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aspects of unemployment as carried forward in the unemployment compensation law.
2. The existing law, leaving to the States the determination of coverage, has been in effect for almost 20 years. We know of no pressing national need for change and, to my knowledge, there is no evidence to indicate that the States are incompetent to handle this matter as they have in the past through individual State action.
3. The administration, speaking through the President, has indicated on several occasions the importance of the Federal government divorcing itself from those activities which can be handled more properly or effectively by the States. In his budget message, delivered in January of this year, the President indicated certain fields within which there was to be a shift from Federal to State and local control, and concluded that part of his message with these words, “In those cases where Federal participation is necessary, the effort of this administration is to develop partnerships rather than an exclusive and often paternalistic position of the Federal Government.”
We suggest that the Federal-State partnership in this field will move forward more smoothly and be of greater benefit to all of the people if the Federal partner leaves greater, rather than less, freedom of action to the State partner.
We have an opportunity to utilize the 51 jurisdictions under this law as 51 separate workshops wherein we may experiment with different ideas. If the experiment is a success, others, if they choose, can obtain the benefit of the experiment. If it is a failure, only that workshop conducting the experiment suffers.
If we handle our unemployment compensation policies on a Federal basis, we lose completely the opportunity for 51 workshops. In their place we have 1, and if the experiment is a failure, all 51 jurisdictions suffer. We strongly urge, therefore, that any change that is made in the law be in the direction of giving to the States greater, rather than less, freedom of action in this field,
which is of great importance to all of the citizens of the United States.
As to section 2 of the bill—we view the change in the definition of "agricultural labor" in the same light as the proposed extension coverage-a mandatory requirement by the Federal Government rather than a determination by the State as to the extent of coverage under the State law. We, therefore, oppose this change.
Section 3 of the bill which authorizes the States to extend experience rating rates to new employers after they have had at least 1 year of coverage under the State law is a permissive provision and not a mandatory requirement imposed by the Federal Government on the States. This provision is, therefore, not objectionable as an invasion of State discretion, for the reasons that I have previously mentioned.
However, there would appear to be more involved than simply a widening of the zone of State discretion. May I initially point out than an overwhelming number of States have seen fit, in the framing of their unemployment compensation laws, to provide for longer qualifying periods than the 3-year minimum requirement in the existing Federal act. Practically all State laws require an initial qualifying period of from 4 to 5% years. They consider this as necessary to properly evaluate an employer's risk with unemployment.
The only sound basis for the Federal Government permitting a taxpayer under the Federal Act to take a credit against his Federal
tax for experience credits earned under State laws is that the tax credits given are a reasonable reflection of the employer's ability to stabilize his employment.
We seriously doubt that the proposal to substitute a 1-year minimum qualifying requirement constitutes a sufficient base for judging an employer's risk with unemployment. This is particularly true with respect to new-starting employers, in which group the business mortality rate is notoriously high.
The fourth item contained in the bill, relating to payment of the Federal unemployment tax, we view as a matter that is clearly within the scope of the Federal Government's field of authority, since it is a provision that relates solely to the administrative problem of collecting a Federal tax.
I should like to stress again the fact that my comments should not be taken as opposition to the relative merits of extended coverage or the change in the definition of agricultural labor. I do, however, urge upon you the importance of leaving to the several States the determination of the extent of coverage under their laws, and I stress strongly the importance of permitting the States to make rational determinations on the basis of their own individual conditions without hindrance either in the form of compulsions or inducements by the Federal Government.
The basic question is whether it is the proper role of the Federal Government to control through Federal legislation the content of State laws. If this role is accepted, then it makes little difference whether the control over State laws is through inducing action or coercing action.
Though the feeling of the mule may vary in the two situations, the result is the same whether he is induced to a certain location with a carrot, or coerced there with a club. To my mind and that of the organizations for whom I speak, the Federal Government discharged its function initially and completely through the enactment in 1935 of the Federal Unemployment Tax Act and related title III of the Social Security Act. These enactments put the program into operation--a broad, general framework of Federal-State relations was established, within which framework State legislative action should remain unhampered by Federal legislative action, whether such action be of an inducing or coercing nature.
I sincerely appreciate the courtesy of this opportunity to express these views, and trust that they will be of assistance to you in your consideration of the legislative proposal before you.
(Appendix A is as follows:)
The State chamber of commerce organizations for which Mr. Maddock is testifying include: Alabama State Chamber of Commerce Arkansas Economic Council-State Chamber of Commerce Colorado State Chamber of Commerce Connecticut Chamber of Commerce Delaware State Chamber of Commerce Florida State Chamber of Commerce Georgia State Chamber of Commerce Idaho State Chamber of Commerce Illinois State Chamber of Commerce
Indiana State Chamber of Commerce
The CHAIRMAN. Thank you very much, Mr. Maddock, and that also applies to Mr. McCurry, for the information which you have given to the committee. Are there any questions?
Mr. KEAN. Just one question. How does H. R. 8857 differ from this one-man proposition in Delaware?
Mr. MADDOCK. Primarily because of the fact that we require 20 weeks of employment. In other words, it is not as wide open as H. R. 8857 would make it.
The CHAIRMAN. We thank you very much, sir. Mr. MADDOCK. Thank you. The CHAIRMAN. The next witness is Mr. Blyth Emmons, director, Washington office, National Small Businessmen's Association.
STATEMENT OF BLYTH EMMONS, DIRECTOR, WASHINGTON
OFFICE, NATIONAL SMALL BUSINESSMEN'S ASSOCIATION Mr. Emmons. Good morning, Mr. Reed.
The CHAIRMAN. Good morning, sir. We are very glad to have you here. Will you give your name and the capacity in which you appear for the benefit of the record and then we will be glad to hear you?
