years to come. Moreover, because of the size and cost of the veterans' pension program, legislative proposals affecting this program are naturally of interest not only to veterans but to all Federal taxpayers.

I would like immediately to clear up one point with regard to this legislation on which there has apparently been some misunderstanding in the Congress and by the public. Of the major pension bills that have recently been considered by the Congress, the administration has, until the views of the Bureau of the Budget were submitted to your committee last Friday, expressed its position only on H.R. 6432.

This is a bill which was transmitted to the Congress by the Administrator of Veterans' Affairs on April 15, 1959. It still is the bill favored by the administration. I want to make it as clear as I can that H.R. 7650 in its present form is not satisfactory to the administration for a number of reasons.

Mr. Chairman, it has been evident for a number of years that a thoroughgoing overhaul of the veterans' pension programs was needed to place these programs on an equitable and sound basis.

First, it has been clear that a number of serious deficiencies exist in the provisions of the present law. These result in inequitable treatment of individuals in essentially similar situations. They also result in inadequate benefits to the genuinely needy while affording pensions to a large and increasing number of veterans who have incomes larger than many people who pay taxes for their support. I will discuss this later.

Second, there have been important changes in our society. The veteran population of our Nation has expanded to 23 million; with their dependents they constitute nearly 45 percent of our entire population. Also, our social security system has grown and now is applicable to 9 out of 10 veterans.

Third, the cost of veterans' pensions has been mounting rapidly with the prospect that the current annual expenditure of $1 billion under present law will triple to about $3 billion a year in the next several decades and will aggregate more than $100 billion in the next 40 years.

In speaking of veterans' pensions, it is highly important to bear in mind that these are payments which are made by the Government to veterans who did not incur any disability while in the service, or to their surviving dependents. These non-service-connected pensions, therefore, must be carefully differentiated from the compensation and other benefits which are paid to veterans with serviceincurred injuries. It is generally recognized that the Government has a much more direct obligation to the service disabled than it does to individuals who served in the Armed Forces during a war period without any injury and who may later require aid for reasons which are not related to their prior military service.

At the direction of the President, the executive agencies have in the last 4 years spent a great deal of effort to work out a suitable proposal for modernizing veterans' pensions. Included in these efforts was an intensive factfinding study of benefits by the President's Commission on Veterans' Pensions, headed by General of the Army Omar N. Bradley.

In the 1960 budget message, the President stated:

We must continue veterans' pensions and increase pension rates for those who are without other resources, particularly if they have families. However, eligibility should be determined according to effective tests of need, both as to income and as to net worth, so that payments will not longer be made where the veteran or his family has adequate resources for basic necessities or from other sources. Properly applied, I believe this approach can better serve those who are now in need and at the same time minimize the burden placed on taxpayers by present laws.

To carry out the President's recommendations, the Administrator of Veterans' Affairs on April 15, 1959, submitted to Congress a draft bill which was introduced in the House as H.R. 6432. In keeping with the basic principle that pensions are designed to provide assistance to those in need, this bill proposed;

1. Liberally increased pension rates for veterans and surviving dependents of veterans with little or no other income. For example, for veterans with dependents, maximum monthly pension rates were increased from $66.15, or $78.75 for those over 65 years old or on the rolls more than 10 years, to rates of $90, $95, or $100 a month depending upon the number of dependents. This represented increases of 14 to 51 percent over existing rates. It compares with an increase of about 8 percent in the cost-of-living index which has occurred since 1954 when pension rates were last increased.

2. Graduated income limitations, generally in five steps, which would provide progressively smaller pensions to veterans with progressively higher amounts of other income. The maximum income limits proposed $1,440 for single veterans and a range of $2,740 to $2,860 for veterans with dependents-were higher than those of $1,400 and $2,700, respectively, under the existing law.

3. Inclusion of all income, except public and private welfare payments, under the income limitation to be used in determining eligibility for pension; and consideration, too, of assets owned by the veteran. 4. A savings clause for all individuals now receiving pensions, in order that they could continue receiving pensions no less than those computed under provisions of present law so long as they remain continuously on the rolls.

