When Another problem would arise as a result of the reduced tax based on experience rating. When maximum benefits are paid to one employee of a large firm the experience rating is not seriously affected; hence, the tax does not go up. a public accountant employing 2 persons finds it necessary to lay off 50 percent of his work force, the effect on his experience rating could be quite drastic. This could lead to the small employer-frequently less able to pay-paying a rate higher than the larger employer. In fact, in some States a public accountant might be taxed an amount in excess of 3 percent of his payroll as a result of this legislation. This result would occur in those States which now have rates running above 3 percent for employers who have unfavorable employment experience. As pointed out above, the public accountant with a small office force would appear to be a logical candidate for such ratings. As mentioned at the outset, we believe that the matter of determining whether employees of less than eight will be subjected to an unemployment compensation tax should be left to the States. In this connection, we might ask where the trend toward Federal control of the program is to stop. We have heard proposals that the Federal Government be granted authority to establish uniform minimum benefits. The members of this committee know that this was not the purpose of the act which created the unemployment compensation system; however, H. R. 8857 will, in our opinion, establish a dangerous precedent for such action. Finally, speaking for the thousands of small-business clients, whom we serve, we urge this committee to consider the almost unbearable burden such enterprising individuals now bear. The small-business man is practically stifled by taxes from local, State, and Federal Governments, not to mention the recordkeeping chores which he has had foisted upon him. We as professional men, who, in the main, serve such clients, know that for many this may well be the straw that breaks the camel's back. STATEMENT OF JOHN C. WILLIAMSON, SECRETARY-COUNSEL, REALTORS' WASHINGTON Committee, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS June 14, 1954. Mr. Chairman and members of the committee, my name is John C. Williamson, secretary-counsel of the Realtors' Washington Committee of the National Association of Real Estate Boards. Our association consists of more than 1,100 local real-estate boards and more than 52,000 realtors, representing in the aggregate approximately 300,000 individuals engaged in the real-estate business. My purpose in being here is to voice the opposition of our association to that part of the bill H. R. 8857 which would extend the Federal unemployment tax to employers of one or more individuals. Under present law only employers of eight or more are subject to the act. The policy of the National Association of Real Estate Boards on this subject has been reiterated over several past conventions of the association. The most recent pronouncement of this policy took place at the national convention at Miami Beach in November 1952. It is as follows: "We recommend that the question of unemployment compensation taxes shall be left to the discretion of the individual States, which are in a position to judge local requirements." As an industry of small-business people (the average realtor employs less than six persons, including real-estate salesmen operating on a commission basis, and those in a clerical capacity), we are naturally concerned over the implications of legislation which would superimpose a Federal standard and a Federal tax over a subject which has been competently handled by the States concerned. We are particularly concerned with the many realtors who operate small offices with 1 or 2 employees and whom many States have preferred to exclude from State unemployment compensation taxes. The exclusion of employers of less than 8 employees from the Federal tax and Federal control is sound because it leaves to the individual States the decision as to their coverage. Obviously, different geographical and industrial factors come into play which make it feasible for 1 State to include employers of 1 or more, while others might find the breakoff point at 4 or more, 6 or more, etc. Under this system of State determination, 17 States have extended coverage to employers of 1 or more employees, 12 other States have extended coverage to employers of 3 to 6 employees. These 19 States contain more than 70 percent of the employees presently covered by State unemployment compensation laws, and their bringing coverage down below the Federal requirement of 8 or more attests to the lack of necessity for the Federal coercion contemplated in H. R. 8857. Obviously all the States have considered the problem of coverage and have come to varying conclusions as to small-employer exclusions. To extend forcibly_coverage to all employers would result in the Federal Government overriding State decisions in this matter, and would do violence to the basic philosophy underlying the whole program. We suggest, therefore, that leaving the question of tax coverage of small firms to State legislatures is preferable to having the Congress force the States to adopt uniform tax liability for small employers. The original (1935) exclusion of small businesses from the Federal tax was a sound one, and it is extremely doubtful that the Congress would have enacted a basic law with the widespread coverage contemplated by this bill. The original approach to this subject was directed at businesses with substantial payrolls. The Secretary of Labor in 1935 testifying before this committee expounded the basic philosophy as follows: "It has been thought wise to allow the States considerable freedom with regard to the rate and variation of benefits; to the length of the waiting period and the type of State system ***. It has also been thought wise to permit the States to determine under their laws who shall contribute to their fund.' Why, then, this legislation, the approval of which would be tantamount to telling the States that their 20 years of consideration of this problem is to be scrapped and that all the States must submit to the Federal common denominator of what constitutes adequate employer coverage? To overrule State judgment and substitute Federal judgment breaks faith with the States who were given the right years ago to exclusive discretion with respect to small business coverage. What compelling motive is there at the