with going to work every day. in this environment the business community has an opportunity and an obligation. to help get americans back to work. businesses need to step up to the by creating good paying jobs and creating new ones. it includes giving americans a chance including the long-term unemployed. we want to make sure our tax code supports everetts to create jobs. the goal is not simply economic growth. or profitability for business owners alone. for job creation cannot occur without this. american businesses face obstacles achieving growth. our economy is recovering from

the most significant recession since the great depression. banks are more cautious in their lending practices. at the same time the competition is getting tougher in an increasingly globalized economy. and new players are emerging in developing countries. in 60, exports accounted for 30% of our g.d.p. today they count for about 5%. in today's global economy we simply can't afford the tax code to hamper business' ability to compete in great jobs here at home. we need a corporate tax rules. rules that encourage job creation and widespread economic growth. last year began a comprehensive review of the american tax

process and to understand how our tax code became so complex, we have recently held hearings to address tax reform. these hearings look at what taxes accomplish and whether it effectively meets those objectives. of course the tax code should raise the revenue of the federal government. we also want our tax system to to spur long-term economic growth which could benefit more folks in montana and across the country and we want to promote ference and -- promote fairness and certainty. americans need a tax code that helps them get back to work. today's witnesses can help us understand what affects u.s. businesses and they represent some of the heroinest employers in our country. i am grateful they are here with us to discuss whether the tax code poses burdens on

businesses and what ideas they may have to help improve investment, foreign investment in the u.s. as well as domestic investments here in the u.s. we are looking forward to hearing what factors drive their decisions about whether or not they hire new employees. and policies most effective in helping these businesses create more jobs. we need to support innovation more effectively? do we need develop a more highly-educated workforce? how can we level the playing field for u.s. companies competing overseas and how can we produce those creating jobs here at home. i ask you to tell us what your experience as a c.e.o. has taught you about what is best for our country. so let's focus on how the code can help our businesses create good paying jobs today. and we work together to improve

the tax system to improve widespread prosperity for all americans. >> thank you, mr. chairman. i would like to chang chairman baucus for calling this hearing today, and i would like to welcome each of you c.e.o.'s that participate in the country's dialogue about tax reform. with so many americans out of work and struggling to find a job, it's greet see your company is comblg 1.6 million americans. that's pretty good for folks. today we're here to learn how the corporate tax affects your businesses. it's the third largest source of federal revenues behind the federal income tax and payroll tax. corporate income tax revenues are a total of revenues steadily declining since the 12940's and 1950's.

during much of the 1990's, corporate taxes -- last year they were less than 9% of our total federal revenues. the corporate tax is generally thought to be the most inefficient of taxes in tax dollars it was debated for years as to who really bears the burden of corporate tax? the corporations don't really pay taxes but people do. is it the shareholders of the corporation or the employees or consumers? the most recent research in this area indicates a substantial percentage of the burden of the corporate tax is born by the employees in the form of lower wages. in addition to inquiries, i think it is important for this committee to focus on how the corporate tax system encourages the use of debt rather than equity. if a corporation is in need of

additional funds, our current tax system encourages the corporation to borrow money rather than raising money by raising their stock. how is that? by making any interest payments on the borrowing deductible, where as any dividends paid are not deductible. from a business standpoint the increased use of debt by corporation makes it vulnerable dividends not being deductible means corporate profits are taxed twice once at the corporation level and again at the shareholder level. as a result of this tax treatment, we have seen a decline in the use of traditional corporations. in 190, 75% of all business income was earned by traditional corporations. in 2007, that figure was only 36%. 75% to 36%.

equalizing the corporate tax treatment of debt inequity would eliminate or distortions in at least four ways, number one the incentive to invest in non-corporate businessens rather than corporate businesses. three the incentive to either retain or distribute earnings, depending on the relationship among the corporation, the shareholder and the -- and four the incentive to distribute earnings in a manner to avoid or reduce a second level of tax. we also need to consider -- reconsider -- consider once again, the issue of repatriation. many earn money overseas and typically want to bring that money back home to the united states, however our corporate tax system discourages or peoplizes u.s.-multinational corporations from repate yating foreign earnings by imposing a

