restricted coverage has reduced the contribution which the unemployment compensation program can make toward economic stability. By extending the scope of the Federal tax and making it feasible for all the States to enlarge the application of their unemployment compensation programs, H. R. 8857 would make a valuable contribution toward maintaining purchasing power and a high level of employment.

The Treasury Department is charged with the collection of the Federal unemployment tax, and in the Department's view extension of the tax would not involve any serious administrative difficulties. Initially, it would add to the workload of the Internal Revenue Service, but all the employers who would be brought within the scope of the unemployment tax are already subject to tax for purposes of old-age and survivors insurance, and there may be opportunities for combined reporting that would provide some offset.

It should be noted that enactment of H. R. 8857 would not involve the immediate imposition of a 3-percent Federal tax on all firms having less than 8 employees. Expanded coverage would not take effect until 1956, thus giving time to those States which require new legislation to expand coverage to enact it prior to the imposition of the Federal tax. Full credit against the Federal tax would then be available for the taxes paid under State laws.

Another factor mitigating the impact of the bill is that a number of State laws now cover some firms not subject to the Federal tax. Of the 51 State jurisdictions, somewhat more than half have expanded their unemployment compensation programs beyond the bounds set in the Federal law.

At

Another provision designed to minimize the tax impact of the bill upon small employers relaxes the present requirements concerning experience rating. present an approved State law must require an employer to have a minimum of 3 years of experience before qualifying for reduced tax rates under experience rating. Under the bill, however, new employers could be made eligible for experience rating after 1 year, so that they would not remain at a disadvantage compared with long-established firms.

H. R. 8857 eliminates the authority now in the law for the payment of the Federal unemployment tax in 4 quarterly installments. At present approximately 600,000 Federal unemployment tax returns are filed annually, and about 85 percent of the returns are accompanied by full payment of the tax due. In approximately 15 percent of the cases, the tax is paid in 4 quarterly installments. With the expansion of coverage contemplated by H. R. 8857, approximately 31⁄2 million returns annually may be anticipated. If 15 percent of the returns continue to be paid on an installment basis, the volume of installment returns would be increased from 90,000 to over 500,000. This would involve an added cost of over $400,000 beyond that which would be incurred if there were no installment payments. The Federal tax payable by the newly covered employers is likely to be small, since the net Federal tax rate is three-tenths of 1 percent, and the total taxable wage base in most instances will be small. This provision would not affect the quarterly tax payments under State laws, and we urge your committee to eliminate installment payments as provided for in the bill.

There are three bills which deal with the extension of unemployment compensation to Federal civilian employees. H. R. 6539 and 6537 are identical and provide for the payment of benefits to unemployed workers in accordance with the laws of the States in which they are stationed. Federal employment would be considered for unemployment compensation purposes as if it were employment in private industry. H. R. 7054 differs from these two bills, principally by providing that unemployment compensation be paid to Federal employees in accordance with the law applicable in the District of Columbia.

The Department strongly recommends that your committee extend the nationwide system of unemployment compensation to Federal civilian employees as a matter of equity to the employees and because of the contribution it would make to economic stability. However, to achieve this purpose we believe H. R. 6539 is to be preferred over H. R. 7054. The latter bill would superimpose a uniform Federal structure of unemployment compensation benefits upon the present separate State systems. The values of the present State structure are widely accepted and it would be undesirable to depart from it by requiring each State to administer a new Federal system of unemployment compensation in addition to its own system.

The remaining bill, H. R. 8585, is intended to encourage liberalization of unemployment compensation payments by providing that Federal grants be made out of customs revenues to those States where unemployment in a given industry is found by the United States Tariff Commission to be attributable to

Federal trade or tariff policies. The amount of the grant would be equal to the excess of unemployment compensation payments made by a State, within specified limits, over the amounts that would otherwise be paid out under its laws.

The Department does not favor the singling out of one cause of the displacement of workers as the basis for special treatment. In many cases it is impossible to isolate any single factor as the cause of unemployment. În a dynamic economy employment opportunities are affected by many factors, often operating simultaneously, including shifting consumer preferences, technological changes, population shifts, the availability of raw materials, general business conditions, and many other matters in addition to trade and tariff policy. The general programs that are now in operation—unemployment compensation, rehabilitation and training, and job placement-should be relied upon to cushion the movement of workers from one job to another, irrespective of the alleged cause of unemployment. It may be noted in this connection that your committee and the House of Representatives have approved H. R. 5173 providing for a loan fund that would alleviate any financial problems confronting a State with a relatively high volume of unemployment irrespective of its origin. Accordingly the Department recommends against enactment of H. R. 8585.