H.R. 6432 would increase the benefits for 55 percent of all persons presently on the rolls and would not reduce benefits for anyone now receiving a pension. It would require added expenditures of almost $100 million above present law in its first year but in the next 40 years would reduce significantly the projected outlays under existing law. This would occur principally because payments to newly qualifying veterans with higher incomes-which will tend to be higher in future years with the growth of social security and other retirement benefitswould be reduced under the sliding-scale formula.

H.R. 7650 as passed by the House does embody some of the concepts proposed by the administration. It uses graduated income limitations, which would mitigate the all-or-nothing weakness of the present flat income limitations. It provides increases in pensions for those with little or small amounts of other income. It would also count part of the spouse's income and certain other income which is now excluded from the income limitations in existing law. It provides for consideration of assets in determining eligibility for a pension.

In a number of major respects, however, H.R. 7650 departs significantly from the recommendations of the President, particularly from his main principle that "eligibility standards should be determined according to effective tests of need":

1. The income limitations in the bill are too high to serve as an effective test of need. The maximum limitations on outside income would be $1,800 a year for a single veteran and $3,000 a year for a married veteran. These are $400 and $300 a year higher, respectively, than the present income limitations of $1,400 and $2,700.

The excessiveness of the maximum income limitations in H.R. 7650 as measures of need can be demonstrated by comparing them with the benefit levels under the old-age, survivors, and disability insurance program (OASDI), which was enacted to serve the needs of retired and disabled people generally:

(a) Under H.R. 7650 a single veteran with an income of $1,800 a year will qualify for a veteran's pension even though his income would then be more than double the average annual ŎASDI benefit of $865 now being paid to retired workers. A single veteran who is receiving an average OASDI benefit will, under the bill, get a tax-free VA pension of $840 a year. It is true that the average OASDI benefit will increase through the years. Nevertheless, under the bill, a single veteran receiving the maximum OASDI benefit possible in future years, amounting to $1,524, will still get a tax-free VA pension of $480.

(b) A married veteran would, under H.R. 7650, be allowed a top limit of other income of $3,000 a year, and $4,200 or even more if his wife has income. The average retired couple under OASDI now receives $1,428, and H.R. 7650 would provide such a couple a tax-free VA pension of $900 a year more. The maximum OASDI benefit in future years for such a couple will be $2,286, and H.R. 7650 would provide a tax-free VA pension of $540 more.

In our judgment, the maximum income limitations established by H.R. 7650 are too high. They are correspondingly higher in the lower brackets which are set in proportion and which actually govern the amount of money paid to a larger number of beneficiaries.

2. The pension rates for veterans in the bill's upper income brackets are too high. A single veteran with $1,800 of income would receive a tax-free pension of $480 a year-$2,280 in total. A married veteran with $3,000 of outside income would receive a tax-free pension payment of $540-$3,540 in total, and would be eligible for the same pension even if his spouse had additional income of $1,200, or in some cases more than that.

The maximum amount of total income including pension under H.R. 7650 for a single veteran is $720 a year more than the amount proposed in H.R. 6432. For a married veteran with a total income of $3,540 it is $680 more. These disparities in the top brackets also affect the lower brackets relatively.

It seems to us that the level of payments to veterans proposed under H.R. 7650 is an excessive, long-term burden to the taxpayers who must foot the bill, keeping in mind that the veteran population is now very large and the number of VA pensioners will be greatly in

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creasing. We believe it can be assumed that the number of VA pensioners who pay income taxes is relatively small, because their OASDI and VA pension benefits are tax free and those over 65 receive double tax exemptions.

People with far less income than the veterans who would receive pensions under H.R. 7650 are now required to pay substantial Federal income taxes. This can be demonstrated by reference to the standard tax table for 1958 issued by the Commissioner of Internal Revenue. For example, this table shows that a single person would start paying Federal tax if his income exceeded $675. A single person with an income of $2,280, which is the figure for a veteran in the maximum bracket, would be required to pay a Federal tax of $292. A married couple, filing jointly under this schedule, would start paying tax when income exceeds $1,325 a year; with $3,540 of total income which is possible for a married veteran in the top bracket, the tax would be $395.