35% residual u.s. tax at the time of repatriation. as a result, several high-profile multinational corporations are sitting on large piles of cash earned from foreign operations yet these same corporations are borrowing money. one of the reasons is their cash is trapped offshore and will be subject to a 35% u.s. tax and repate yating when it is cast back to the yithes. as a result, because of our tax system they keep their money offshore and borrow money here in the united states. one way of alleviating that is for the u.s. to reform its corporate tax and development a territorial tax system. finally, to conclude without consideration of the corporate tax rates. our corporate tax rate has a

top-rated 35%. when coupled with the state tax rate it's usual 49%. as a result the u.s. has one of the highest corporate tax rates in the world. it's in the need of reform and the high corporate tax means it needs to be a major part of this discussion. and i'm very interested to hear what our witnesses have to say today with regard to the corporate tour and the corporate tax system and how it affected hiring again, thank you very much. for scheduling this important hearing. >> i'd like to introduce our witnesses. first, mr. michael duke. the president of wal-mart stores, the world's largest retailer. combleeg 2.1 million peel. second, chairman and c.e.o. of kimberly clark. kimberly clarke, the world's

top maker of personal products. and next is mr. gregory lang, the president and c.e.o. from the manufacturing company and president and c.e.o. of caremark corporation the leading drugstore chains and providers. gentlemen, you probably know the rules statements will automatically be included in the record and we encourage you summarize your statements. about five or six minutes, and i also encourage you to be candid. life is short. let's make the most of this. ok? [laughter] >> all right. mr. duke, why don't you begin. >> chairman baucus, ranking member hatch, members of the committee, i appreciate the opportunity to testify today. we you are intelligently need modernize our tax code, and i thank you for taking on this issue.

the ultimate outcome must be a strong, vibrant, job-creating u.s. economy. i hope all of you know your local wal-mart store back in your home state, but let me start with the company we run out of arkansas. every week we serve 106 million unique customers. about 1/3 of the u.s. population. the business model that has earned our customer's our customers' trust is we pass on sfravings our everyday low cost operations. last year wal-mart paid $4.7 billion in corporate taxes in the united states, which was 3% of all corporate income taxes collected by the u.s. treasury. our affected corporate tax rate was 32.2%.

many companies will testify before you theoretically face similar tax rates. but we actually pay them. but we're not here to ask for sympathy. the question is not whether wal-mart can get by as a company under the current tax structure. the real have been is this the best approach for our country? we believe that it's not. as we begin this discussion, it's fortunate understand how wal-mart's operations at home and around the world contribute to the u.s. economy. in the u.s. we operate over 4400 stores and clubs. and we employee -- we employ almost 1.4 million associates in the united states. i'm happy to cy the domestic business is still growing. err store we build means new jobs, construction jobs and expanded local tax base and more opportunities for u.s. suppliers. wal-mart is also growing around

the world, which is good for the u.s. economy as well. our international growth affords wal-mart to source more goods from companies to -- u.s. companies to sell to places around the world. 77% of our suppliers are u.s. companies which creates and us is stains american jobs. we're also one of the largest purchasers of american agricultural products. last year we directly exported nearly $40 million of washington apples, florida grapefruits and other crops. likewise, we look for opportunities to use american products as we build stores. like the l.e.d. parking lot lights which are mostly manufactured in north carolina. the best way i can say is that when wal-mart goes overseas, we

bring american companies with us. when we grow, they grow. so how do we reform the tax code to drive growth here at home and encourage america's competitiveness astpwhraud my advice is straightforward. lower the corporate rate as much as you can. make the tax base as broad as you can and move to a territorial system as quickly as you can. without any of these 3com opponents, it will be impossible to achieve a responsible, simplefied and competitive tax system, and we need comprehensive solutions, not piece meal attempts to repeal this incentive or that incentive. we will get rid of them if it means getting rid of all in a reformed system. >> it will help american companies compete abroad and

