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tions, would be very much more serious than any similar delays in almost any other Government department. The program would fail of its purpose if benefits could not be paid with reasonable promptness as soon as they became payable. For those reasons, an automatic, nonlapsing appropriation for administrative expenses seems to be not only a sound policy but a necessary one.

It should be emphasized that the earmarking of 10 percent of the collections to meet administrative expenses does not mean that the Board will be uncontrolled in its expenditures. The bill contains the usual provisions of any annual appropriation measure with the respect to the purposes for which such moneys may be spent. In its selection of personnel and their compensation, the Board is fully subject to the provisions of the civil-service law. The Board's expenditures are subject to a complete audit by the Comptroller General of the United States. The Board must make an annual report to Congress. One effect of this provision is simply to free Congress from the necessity of guessing during a period of 18 months in advance about shifts in employment and the costs of handling an unknown number of future claims.

Under the usual restrictions, appropriations for Federal agencies must be spent at an equal rate during each month of the year. This is impossible in the administration of unemployment insurance. The effect and purpose of this provision is to enable the Board to acquire a reserve of administrative funds for those months and years when the volume of claims will suddenly rise.

If the bill had been in effect last year, such a time would have occurred last summer, when Congress was not in session. Without this provision, the Board would then have simply had to let the mounting claims pile up on the floor until Congress reconvened and got around to passing a deficiency appropriation. Any such course would obviously be suicidal, because when the members of the railway labor organizations are eligible for benefits, they want them paid on time without any excuses about the Treasury or the Bureau of the Budget or a deficiency appropriation.

Section 11 which the Treasury thus criticized is the very heart of our proposal for simplified and sound administration. Experience will demonstrate in other connections that without something of this sort there can be no sound plan for social security.

Finally, the Treasury seems deliberately not to have noticed that any surplus in the administrative fund can be transferred to the insurance account for use in the payment of benefits.

We are particularly interested in the provision of a separate administrative fund because the Treasury itself says in this letter that it is opposed to the provisions of section 11 (b) because "these amounts * * * have already been expended for general governmental purposes.' It is exactly to prevent the expenditure of contributions under this bill for general governmental purposes that provision was made for an earmarked administrative fund.

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5. The Treasury is opposed to "the handling of checks and other media of payment by the same official or agency that certifies to the correctness of such payments."

Apparently the Treasury did not notice the provisions of section 10 (b) which provide that all payments shall be made by the "Secretary of the Treasury through the Division of Disbursements of the Treasury Department." The proviso immediately following to which the Treasury now strongly objects permits nothing more than the physical handing out of the checks by the Railroad Retirement Board, and is reasonable analogous to the handing out of pay roll checks by administrative officials and clerks not connected with the Treasury in every administrative agency of the Federal government.

6. The Treasury would prefer to have the "contributions" called "taxes." In 1935 it was believed to be constitutionally necessary to separate the taxing and appropriation or benefit provisions of social insurance legislation, and to maintain the specious fiction that the taxes were unrelated to the expenditures that they are supposed to support. We firmly believe that recent decisions of the Supreme Court render the continuation of such a pretense now unnecessary. We submit that such hypocrisy is in effect undesirable as lending color to the more widespread, even if mistaken, criticism of social security legislation, viz. that the proceeds of social security taxes are being used to finance other Government activities. To call these levies "contributions" instead of "taxes," and to earmark them for their special function will, in our judgment, be sound public policy as serving to emphasize two very important facts: First, that the contributions are exacted for the sole purpose of providing unemployment insurance, and second, because they have been exacted for this purpose they create a right to benefits not contingent upon year-to-year appropriations by and with the

consent of the Bureau of the Budget and the Treasury Department, which have no appreciation of the crying necessities of the unemployed. In my testimony yesterday I argued very briefly, and I have only submitted a memorandum for the record in support of the contention that even if the "contributions" should be held to be "taxes," there is no constitutional or other necessity for them being covered into the general fund of the Treasury. We firmly believe that this bill as drafted would now be sustained as an exercise of the power to regulate interstate commerce. We further believe that the use of the term "contributions" instead of "taxes" would not preclude the defense of this measure as a proper exercise of the power to raise revenue and spend money for the general welfare. Respectfully submitted. RAILWAY LABOR EXECUTIVES ASSOCIATION,

By CHARLES W. HAY,

Counsel, Subcommittee on Unemployment Insurance. Mr. WOLVERTON. I regret that I was not here yesterday, and was detained and got in late this morning. For that reason I did not hear all of your remarks, but from the part I did hear, it left the impression that the President has approved this bill. Is that correct? Mr. HAY. I did not say that. I challenged the statement that he has said anything indicating that he is opposed to this bill. I do not wish to say that the President is in favor of this bill, because I have not talked with him about it. I am on speaking terms with him, but I did not get to speak with him about this.

Mr. CROSSER. Are there any other questions? If not, thank you, Mr. Hay.