The Director, Bureau of the Budget, has advised the Treasury Department that there is no objection to the presentation of this report.

Very truly yours,

M. B. FOLSOM, Acting Secretary of the Treasury.

The CHAIRMAN. The first witness this morning will be Hon. Arthur A. Larson, Under Secretary of Labor.

Mr. FORAND. Mr. Chairman.

The CHAIRMAN. Mr. Forand.

Mr. FORAND. May I at this time request that you allow, as you state in your letter here, witnesses to testify on the bill which I and 81 other members of the House introduced? I realize that it was introduced only last Thursday, but, as you say in your letter, I think that would prove satisfactory to all who care to speak on the subject because the third of your letter says—

It would therefore seem that it would not be proper to formally include H. R. 9430 for consideration during these hearings.

And I agree with that statement.

However, you may be assured that any person desiring to direct his testimony to your bill will receive the careful attention of this committee.

The CHAIRMAN. That is correct.

Mr. FORAND. And my hope is that they will comment on the bill as they go along.

The CHAIRMAN. I mean just what I said, sir.

Mr. FORAND. I thought you did, but I wanted it for the record. You always say what you mean and mean what you say. Thank you. The CHAIRMAN. For the record, Mr. Secretary, please give your name and the capacity in which you appear.

STATEMENT OF HON. ARTHUR LARSON, UNDER SECRETARY OF LABOR, ACCOMPANIED BY MERRILL G. MURRAY, ASSISTANT TO THE DIRECTOR, BUREAU OF EMPLOYMENT SECURITY; PHILIP BOOTH, CHIEF, DIVISION OF PROGRAM POLICY AND LEGISLATION, UNEMPLOYMENT INSURANCE SERVICE, BUREAU OF EMPLOYMENT SECURITY, AND GEORGE F. ROHRLICH, CHIEF, DIVISION OF ACTUARIAL AND FINANCIAL SERVICES, BUREAU OF EMPLOYMENT SECURITY, DEPARTMENT OF LABOR

Mr. LARSON. I am Arthur Larson, the Under Secretary of Labor. I might say, Mr. Chairman and members of the committee, that on your program you have listed three other members of the Department of Labor as testifying here. I think I will try to tell the whole story myself if I can, so it will not be necessary to call the other three.

I want to thank you very much for giving me this opportunity to come here this morning and talk on these bills with respect to unemployment compensation.

First, I will have my associates identify themselves.

Mr. MURRAY. I am Merrill G. Murray, Assistant to the Director, Bureau of Employment Security.

Mr. BOOTH. I am Philip Booth, Chief of the Division of Program Policy and Legislation within the Bureau of Employment Security. Mr. ROHRLICH. I am George Rohrlich, Chief of the Division of Actuarial and Financial Services, also in that Bureau,

The CHAIRMAN. All right, Mr. Larson, you may proceed.

Mr. LARSON. All of these bills except the one, H.R. 8585, as you know, deal in one way or another with 4 recommendations of the President, submitted to Congress in his Economic Report of January 28, 1954, with regard to Federal legislation on unemployment insurance.

These four things are: First, extension of the Federal unemployment tax to employers of one or more employees; second, extension of the tax act to certain services for employers in the processing of agricultural products; third, provisions to enable employers to get the benefit of experience rating after a minimum of 1 year instead of 3 years, as now; and, finally, extension of unemployment insurance to Federal civilian workers.

I would like to start with H. R. 8857, which was introduced recently by the chairman of this committee. The administration strongly endorses all the provisions of this bill. They carry out in full the first three recommendations of the President which I have just mentioned. By far the most important part of this bill, of course, is section 1 which extends coverage to employers of 1 or more employees, instead of 8 or more for 20 weeks as now.

The administration very strongly urges extension of coverage as provided in this amendment. After all, the exclusion of any firms that do not employ 8 or more for 20 weeks simply means that the employees of these firms just do not get the benefits of unemployment insurance unless it happens that the particular State voluntarily has reduced the minimum number of employees to something below that.

A number of States have done that and you can see at the bottom of page 2 of this printed statement the extent to which each of these

States has extended its requirements for compulsory coverage below the 8 or more for 20 weeks standard.

There are still 22 States that have stayed with the minimum Federal coverage of 8 or more workers for 20 weeks. Then we have 6 or more in 2 States, Wisconsin and Illinois. We have 4 or more coverage in 8 States, including New York, New Jersey, Rhode Island, Connecticut, Louisiana, Kentucky, New Hampshire, and Oregon, I believe; 3 or more in Ohio and Arizona, and that leaves 17 that have on their own motion reduced the standard of coverage to 1 or more employees.

