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ever, the U.S. Department of Labor ruled that a reimbursement method would not be consistent with the present requirements of the Federal Unemployment Tax Act. This ruling followed presentation of the proposal and reasons for it to the Secretary of Labor by members of the New York Advisory Council on Unemployment Insurance. Efforts by the industrial commissioner of the State of New York to obtain a change of position were fruitless.


There is general agreement on the need for the unemployment protection of workers employed by nonprofit organizations which are otherwise exempt from Federal and State taxation. These employees need the protection just as much as other workers. There is no essential difference between officeworkers employed by such organizations and officeworkers of other employers, such as banks, insurance companies, employers in professional occupations, and others or indeed governmental employees. There is no difference between kitchenworkers in hospitals and kitchenworkers in hotels or restaurants. There is no difference between the maintenance staff of buildings owned and operated by such organizations and staff in buildings operated by other real estate


Representative spokesmen of nonprofit organizations share these views. However, after consultation with them, the administration in New York concluded that compulsory taxation on the conventional basis would meet with justified objections. A bill was, therefore, developed which gave such organizations the option to cover their workers either on a reimbursement basis or on the basis of taxation as it applies to private employers. In support of this approach, the Unemployment Insurance Advisory Council of New York said that:

"In planning for the inclusion of the nonprofit institutions it must, however, be realized that they present a special situation involving factors not found in private industry.

"To begin with, these agencies cannot pass on the charge to consumers by increases in price. Furthermore, since they are exempted from income taxes, the unemployment insurance contribution cannot be deducted as a cost of doing business. This takes on special importance for them since they are service organizations and for most the payroll constitutes the largest part of their total operating expenses, running for some as high as 70 or 80 percent and

even more.

Then, in very many of these institutions, e.g., colleges, universities, community houses, welfare agencies, literary and scientific societies, the greater part of the staff is professional, holding either tenure or a contract for a fixed term. Turnover among such personnel is relatively slight and generally occurs when a member of the staff resigns voluntarily to go elsewhere. Contributions based on the salaries paid to such persons would impose an added burden on budgets already strained and yet there would be little likelihood that any substantial part of the contributions would ever be used to pay benefits.

"It is these special circumstances in which the nonprofit organizations find themselves that have led the Advisory Council to the conclusion that they should be given a method of financing the cost of the benefits paid out to their employees different from that available to employers in private industry. The council proposes that the nonprofit organizations be dealt with in the same way as the State and its governmental subdivisions.

"Employees of the State of New York and of those municipalities which have elected coverage are given benefits in the event of their unemployment. But neither the State nor the municipalities contribute to the unemployment insurance fund in the same manner as do private employers. They are on a straight-cost basis. They merely reimburse the fund each year for the amount paid out by way of benefits to their employees. The council recommends that the nonprofit institutions be likewise kept free of the obligation to make regular contributions and that they too be permitted to be on a cost basis.

"Such method of financing should not be exclusively mandatory. Each agency should have the option to come into the system either on a cost basis or on a contribution basis, that is, to make contributions in accordance with the same experience rating formula which determines contributions by employers in private industry.

"The purpose frankly is to permit each agency to choose that method of financing which it finds better and cheaper. Those agencies with little or no turnover would consequently be put to little or no cost. Those with high turnover would have no greater cost than that which is borne by private industry.

"For the employees of the nonprofit institutions it would make no difference whatever which method of financing their particular agency chose. They would receive the very same benefits as are made available to the employees in private industry under the very same conditions. The difference would only be in the manner of meeting the costs.

"The special status which the nonprofit institutions hold in our society amply justifies the differentiated treatment which is proposed for them. The nonprofit agencies are engaged in public services, services which Government would in the main be compelled to furnish if these institutions were to go out of existence. Their funds are totally dedicated to these services. No individual derives a personal profit from their operations. If it is right for governments to insure their employees on a cost basis, then it is equally right to enable the nonprofit organizations to do the same."

All of these observations apply with equal force in other States.


The following objections have been raised:

1. Allowing State option for coverage on a reimbursement basis would weaken the case for a repeal of the exemption of these organizations under the Federal Unemployment Tax Act.

2. A precedent would be set for coverage on a reimbursement basis and others could demand similar treatment.

3. State unempployment funds would be exposed to losses if an exempt organization ceases operations without funds for reimbursement.

First objection: Weakening the case for repeal of exemption

This point has Federal and State aspects. If a State wishes to make a drive for coverage of nonprofitmaking organizations while the Federal statute does not cover such employers, the proposed amendment will strengthen, not weaken, the State's hand. The State will be free to achieve compulsory coverage on a tax basis or on a reimbursement basis or on a combination, by option or otherwise.

On the Federal level, also, the bill would strengthen the case for the repeal of the exemption, if needed. If all States were to achieve coverage, there would be no need for further Federal action. If this result were not reached, the Federal authorities could point to the unequal treatment and make a strong point for the need for Federal action. The mere fact that some States did provide for coverage would demonstrate the propriety of such coverage and the need therefor. If other States did not fall in line on their own initiative, the argument for Federal initiative would gain weight.