Mr. HAY. Thank you, gentlemen.

Mr. CROSSER. We will hear Dr. Bacus.

Mr. CASHEN. Mr. Chairman, we would like at this time to introduce Mr. Hushing, legislative representative of the American Federation of Labor for a brief statement.

Mr. CROSSER. Very well.

STATEMENT OF W. C. HUSHING, NATIONAL LEGISLATIVE REPRESENTATIVE OF THE AMERICAN FEDERATION OF LABOR, WASHINGTON, D. C.

Mr. HUSHING. Mr. Chairman: For the record, I wish to say that my name is W. C. Hushing. I am national legislative representative of the American Federation of Labor.

We have had our attorney, Mr. Joseph Padway analyze the bill under consideration by the committee and as a result I wish to state the American Federation of Labor approves the bill. It is in accord with the policies of the American Federation of Labor.

I should inform the committee, I believe, that all of the 21 standard railroad organizations are in affiliation to the American Federation of Labor with the exception of the four transportation brotherhoods. However, we have a very close working arrangement with all of the 21 of the brotherhoods, and in this particular instance it is the intention of the representatives of the American Federation of Labor to aid the railroad brotherhoods in every way possible to secure the passage of this bill.

I thank you.

Mr. CROSSER. Are there any questions?

We thank you very much, Mr. Hushing. We will hear Dr. Bacus.

STATEMENT OF HORACE A. BACUS, RESEARCH DIRECTOR OF THE BROTHERHOOD OF RAILWAY AND STEAMSHIP CLERKS, FREIGHT HANDLERS, EXPRESS AND STATION EMPLOYEES, CINCINNATI, OHIO

Mr. BACUS. My name is Horace A. Bacus. My address is 712 Railway Clerks Building, Cincinnati, Ohio. I am research director of the Brotherhood of Railway and Steamship Clerks, Freight Handlers, Express and Station Employees, and appear before your committee representing the Railway Labor Executives Association.

Mr. CROSSER. Will you state in what capacity you are appearing here?

Mr. BACUS. I appear as a member of the committee of the association-Railway Labor Executives Association.

Mr. CROSSER. But, you speak for the entire Railway Labor Executives' Association?

Mr. BACUS. That is right.

I have been asked to point out in summary fashion the manner in which the State unemployment insurance laws have affected and would affect railroad employees, and to explain also in a general way the effect which the proposed legislation would have upon these State laws.

Subject to the limitation of time, my remarks will cover (1) the general effect of the State laws upon railroad workers; and (2) the effect which the legislation proposed would have upon the State unemployment-insurance laws, including comparison of benefit payments, treatment of partial unemployment, employee contributions, the meritrating principle, and the transfer of State funds to the national railroad unemployment insurance account, as provided in section 13 of the bill (pp. 45–51).

As has been pointed out to your committee, each of the 48 States has enacted and has now in effect an unemployment-insurance law supplementing titles III and IX of the Social Security Act.

Twenty-five States (including the District of Columbia) are now paying benefits to eligible unemployed workers under these laws. Five additional States will start paying benefits before the end of this year.

Sixteen States will start paying benefits January 1, 1939, and the remaining three States as of July 1939.

Obviously only about one-half of the State laws have actually become operative from the standpoint of the payment of benefits. The full effect, therefore, of the State laws upon railroad employees has not, as yet, been evidenced. If all of the laws should have been in complete effect for some time, we believe that more of the State administrations would now be urging the enactment of the legislation under consideration.

As has been pointed out by Judge Hay, 41 of the States, when enacting their unemployment insurance laws, have provided that the State laws should not apply to employment covered by an unemploymentcompensation system established directly by the Congress. Thus, 41 States recognized the need for national treatment insofar as certain interstate industries, and particularly the railroad industry, should be concerned.

Two States Alabama and Wisconsin-exclude in positive fashion from the coverage of their unemployment insurance laws all railroads

engaged in interstate commerce. Under title IX of the Social Security Act railroads operating in those States pay the 3-percent tax to the Federal Government on the wages of employees located in such States, but railroad workers who become unemployed in Alabama and Wisconsin are not entitled, as a matter of law, to receive 1 cent of unemployment benefits.

The remaining 46 States cover railroad employees to varying extents. To exactly what extent, nobody knows-not even the State administrators. This is because of the varied and highly complicated definitions of employment contained in the State laws. Some of the State laws apply only where all or the greater part of the service is customarily performed within the State; others apply where the service is entirely within the State or both within and without, if the service without is incidental to that performed within, or if the base of operations, supervisory control, or the employee's residence is within the State, or if no contribution is required under another State law.

The State legislatures being unable to lay down a coverage which would afford equitable treatment to employees engaged partly within and partly without individual States turned the job over to the State administrators.