Data from the Department of the Treasury indicate that a substantial proportion of all people who pay Federal personal income tax have total incomes lower than the maximum income plus pension which would be allowed under H.R. 7650. In 1956, the last year for which detailed data are available, approximately 43 percent of the 14 million taxpayers who filed taxable individual returns had adjusted gross incomes of $2,280 or less. Similarly, 18 percent of the 32 million people filing taxable family returns had incomes of $3,540 or less.

Information from the Bureau of the Census shows that the great majority of people 65 years of age or older have incomes lower than the top amounts of $2,280 and $3,540 possible for those receiving pensions as provided in H.R. 7650. In 1957 nearly 85 percent had incomes less than $2,280 a year. If the Federal Government were to underwrite incomes for all our 15 million elderly on the basis proposed in H.R. 7650, the cost would be tremendous.

3. While some of the rates in H.R. 7650 are too high, insufficient recognition would be given to disabled veterans who have dependent children. A flat maximum rate of $90 per month would be provided for all veterans with dependents, regardless of number. This contrasts with graduated rates under the administration bill of up to $100 a month for veterans with children. We believe the need principle supports such a scale.

4. Large amounts of income would be exempted from the income limitations proposed under H.R. 7650, and these amounts will increase into the billions with the passage of time. The provisions which produce the most objectionable results are these:

(a) Exemption of $1,200 or 50 percent, whichever is greater, of the spouse's income.

(b) Exemption of social security and other contributory benefits until the veteran's contributions have been recouped.

(c) Exemption of all other VA payments, as well as other income equal to the debts of the veteran and the expenses of his last illness and burial.

In a real test of need, there seems no reason to exclude any part of the spouse's income. Moreover, since the bill makes no distinction between income to a spouse from work and from investment or other

sources, it would actually create incentives for veterans to transfer assets or sources of income to their spouses.

The exemption of the contributory portion of social security benefits or other retirement payments until the veteran has recouped the full sum of his contributions contradicts the need principle. These recurring retirement and annuity payments, regardless of source, are available to buy the essentials of living. The significance of these exlusions is indicated by the one fact that, while the portion of OASDI benefits represented by return of contributions does not loom large at present, it is estimated that by 1985 about one-third of all OASDI benefits would not be counted as income under H.R. 7650. Inasmuch as OASDI benefits will be on the order of $25 billion by 1985, this would be a huge loophole. Similarly, billions of dollars of company, civil service, or insurance annuity payments would be allowed to go uncounted in determining need for pension.

Now let me give you a few individual case illustrations:

(a) H.R. 7650 would permit a retired Federal employee receiving $5,000 or more a year from the civil service retirement system to obtain a VA pension for several years.

(b) A professional man, such as a physician, who had purchased from an insurance company an annuity of $10,000 or more a year, could, depending on his other income, receive a pension until his earlier premiums had been recouped; the same would be true of a business executive who had contributed to a company retirement plan.

(c) A veteran whose wife has an income of $6,000 a year could qualify for pension.

It is hard to understand why individuals with such substantial incomes should be eligible for pensions under a program which is intended to be based on need.

Some of these exemptions from the income limitations are found in existing law, but this does not make them desirable or appropriate. They result in anomalous and wasteful situations. If allowed to continue in H.R. 7650 they will go far toward undermining the effectiveness of the need principle.

5. H.R. 7650 would provide a separate $1,800 exemption for each child of a deceased veteran without regard to the financial situation of the mother or of the child's foster father. Even earned income would be exempted from this limitation. For example, under this provision three children would have a combined exemption of $5,400 a year for income such as social security payments, plus whatever they earned. The net result of these income provisions would be the payment of pensions to practically all minor children of deceased

veterans.

6. The bill would also liberalize the eligibility requirements for dependents of deceased World War II and Korean conflict veterans so that they correspond to present requirements for survivors of World War I veterans. Since there are 20 million World War II and Korean conflict veterans, this would establish many millions of widows and children as potential recipients of pensions.

Extensive readjustment benefits have helped to increase the opportunities and raise the living standards of World War II and Korean