present time that would justify this Federal dictation of coverage of small employers by all States? What motive other than an unfortunate predilection on the part of the Federal agency involved to make all things fit a neat and planned pattern. extension of coverage to employers of one or more persons today is justified, it was equally justified 20 years ago. Yet, the Federal Government conceded then that such an extension was beyond the scope of the act and the intent of those who devised the Federal-State unemployment compensation structure. If We respectfully submit that not only has a proper case not been made for extension of the Federal unemployment tax to these small-business men, but on the other hand, the States have proven themselves competent to legislate in this field. We urge, therefore, that the committee reject that part of the bill extending coverage to employers of one or more persons. STATEMENT ON UNEMPLOYMENT COMPENSATION PRESENTED BY ELIZABETH S. MAGEE, GENERAL SECRETARY, ON BEHALF OF THE NATIONAL CONSUMERS LEAGUE The National Consumers League and its State branches have had for many years an interest in all phases of social security legislation. We were officially represented on the Advisory Council to the Committee on Economic Security appointed by President Roosevelt in 1934. As early as 1925 we were advocating unemployment insurance; we worked for the passage of the Social Security Act; and we have supported all improvements which have been made during the intervening years. In 1931 our organization in Ohio sponsored the first unemployment insurance bill in the Ohio Legislature. In 1932 I was employed as secretary of the Ohio Commission on Unemployment Insurance appointed by Governor White pursuant to a legislative resolution. The commission made a thorough study of unemployment insurance and recommended the measure which eventually was enacted by the Ohio Legislature. More recently, I served for 2 years as a public member of the Federal Advisory Council of the Bureau of Unemployment Security of the United States Department of Labor. We are interested in the bills which have been referred to your committee making certain changes in the sections of the Social Security Act affecting unemployment insurance, namely H. R. 6537; 6539; 7054; 8857. We are especially interested in H. R. 9430, introduced by Representative Forand, a member of your committee. We are gratified that the President's Economic Report pointed out the urgent need for improving unemployment compensation laws, and that this urgency was underlined by the recommendation of the joint committee on the Economic Report. The report emphasizes the following needs: increasing maximum benefits, extending the duration of benefits, widening the coverage. The report does not refer to another issue which seems to us of great importance, namely, the severe disqualifications which have been incorporated in many State laws and which seriously hamper their usefulness. I should like to discuss each of these issues briefly. Maximum benefits should be increased Your committee has before you the data regarding the maximum benefits now in effect in the different States. It is important to realize that because of the failure to keep pace with wage levels and living standards, most laws are now less adequate than when they were first adopted. It is estimated that now only about a quarter of the wage loss of covered workers suffering from unemployment is met by unemployment compensation. Employer contributions have been reduced from the normal State tax rate of 2.7 percent of covered total tax payrolls to an average rate of less than 1.5 percent on a tax base restricted to the first $3,000 of wages. While employer contributions were thus being reduced by two-thirds, average weekly benefits have declined from 43 percent of average weekly wages in covered employment in 1938 to 33 percent of such wages in 1953, and the proportion of workers whose benefits were depressed by benefit ceilings rose from less than one-fourth to more than one-half of the compensated weeks of total employment during those 15 years. A number of States have reduced employer contributions below 1 percent of payroll, largely by maintaining very low benefit ceilings in terms of their average weekly earnings. The benefit provisions of State laws should be improved by raising benefit ceilings to a standard met by practically all States when their laws were first enacted in the 1930's, namely, at least two-thirds of average weekly wages. Duration of benefits should be extended The duration of benefits in the State laws is a "crazy quilt." As the President's report points out, less than half the States provide for a maximum duration of 26 weeks, and in only 4 States does this potential maximum apply to all those who have met the minimum qualifications for benefits. In a number of States, the potential period for receiving benefits is reduced to only 5 or 6 weeks by the operation of a ratio formula. We believe that the duration of benefits should be made uniform for at least 26 weeks for all eligible claimants. Coverage should be widened We support the proposal to widen the coverage of unemployment insurance laws by extending the application of the law to establishments of one or more. A number of States have already found it practical to cover establishments with fewer employees than the eight now provided in the Federal statute. We favor affording the protection of unemployment insurance to employees in the borderline industries in food processing. In addition, we see no reason for continued exemption of agricultural workers. In 1952 the Federal Advisory Council unanimously recommended to the Secretary of Labor that agricultural workers be covered. A beginning has been made in this area by covering part of the agricultural labor force in the old-age and survivors insurance system. We believe that as many agricultural workers should be included as is administratively feasible. Disqualification roadblocks should be removed Our State laws have deteriorated not only by reason of failure to provide an adequate benefit structure, but also because amendments have been added to the laws which set up roadblocks to the securing of benefits. The possibility of securing lower contribution rates through merit-rating systems has provided employers with the incentive for fighting claims, and has also been the moving force behind the application of harsher disqualification standards. In the original