wal-mart is more likely to export washington apples and -- for example, we compete in china against tesco from the u.k. with the u.k. territorial system of taxation. tesco pays to china and no additional tax when they bring money back to the u.k. in our case, we pay 25% to china plus an additional 25% to cover the differential between the u.s. statutory rate and the chinese rate when we bring that money home. the result is that we are often outbid for retail sites because companies with lower overall

tax rates have a lower cost of capital. when we do win, we pay more overall. the keys to reform are to lower the corporate rate, get rid of existing incentives that benefit some industries over others. and level the international playing field with a territorial system. if we take these steps, we will drive virtual cycle that i've described. with more u.s. exports, more investment and more job creation at home. thank you, and i look forward to your questions. >> thank you very much, mr. due. >> ranking member hatch and distinguished members of the committee, thank you for this opportunity to share my views on the need for changes in our tax system. first i'd like to provide an overview of kimberly clark our businesses and why the current tax code puts us at a

significant disadvantage. >> kimberly clark will be 140 years old in 2012 with brands like kleenex, scots, huggies, pullups, cotex, poise and depevends, we estimate one in four people around the world use our products every day and they buy them atwal mart and c.v.s. and i would suspect every one in this room has used a kleenex and/or changed a diaper at some time in your lives. we're also a leading provider of safety products that help protect the workers and the environment in which they work and in hospitals, medical professionals count on kimberly clark for the help of surgical

gowns and gloves and pain management products. so our company touches people's lives in many parts of the economy. our consumers live in more than 150 countries, so we have to have a global presence to serve them because many of the products we sell are costly to ship, we have to manufacture close to where our consumers live and work. the u.s. market is our largest market but the categories there in which we compete are mature. like many companies, developing in emerging markets represent the biggest growth opportunity. for example, moms in the u.s. use about five diapers a day to care for their children but moms in the emerging market may only use diapers five times a week. to be successful in any market, businesses need fertile ground on which to grow.

that fertile ground includes access to skilled employees and reliable energy and a competitive, stable and predictable tax and regulatory environment. so i'd like to now address the three key ways we believe the tax system could improve and lead to more investments, job creation and economic growth our country. first, we need to have a more competitive tax rate. with the highest tax rate averaging 39% which about? ly beats the inflate most countries, the averaged combined rate is now 25% and is expected to decline further. in the competitive global market u.s. companies are at a significant disadvantage versus non-taxed companies. 35% here, 25% elsewhere. when a u.s. company ceases to grow here, we're way behind

before we even get started. second, taxation of worldwide earnings. the u.s. taxes worldwide earnings of u.s.-based companies. most developed companies don't tax their country's companies in a similar matter. this creates an incentive for companies to leave their cash outside the u.s. if we were able to bring it back to the u.s. we would be able to return them to our shareholders who in turn support the u.s. economy. cash kept outside the u.s. is more likely to be used to support other nations. we need a tax code that encourages companies to -- in a

manner that creates jobs. third, we need simplify our tax rules. it's no secret our international tax system is highly complex. you may not know that i was a c..a. at once and our tax code is understood by only a handful of tax experts. this requires u.s. companies to devote significant resources just to try to comply with rules and it takes away resources that could be spent on product growth. this reduces the cost of administration. reduces the risk of air and is easier to monitor. now i don't know if we'll ever come up with a system that is so sthampe even i could fill out kimberly clark's tax return at some point in the future. but unfortunately, we are

disadvantaged guest other global competitors as a result of the u.s. tax system. so to continue to process ter for a better life for consumers for another 104 years, kimberly-clark must grow. we are committed to future growth and we need a tax systems that consistent with our global competitors. and we need a tax system that doesn't penalize us from earning money outside the u.s. but encourages us to deploy. mr. chairman, this is an important debate. many businesses today face critical decisions about future investment and growth. you and your colleagues have the opportunity to create level playing field for thetous win

