ms. hanlon. mr. neubig, you're recognized for five minutes. >> thank you for the opportunity to testify. i was an economist at the u.s. treasury's office of tax analysis from 1980 to 1990 during the development of the 1986 tax reform act. financial accounting issues were not very important then, but over the last 25 years, i've seen their importance grow not only at the federal level, but also in terms of state tax policy and tax policy in other countries. in 2005, president bush's advisory panel on federal tax reform outlined a business cash flow tax that allowed first year 100% writeoff of capital investment like bonus depreciation. one might have expected that this plan, which many of my economists brethren claim results in a zero effective tax rate for new capital investment would have received strong support from the business community, but it did not. this led me to consider a number of reasons why many economists often predict the effects of tax reforms much differently than the business commu

ms. hanlon? >> i would agree with all these statements. i think the complexity takes a lot of time. as tom was saying earlier with the compliance costs. they're very high. and 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 be doing is focusing on their business. but instead they spend a lot of time worrying about, you know, how should they compensate themselves, how should they structure their business, where who they structure their business, in the u.s. or somewhere else because of the tax code. and i think making a more simple, more fair system would help the u.s. >> thank you. >> mr. neubig, 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. that uncertainty, complexity, and how lower corporate tax rates affect so many different business decisions really is very powerful.

ms. hanlon?>> i would ago the comments. the rules now in terms of leaving the united states are pretty harsh. congress has taken care of that movement for tax purposes offshore. and it's more, as we've said, offshore companies getting bigger is what you're saying. >> all right. ms. hanlon? >> i would agree with all these things but i think tax is one factor but the research is quite clear that investment is attracted to lower tax rates, but it is only one factor. there's a lot of other things that companies consider. acquisitions do happened generally whether for and acquire will acquire the u.s. company but oftentimes because of the tax considerations, you would want to acquire a u.s. company would want to acquire foreign. it would be hard to acquire foreign company and poll that foreign company into the u.s. tax system. and is also depends on the type of business whether investment, how much tax drives, where the investment goes based on the tax rate. some companies just have to go where their

ms. hanlon, you're recognized for five minutes. >> thank you. chairman camp, ranking member levin and distinguished members of this committee, thank you for the opportunity to testify before you today. the main point of my testimony is that the responsiveness to tax policies can be affected by the financial implications of those policies. i would like to first offer some general examples of the importance of financial accounting to managers of publicly traded companies. one example is found in a study of companies accused by the sec of fraudulently overstating accounting earnings. it turns out that these companies also overstated their income to the irs and paid taxes on their inflated accounting income. this suggests that these companies were willing to pay substantial sums of cash in order to report higher accounting earnings. a second example is found in a recent survey of tax executives of publicly traded companies. 85% of the tax executives said that top management at their company using the accounting effective tax rate as being at least a

ms. hanlon, in his testimony mr. heenan argues that promoting investment accelerated depreciation is, perhaps, a more powerful tool than lower overall tax rates. you, however, say with respect to targeted tax incentives such as bonus depreciation, there's very little evidence that these policies have spurred any investment. can you comment on that? >> yeah, my statement is based on the, you know, the weight of the evidence and the literature. and basically, there are papers that will show there's a time effect. so firms will shift a purchase of equipment to a period that's earlier, say, by december instead of january. there's also evidence that firms will purchase a different class of asset. but what we can't tell in the literature and what is very difficult to parse out is whether these are, you know, part of it's just timing. part of it's just shifting. and some of it could just be a change in reporting. in other words, when you say a certain class of asset gets a certain benefit, they might just now record differe