Mr. EMMONS. Mr. Chairman and members of the Committee on Ways and Means, my name is K. B. Emmons. I am the director of the Washington office of the National Small Business Men's Association, which has its principal office at Evanston, Ill.
With your permission, I should like to present this statement of Mr. DeWitt Emery, president of the National Small Business Men's Association. It states one organization's reasons for opposing the enactment of H. R. 8857, which would subject employers with one or more employees to the taxes imposed by Subchapter C. Tax on employers of eight or more of the Internal Revenue Code, the short title of which is the “Federal Unemployment Tax Act.”'
For 15 years, because of the basic principle involved, the Ways and Means Committee has steadfastly withstood pressures for extending this tax as is again proposed by H. R. 8857. The current proposal has the same origins, and is supported by the same interests, using the same arguments and tactics, as heretofore. Accordingly we hope and believe that this committee will again stand firm, as it did in 1939 when the proposal was first advanced and as it has done ever since that time.
Four of you gentlemen on this committee, Mr. Reed, Mr. Cooper, Mr. Jenkins, and Mr. Dingell who were on the committee in 1935, doubtless remember the President's social security recommendations respecting the purposes and limits of the Federal tax. The philosophy at that time was that the basic purpose of the Federal unemployment tai was to remove the competitive barrier which would otherwise discourage States from establishing unemployment compensation systems.
As stated to this committee in 1935 by the then Secretary of Labor Perkins:
Levying the same tax whether or not there is an unemployment insurance law in the State is a very real equalization of competitive costs between employers in the various States.
The Secretary stated:
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.
Consistent with this approach the recommended Federal tax was to apply only to firms with relatively substantial payrolls. The bill contained a small employer exclusion, as obviously the very small employer plays no appreciable part in interstate competition. Thus coverage or noncoverage of small employers under the State systems was left to State determination.
The specific recommendation was to impose the Federal unemployment compensation tax on "Employers who have employed 4 or more employees for a reasonable period of time—any 13 weeks of the taxable year, for example" * The Congress adopted the general philosophy of excluding small employers, and limited the Federal tax to employers with 8 or more employees in 20 or more weeks.
The Social Security Board recommended 4 years later, at the hearings before this committee on the 1939 social-security amendments, that the Federal unemployment compensation tax be imposed on employers of one or more. It could not be argued that interstate competition prevented States from covering small employers if they wanted to do so. At that time, 24 States actually covered some employers with less than 8 employees and 10 of these covered employers of 1 or more employees. However, the new philosophy was that the coverage of small employers should not be left to State judgment but should be dictated federally.
The Congress refused to accept this new philosophy. It refused to impose the Federal unemployment compensation tax on small employers in 1939 and has likewise refused each time the issue has been subsequently raised.
Members of this committee are from 20 States. Actions by these States illustrate the fact that State decision as to small-employer coverage depends on the particular situation in the particular State. Of these 20 States, 5 have no small-employer exemption; 1 excludes employers with less than 3 employees; 5 exclude employers with less than 4 employees; 3 exclude employers with less than 6 employees; and 6 exclude employers with less than 8 employees.
Arguments as to the merits and demerits of exempting small employers, and as to the appropriate definition of small employer, have been made repeatedly at hearings by State legislatures. The State legislatures, as shown in the cases of the 20 States I have referred to, have reached varying conclusions after having heard these arguments as applied to the situation in the particular State. Also at various times some legislatures have changed from their original conclusions as to their small employer exclusions, as well as other matters, in reframing their State laws.
The basic difference between out present State systems and a Federal system is that under our present arrangement States can and do frame their benefit formulas, their qualifying requirements, their disqualification provisions, and their small employer and other coverage provisions to fit their particular situation. Each State properly determines for itself what provisions are appropriate to its people and its economy.
This committee is presently being asked to overrule State judgment, and substitute Federal judgment. The specific State matter here is small-employer coverage, but this is an entering wedge.
You are urged to require 16 of your 20 home States to scrap their small-employer exemptions. You are asked to report out a bill under which a majority in the Congress would force coverage of small employers by all States, even though the great bulk of them have decided that small employer exemptions are appropriate for the particular State. You and the Congress are asked to do now what you have resolutely refused to do since the proposal was first urged before this committee 15 years ago--to substitute Federal judgment for the State legislatures' judgment as to this item of State coverage.
The proposal can but be reviewed as part of a pattern. The complete pattern includes, besides this proposed coverage dictation to States from Washington, dictation as to qualifications, disqualifications, benefit standards, and financing, which add up in aggregate to the whole of unemployment compensation. It is part of a nibblingaway process-federalizing State unemployment compensation bit by bit so as to thus achieve ultimately the same end results as would be achieved by directly scrapping State systems and establishing a Federal system.
Like every proposal for further centralization of authority, this proposal is urged on the basis that the end justifies the means. You are asked to accept the conclusion that any small employer exemption in any State is bad, even though a small employer exemption was originally recommended and one was adopted, and even though legislatures of a great majority of States, for their particular State, have concluded that a small employer exemption is appropriate. You are asked to force on all States a coverage detail which has been adopted as appropriate to their situation by only a minority of States. It is not here appropriate to argue the merits or demerits of the
ring small employer exemptions found in various State laws. Such arguments are properly made before the State legislatures, who frame local programs to meet local conditions. The proposal here presents a different and a basic issue whether Congress or the respective States shall decide this State-coverage matter.
The CHAIRMAN. I think you have now consumed more than 10 minutes. If you would be willing to place the balance of it in the record to help out the other two witnesses I would appreciate it.
Mr. EMMONS. Certainly, sir.