Second objection: Precedent

Allowing for exclusion of nonprofit organizations from experience rating standards will not be a precedent for others.

Nonprofit organizations, not only traditionally but also by the nature of their work, their operations and their financing are in an entirely different category from all others. They are endowed with a public purpose and perform functions necessary to the well-being of the States and the Nation. The idea of general and equal taxation to defray the cost of Government services has no place when nonprofit religious, charitable, literary, scientific, and educational organizations are concerned. Such organizations must of necessity look to others for their financial existence.

On the other hand, the idea of general and equal taxation applies with respect to other employers.

Third objection: Failure to reimburse

It is, of course, possible that some nonprofit organizations may cease operations without funds with the result that benefits are paid without reimbursement. However, these instances are no different from cases involving insolvent employers whose delinquent contributions are never collected. Benefits are nevertheless paid to their employees on the basis of employment with those employers. Of major general consideration is the fact that the Federal amendment is only

enabling legislation.

Each State which wishes to take advantage of the opportunity to achieve coverage of these organizations on a reimbursement basis will carefully consider all implications of the program. Proposed Federal amendment neither binds nor forces any State, it only paves the way. Whether a State will decide to extend coverage, the manner in which it will do so and the safeguards to be provided are strictly State matters.


(For staff analysis and departmental views, see p. 464)


Chairman, Senate Finance Committee,
Washington, D.C.

JUNE 25, 1960.

DEAR SENATOR: I understand that your committee is meeting on June 28 to consider H.R. 12580, the social security bill passed by the House of Representatives last Thursday.

If H.R. 12580 is enacted in its present form it will reduce the retirement allowances of approximately 2,130 New Jersey teachers and 1,300 other New Jersey public employees. The average cut in allowances will be approximately $1,300 per year for retired teachers and approximately $960 per year for other retired public employees.

The people affected by this legislation are members of the New Jersey Teachers Pension and Annuity Fund and the New Jersey Public Employees Retirement System. They have retired under a plan which permits the State of New Jersey to reduce the retirement allowance payable by the State pension fund if the employee earned a social security benefit through New Jersey public employment. Any social security benefit earned in this way is used to relieve the State of all or a portion of its obligation to pay a pension to retired public employees.

Many of the persons affected by this legislation have purposely advanced the dates of their retirement in order to avoid earning a social security benefit through public employment in New Jersey. If H.R. 12580 is enacted in its present form section 204 (a) will reduce the number of quarters of coverage required to attain fully insured status to such a degree that all of these people will be considered as having earned their social security benefits through New Jersey public employment.

The effect on these people will be a substantial reduction in income through loss of pension from the State of New Jersey.

The amendment proposed by section 204 (a) of H.R. 12580 is designed to provide needed benefits for a number of our senior citizens. This is a desirable purpose. The New Jersey Education Association and the New Jersey Civil Service Employees Association have informed me they are sympathetic with the desire to extend full benefits to these people and agree with this purpose. They agree with me, however, that this can be accomplished by approaches which will not deprive New Jersey public employees of State pensions they have earned during many years of service.

One approach would be the following amendment to section 204 (a) of H.R. 12580, already introduced by Senator Williams of New Jersey and me:

"(e) The amendment made by subsection (a) shall not apply in the case of any individual who, on, before, or after the date of enactment of this act, becomes entitled to retirement benefits under the Teachers Pension and Annuity Fund of the State of New Jersey or to retirement benefits under the Public Employees Retirement System of the State of New Jersey."

I ask that your committee give serious consideration to this amendment or to some other approach affording assurance to these deserving public employees who have rendered a number of years of service with the justified expectation that they would be entitled to their benefits upon retirement.



MADISON, WIS., June 29, 1960.

Senator HARRY F. BYRD,

Chairman, Senate Finance Committee,
Washington, D.C.:

To save time of committee I am sending this telegram instead of appearing personally. As you know I was Chairman of Technical Board which prepared original Social Security recommendations and I also directed administration of all phases of Social Security Act from 1935 to 1953. Based on that experience

I am sure that contributory social insurance method is far superior to FederalState noncontributory means test method for proving health benefits to aged workers, widows, and orphans. Official studies by this administration and previous administrations demonstrate need and administrative feasibility. fore I urge action at this session.


ARTHUR J. ALTMEYER, Former Commissioner for Social Security.


Mr. Chairman, I want to record my support for S. 3503 as a substitute for section XVI of H.R. 12580.

I think it has been demonstrated overwhelmingly that this Nation needs a truly effective program of health assistance for our elder citizens. The question before the Congress, as I see it, is how to provide an effective program. Section XVI in the House bill, in my opinion, falls far short of meeting the problem. I do not intend to dwell in detail on the obvious inadequacies of section XVI. But I do want to point out that even under the most ideal conditions, where many or all of the States could find the means of participating in the program, it would mean an additional burden on general revenues.