That includes such important States as Pennsylvania, Arkansas, California, Massachusetts, Washington, and about a dozen others. In all fairness, I should mention that among these 17 States, six of them cover employees of 1 or more at any time as the present bill proposes. These include again Pennsylvania and Washington, and some others.

Six of the seventeen do so only if the payroll is of a certain size during the year and five of them do so only if a certain specified number of weeks is worked by these employees.

As the President pointed out in his Economic Report, it is estimated that these limitations on coverage that are now in the Federal and State acts mean that there are about 3.4 million workers in this country that simply are not getting the benefits of unemployment insurance, and so the President in his Budget Message and Economic Report did urge prompt extension of unemployment insurance to these uncovered groups.

Gentlemen, at the outset I think probably I ought to stress that the issue in this set of proposals is really very simple indeed, and although we probably will have to go into some statistics, and figures, and costs, and so on, I hope it will be possible to keep in mind all along that the real issue is just this: Is the tragedy of unemployment any less severe for a man just because he happens to be an employee of a small firm instead of the employee of a large firm with thousands of workers?

If unemployment insurance is really a good thing for two-thirds of the workers of this country, is it not just that much better a thing for as many more as you can possibly cover administratively?

If it is a good thing for preserving purchasing power and preventing the downward spiral that goes with layoffs, will it not be just that much more effective in the carrying out of this economic purpose you enlarge the coverage to the greatest extent that is administratively feasible?

if

I think everybody would agree with that and I think everybody would agree that the only conceivable reason the employees of these small firms were not covered from the beginning was the question, at the time when the whole system was untried, whether it was administratively practical to cover these people. Nobody questioned it would be a good thing if it could be done.

For example, the Advisory Council to the President's Committee on Economic Security way back in 1934, which was the group that laid the groundwork for this legislation, actually made the following comment in dealing with the question of how many employees should be required for compulsory coverage:

A broader coverage than that suggested is deemed desirable by the Advisory Council, but practical considerations lead us to recommend that it be limited as

above outlined in inaugurating the system. We recommend, however, that the Federal administrative authority study the problem of extending the coverage of the employees of less than 6 employees.

They happened to be recommending six or more at the time. They also go on to say:

We recommend also that it work out plans for unemployment compensation to the employees of the Federal Government.

So, you see, it was contemplated from the start by the very people who worked this all out that you had to start with a figure like this in order to get this untried system going, but that you should start right in from that point 20 years ago and work toward this sort of thing that we are bringing up here this morning, a much more universal coverage. This figure of eight or more, as you gentlemen know better than I do-many of you have been with this much longer than I have-was a kind of compromise. There was not anything terribly scientific about it at the time. I think, as I recall, the Senate had the figure of 4, and the House had a figure of 10, and somehow it was split and it came out 8.

Mr. COOPER. Would you mind repeating that statement?

Mr. LARSON. In the original legislation the Advisory Council, I believe, recommended 6 or more, the House had a bill, I believe, with 10 or more in it, and the Senate had something like 4 or more in it, so it came out 8.

Mr. COOPER. I was on the committee at the time and am somewhat familiar with the situation.

Mr. LARSON. Yes, I know. I think I have it right, have I not? Mr. COOPER. That is my recollection, substantially so.

Mr. LARSON All the benefits of unemployment insurance, if we can possibly administratively extend them to this broader group of people, will be just that much more effective.

I think perhaps I should point out that the well-known benefit in preventing this vicious spiral that we hear so much about when you lay people off and then they lose their purchasing power and less goods are produced and more people are laid off, the check on that by unemployment insurance will now be extended to many more localities. For example, many small communities where small firms predominate will now begin to get the economic benefit of this sort of thing where they never did before.

I think now we might turn to some of the various objections that have been raised to the coverage of one or more employees. These are fairly familiar. I am sure you know them all very well, but I would like to take them 1 by 1 because the administration has gone over these very carefully and has reached the conclusion that none of these objections are valid or supportable.

Probably the one that is heard the most frequently is, "Whatever you may say and whatever the merits of all this might be, is not this, after all, something for the States to do? Should we not continue to leave this job up to the States and let them decide how many people should be compulsorily covered?

I have just read you this quotation from the Advisory Council that worked on the original legislation and it seems to me to be perfectly clear from that statement that it was always contemplated that this particular question of how many employees you had to have before