The State administrators in the States where the unemployment insurance laws have already become operative have attempted to meet the problem by entering into administrative understandings with administrators of neighboring States, but these efforts have not been highly successful from the standpoint of railroad workers. The chaotic condition has already resulted and will result further in a great number of railroad employees throughout the country finding themselves entirely shut off from unemployment benefits under any State law, or in a position where they cannot receive the full benefits to which they should be rightfully entitled.

This condition cannot be satisfactorily and permanently remedied by administrative arrangements and understandings, entered into under State laws.

The railroad industry is unique among industries in that it is definitely isolatable on a national basis, and all employees of railroads engaged in interstate commerce must be brought together under an integrated national unemployment insurance system if all such employees are to receive fair and equitable treatment.

I beg leave, Mr. Chairman, at this point, to submit and have made a part of the record, a supplemental statement dealing with unsatisfactory provisions in State laws, with particular reference to railroad employees.

Mr. CROSSER. Without objection, it will be made a part of the record.

(The supplemental statement referred to is as follows:)

SUPPLEMENTAL STATEMENT OF HORACE A. BACUS ON RAILROAD UNEMPLOYMENT INSURANCE BILL (H. R. 10127, S. 3772)-UNSATISFACTORY PROVISIONS IN STATE LAWS

At present, railroads are subject to the jurisdiction of 49 unemployment compensation laws,' title IX of the Social Security Act, and the Railroad Retirement Act.2 From the accounting and legal points of view alone, this situation makes it complicated and expensive for every carrier engaged in interstate transportation. Major railroads with lines extending through many States must comply with the laws of each State and with the variations in the interpretations of 1 Alabama and Wisconsin exclude railroad employment.

these laws by the State and Federal administrative authorities. Pay rolls, taxes and employment records must be segregated and kept to meet the requirements of each law. A carrier which operates in six States must adjust its records to meet the requirements of at least eight different laws (including the Social Security Act and the Railroad Retirement Act). It has different obligations in more than one State with respect to an individual employee.

Variations in these laws, principally in employment definitions and exclusions, wages (particularly with respect to types of remuneration included and excluded, and with respect to limits in the amount of wages), the liability of the employer for the employees of a contractor of subcontractor under him, types of funds, i. e., whether pooled or of an individual employer reserve type, taxable pay rolls, wage deductions with respect to payment of employee contributions, the base upon which weekly benefits are computed, eligibility conditions, and provisions relating to the maximum duration of benefits for any individual, are conducive to maladministration and inequities.

The question of jurisdiction has not been settled by the employment definitions in the laws. An examination of existing State laws shows that employment fall into three major classes. The first is as follows:

"The term 'employment' shall include an individual's entire service performed within or both within and without the State; if the service is localized within the State, or if the service is not localized in any State but some of the service is performed in this State and the base of operations, or if there is no base of operations, then the place from which such services are directed or controlled, is in the State; or if the base of operations or place of control is not in any State in which services are rendered, but the individual's residence is in the State.

"Services shall be deemed localized within a State if the service is performed entirely within the State, or the service is performed both within or without the State, but the service performed without the State is incidental to the individual's service within the State, for example, is temporary or transitory in nature or consists of isolated transactions."

In the first group many State laws also include service within the State, if with respect to such service contributions are not required and paid under an unemployment compensation law of another State or of the Federal Government, if the employee resides within the State.

A much smaller group of States has adopted a definition of employment somewhat as follows:

"Service performed entirely within the State. Service performed outside of the State but incidental to service within the State if contributions are not required and paid with respect to service performed outside the State under the law of any other State. Service performed under a contract of hire made in the State under which some service is performed within the State if with respect to services performed elsewhere under such contract of hire, contributions are not required and paid under an unemployment compensation law of any other State."

The third group of State laws merely state that services shall be subject to the act if all or greater part is customarily performed within the State.

For those railroad employees whose employment changes from State to State, questions concerning the allocation of their employment to the jurisdiction of a State law evidently must be settled by a complicated series of reciprocal arrangements between the States. State coverage of such employees has already produced a good deal of confusion, incorrect payments of contributions, and may even produce double taxation in some cases, as a result of the vague definitions of employment contained in some of the State laws. Although the definition in the first group is fairly clear so that an employer can readily determine in most cases to which State he shall pay contributions, the major difficulty arises in those States which have provisions similar to the second or third groups.

In most States the major test of what law covers the services of an employee who works in more than one State is the location of his headquarters and in some on where the preponderance of work is performed. The results may be that some railroad workers will be covered in more than one State and some might not be covered in any. Since railroad employees in train and engine service cross State lines and many other employees are called upon in the course of employment to move headquarters for longer or shorter periods, such movements and transfers will cause more difficulties than is generally realized. In the absence of a satisfactory plan for transfer of wage or employment credited from_State to State, many such railroad workers may lose substantial benefit rights. In a case of an interstate worker who was employed in New Jersey in the first three calendar 2 Including the Carrier's Taxing Act.

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