-- for us to win. i'd be pleased to take any questions you have. >> thank you. mr. lang? >> charlie baucus, ranking member hatch, i'm the president and c.e.o. of p.n.c.-c.r. we are a leading semiconductor company that stores computer content. i can offer a perspective on the semiconductor industry as well as the sized company. i would like to thank you. before summarizing my recommendations for tax reform, i wanted to -- it is essential

to the growth in this industry. first. semiconductors are essential for innovations in every aspect of our modern economy and nauert. some are enabling technology, manufacturing, health care, information technology as well as national defense and homeland security. we're a fundamental building block of the trillion-dollar sthray supports similar jobs. third, semiconductors are a global industry with capable competitors around the world. today the u.s. industry holds approximately 507 share of a 300 billion worldwide market and represents the world's largest industry. in fact. 80% of our revenue today is

export revenue and the key drive of innovation. the industry designates% of revenues to research development. in short, maintaining u.s. leadership in semiconductors is in our national interest and should be made a top priority of congress. to ensure the u.s. remains a lead they are in innovation and economic growth. given the strategic nature of the chip industry, other countries are actively -- china has specifically included our industry in their five-year plan with a number of incentives interested in drawing more leadership in china. our country must have a more competitive global tax structure.

for example, the cost is approximately a billion more to build and operate a semiconductor in the u.s. versus other countries. that may be because of a higher and lower rate company -- to chief a more excessive tax environment for the u.s., and it must focus on three key elements. first the u.s. should adopt a lower tax rate. it's approximately 25%. for p.n.c., our emerging company is in china where it's only 15%. in context, the corporate tax rate is approximately 39%. tv ones offer a substantial coverage for -- while the u.s.

need not match these he was? , tax reform must be competitive with rates of competing countries. second, our worldwide tax system creates an additional disincentive to other countries a territoryial -- territorial would help create jobs and keep them and with a global tax system. combined with the highest tax rates, this is an enormous -- for global companies competing on a global scale. secondly, they should provide strong incentives to encourage research and development in the u.s. the r & d tax credit in the u.s. is weak compared to our global competition and has leapt 3 -- right now it's

complex and unreliable. i it is instoust encourage job growth here at home. the semiconductor industry was invented here at hope and the u.s. can remain the leader. but it's not guaranteed. at p.n.c. we must compete day in and day out and we have proven we can compete and remain. in the 190's when a u.s. semiconductor office was -- >> mr. merlot? >> good morning chairman baucus and senator hatch and thank you for holding this important hearing today and allowing

c.v.s. and wal-mart to share our information. we are head quartered in road island and we are dedicated to letting americans achieve what they need to at a lower cost. we include more nurse practitioners than anybody in the nation and we have a higher tax rate of 39%. some think of us as the nation's leading drugstore chain because we inflate 4 states here in the district and puerto rico and 75% of all americans in our markets live within three miles of one of our stores. another manager of tnt b.n. they help assist plans and unions to assign prescription drug options that they need and their drive down costs . that being said we think the

c.v.s. drug market is more than just a drugstore chain. we consider ourselves part of the american society working to provide the health and lives of our services. because of that we have made significant investments in our people and here in the u.s. we believe that's part of our obligation as part of the american business community. as a major part, c.v.s. caremark has reinvested more than $10 billion of our earnings into our employees and the best. tax reform is important for c.v.s. caremark, because it will lower our cost and capital and enable us to make better

investments in our company. it is a reduction for the maximum corporate tax rate, and a return of those investments will benefit us in the form of lower health care costs and better outcomes for consumers. c.v.s. caremark corporation's effective income tax rate is approximately 39%. together with our more than 200,000 employees, we generate federal payroll, important income tax revenues of $4.3 billion annually and more when higher numbers are given. the first being that many of the tax policies that help