acts disqualifications for leaving work voluntarily or being discharged for misconduct at work were limited to a delay in receiving the benefit. The waiting period was extended by a period of 4 or 6 weeks. If unemployment continued after such a period, it was logical to assume that it was due to the inability of the worker to find employment, and therefore resumption of benefit payments was justified. In recent years laws have been amended to provide not only for the delay of benefits, but also for the entire cancellation of credits so that the unemploved worker can receive no benefits until he is reemploved and builds up new eligibility. These unjustifiable provisions help save the employer's taxes, but by the same token they defeat the purposes of the program. Congress should set standards We note that the Economic Report of the President 1ecommends widening of coverage by Federal act, but depends for improvement of the benefit structure on State action. During this year 14 legislatures have been in session. In spite of strong recommendations to all the governors by the administration, only two have made any improvements in their laws. Unemployment insurance is a Federal-State system. It is based on the Federal tax power. Congress has the right to set standards to be adhered to by the States in return for the tax-offset privilege. We believe that Congress can and should set standards for benefits, for duration, and for disqualifications. We therefore commend these provisions of the Forand bill (H. R. 9430). One of the original reasons for adopting a Federal-State system was the belief that if each State acted independently, the difference in the laws would create certain competitive disadvantages as between the industries of different States. Great discrepancies have developed during the 15 years that the plan has been in operation, which can be corrected only by the adoption of Federal standards. An even more important reason for action now is the need for making sure that in this period of high unemployment, the unemployment compensation system serves its twofold aim: to provide income maintenance for unemployed workers and to assist in stabilizing and supporting the economy. It is obvious that the present benefit scales are inadequate to maintain families of unemployed workers. It should be obvious also that the purposes of the unemployment compensation program in cushioning the shock of unemployment and in serving as a countercyclical device cannot be achieved unless benefits are increased substantially and made available to more workers. We urge favorable consideration of H. R. 9430. AMERICAN POULTRY AND HATCHERY FEDERATION, Hon. DANIEL REED, House of Representatives, Washington, D. C. DEAR MR. REED: Our organization with a paid up membership of over 4,500 poultry hatcherymen and breeders, producing about 75 to 80 percent of all the chicks and poults raised in this Nation, wishes to make the following statement with respect to H. R. 8857: The American Poultry and Hatchery Federation opposes that section of H. R. 8857 which would extend the Federal unemployment tax to hatcheries not located on or operated in conjunction with a farm. Historically, the hatching and sale of day-old domestic poultry and breeding stock has been adjudged to be an agricultural activity. The fact that the work is performed in one location or another does not alter its agricultural characteristic. The methods employed are identical, whether done in the city or in the country. The average hatchery operation is closely integrated with farm activity. Every hatchery obtains its hatching eggs from a farm. There are only a few instances where the hatcheryman does not have direct supervision over the health and improvement of such supply flocks, whether owned by him or not. The trend, however, is toward hatchery-owned flocks in the interests of maintaining quality. In the past, where efforts have been made to differentiate between farmoperated hatcheries and city-operated establishments, considerable confusion resulted in the administration. For example, no adequate definition has yet been written to identify a farm operation. This has caused our industry considerable difficulty. In the East, a poultry farm consisting of only a few acres qualifies in the area as a farm. In the Midwest, no matter how many chickens a man might raise on 3 or 4 acres, it is not likely that the Internal Revenue Service would look upon the project as a farm. Hatcheries operated on The present Social Security Act is a good example. or in conjunction with a poultry or other type of farm are considered to be "agricultural" in nature. All others are nonagricultural. The same services may be and in fact are performed, whether the hatchery is located on or off the farm. The average breeder-hatchery operation today is a closely integrated business. It is difficult to determine where the agricultural description leaves off and the nonagricultural category begins. The hatchery building and incubators, in many instances, are located within the city limits, convenient to a greater flow of traffic. The breeding farm, for obvious reasons, is outside the city limits where land is cheaper. Ordinances also are a factor. The average employee may spend several days a week, or several hours a day, on the farmland or in the hatchery. Where is the employer going to draw the line on the application of the Federal unemployment tax as applied in H. R. 8857? We further feel that it would be extremely unfair to impose the Federal unemployment tax on an industry which is so seasonal in character. Flock replacement hatcheries *** those firms producing chicks destined for laying flocks *** seldom hatch chicks for longer than 5 months of the year. In the case of turkey hatcheries, the season is shorter. Such seasonal industries would be called on to pay a heavy tax *** in fact*** that maximum tax, all of which must be passed along to the purchaser of chicks and poults. Here again the hatchery located within the city limits would find himself at a competitive disadvantage. The hatchery qualifying as a farm operation within the meaning of H. R. 8857 would have a distinct advantage over the hatchery which fails to qualify. We feel, therefore, that the industry is of such a nature that its continued exemption from the Federal unemployment act is warranted. Sincerely, DON M. TURNBULL, Executive Secretary. (Whereupon, at 11:55 a. m., the committee recessed, subject to call of the Chair.) |