I agree wholeheartedly with the supplemental views of the eight members of the House Ways and Means Committee who stated on page 326 of House Report 1799 that:

"We are shocked that after 23 years of successful operation of the social security system there are those who would have us rely still on relief and assistance as the sole governmental approach to meeting a major economic hazard of universal occurrence."

There are those who will persist in claiming that it is "socialistic" and somehow un-American to finance a health program for the aged through the social security tax structure. Mr. Walter Lippmann, who is by no means considered a wild-eyed Socialist, has very ably analyzed the situation in a column published in the Washington Post of June 16. In that column Mr. Lippmann states:

"Among the opponents of medical insurance there seems to be a vague and uncomfortable feeling that it is a new-fangled theory, alien to the American way of life and imported, presumably, from Soviet Russia.

"The Founding Fathers were not subject to such theoretical hobgoblins. In 1798 Congress set up the first medical insurance scheme under the U.S. marine hospital service. The scheme was financed by deducting from seamen's wages contributions to pay for their hospital expenses.

"If that was 'socialized medicine,' the generation of the Founding Fathers was blandly unaware of it."

The magazine Business Week, which is certainly not considered a Socialist organ, has concluded that medical care for the aged can be handled best through the social security system:

"The only way to handle their health problem, therefore, is to spread the risks and costs widely. And that can best be done through the social security system to which employers and employees contribute regularly."

Under S. 3503, health assistance would be financed largely through social security tax increases. The program would cost an estimated $1.5 billion a year, of which $1.14 billion would come from a one-quarter of 1 percent increase in the social security tax on employee and employer. This increase would provide benefits for 11.3 million beneficiaries of old-age and survivors' insurance. Benefits to an additional 1.7 million old-age assistance recipients would cost $180 million a year, to come from general revenues. Benefits to 1.8 million other persons (re

tired men over 65 and retired women over 62) would cost $190 million, also from general revenues. But the Federal Government is already spending an estimated $238 million a year for old-age assistance and other programs which provide medical care for the aged so the net increase in expenditures from general revenues would be about $132 million, or less than a dollar per capita for the Nation.

I therefore urge adoption of S. 3503 as the soundest and most effective approach to the problem of medical care for the aged.

Senator HARRY F. BYRD,

Senate Office Building, Washington, D.C.

ANDERSON, IND., June 28, 1960.

DEAR SENATOR BYRD: I want you to know of my opposition to H.R. 12580. As of 1956 only 17 percent of doctors 75 years of age or over were retired. Many of these men are unable financially to retire completely, and others prefer to remain active. Most of those men who remain active see but very few patients, but their income will be greater than $1,200 a year. Therefore, they would not be eligible for social security benefits.

To me, including doctors in the social security program is a thinly disguised effort to promote additional tax revenues with no intention on the part of Government to ever return any of it to these men who will be paying tax ostensibly for retirement benefits. This is a shameful subterfuge, and Congress should be above stooping to such measures.

I realize that more and more revenue will be necessary to maintain the social security program, because it is an actuarially unsound arrangement. But, if Congress is intent on maintaining it, they should have the fortitude to increase the tax on people who are going to benefit from it. This will not be popular, I know, but it is the only honest thing to do.

I hope you will be one Senator who believes in honesty, and will shun the Marxian philosophy "From each according to his ability, and to each according to his need." We already have too much Russian ideology pervading the of certain Government officials.

You know my opinion, I would appreciate knowing yours.

Yours truly,

H. H. DUIN, M.D.


Chairman, Senate Finance Committee,
New Senate Building, Washington, D.C.:

SAN FRANCISCO, CALIF., June 30, 1960.

Request the following statement be read to the Senate Committee on Finance, and inserted into the record of current hearings on social security bill: The California Labor Federation, representing more than 1,300,000 AFL-CIO members in this State, urges the adoption of a social security measure which contains health care provisions for the aged within the social security system. Our membership is categorically opposed to medical care benefits based on any kind of a means test. It must be recognized that senior citizens of this State and Nation, as a group, have recognized health and medical care needs which are substantially greater than those of younger age groups, and which, in terms of cost, far exceed the financial means of our aged population.

Despite labor's efforts to the contrary, under the widespread development of voluntary prepaid medical care programs in the past decade, the aged have been generally and effectively isolated from the rest of the community to be "experience-rated" by themselves under programs designed less to take care of their extensive needs than to extract the last profit dollar out of their human misery. Thus, the aged, in such isolated high-cost groups, cannot possibly insure themselves adequately as now being proposed by private insurance carriers, the medical associations and other vendors of medical care programs in their advocacy of low-benefit, high-cost plans that would "experience-rate" them apart from the community.

The provision of adequate health care for the aged on a prepaid basis therefore requires the adoption of a social insurance principle of financing such prepaid care as proposed in Forand-type legislation vigorously supported by all AFL-CIO members, based on the concept of providing benefits as a matter of right with dignity and respect for the individual.

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