industry have limited application to c.v.s. caremark. in order to continue to be successful in an increasingly global marketplace, c.v.s. caremark must control costs . we must raise capital and we must reinvest our earnings. although we have looked hard managing our operations and a highly effective tax rate makes c.v.s. care smst mark less attractive to global investors. reducing the tax tried create a more competitive tax structure for corporations so we can effectively compete is both a responsible and thoughtful polymove. we are dedicated to improving care in lowering costs for

millions of americans. lowering the corporate tax rate will have u.s.. it will help us lower health care costs and grow our economy. so i'd like to thank the distinguished members of the committee today and i would be happy to answer any questions you might have. >> thank you very much, mr. merlo. off general feeling in the congress i believe that to reform the corporate tax code and individual as well. on the individual side, because there's so many compared to years ago. and generally today, lower the rates. broaden the base. territorial, and so forth. that's about it. that's sort of in the abstract of what needs to be done. at the next level of questions, though, is if that is all

pursued, to what will that courage or job growth in the u.s.? probably more job growth overseas. if the corporate v-8 lower and base is broadened, a lot of -- presumably, profits are higher, and you have more flex ability before you locate your plants and operations etc. i know many are going to be thinking, particularly with -- we americans as a consequence of this change, there's more jobs to be in the u.s. rather than start a few minutes to touch on that. >> thank you mr. chairman. first off i would say in the growth overseas, when wal-mart grows overseas, we bring american companies with us.

and i would welcome any members of the committee and travels to under markets, so let us show you a wal-mart store and the products that are in a wal-mart store in countries outside the united states. so not only was there whether it's the agricultural products that would come from the u.s. or u.s. beef that we export to markets around the world, but also to the products on those shelves reduced by american companies would be an example. the o would be even here in the united states, and the growth of opportunity here in the u.s., because we have that store level where we provide really the to the consumer.

>> so you're sayinger the more jobs created in the u.s. than overseas? >> absolutely. >> with these changes. >> we would do both. >> would there be more, i guess that's my question. >> no. clearly it would be some of both. and i'm not able to quantify one compared to the other, because we open large stores and small stores, but it will credit to those outside the united states. >> ultimately you want u.s. businesses to be competitive so you can take the opposite approach and say what if we do nothing and the rate continues to widing? that's just going to mean embarrass seen nuss, so getting us back to a level playing field is important. we do practically all our research and development here

in the u.s. we bring back roughly $350 million a year in royalties on intellectual properties owned in the u.s. so as our business grows, we're going to do more r & d here in the u.s. >> mr. lang? >> yes. to build on that. in 1990, the u.s. had the number one r & d tax credit in the world. it was a model for many around the world. today it's effectively the number 24 around the world. and this is an era where having the essentials to develop in the u.s. has a real impact on decision making and one small company example is my own. we in the last year, 2010, added about 20% to our combloo. but only the good news.

only about 15% of those were in the u.s. and a lot of folks might immediately conclude those jobs were sent overseas to india and china, but in fact 1/3 of those jobs actually went to canada where they have one of the most aggressive tax credits in the world. so i think our brothers up north have maybe something that we can learn from here. it's not the only decision made in terms of where to hire, but they have done a very effective job of neutralizing and invest in their local market. >> well, mr. chairman since we are a domestic company, i'll only talk about the u.s. and i'll site two examples in my remarks when i talked about accelerating investment ps and creating jobs. when you look across the health care space, we have a problem with our health care system. that have spent annually on unnecessary medical costs as a result of poor costs and

adherence of prescription drugs. we believe we can accelerate the sale of those drugs by bringing products and services that are a sluelings to hose problems and at the same time lower the overall and ip think many of you know we operate the largest number of in-store retail clinics. we have plans to double the number of clinics over the next five years. we believe that provides an important shortage of primary care tomorrow. it's expected to get worse over we can accelerate our investments in the growth of retail clinics and again provide service to americans across the country. >> thank you. your time's expired. senator hatch? >> this question is for the entire panel. ideally, tax