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C. It is in accord with the exemption employers and employees covered by the Carriers Taxing Act and the Railroad Retirement Act from the coverage of titles 2 and of the Social Security Act.

D. It is in accord with the intentions of the legislatures which enacted the State unemployment compensation laws because practically every such law provides for the exemption from coverage of workers subject to an unemployment compensation law enacted by Congress, and authorizes and directs the administrator to cooperate with any Federal agency administering such a Federal unemployment compensation law.

Our association and the membership of our several organizations is therefore completely at a loss to know how and why this bill can be said to be, "Not in accord with the program of the President." We are inclined to suspect that this language could be translated to mean, "Not in accord with the opinion of some unknown student of social security in the Bureau of the Budget."

Our association therefore respectfully asks this congressional committee whether we should adjourn the present hearings and petition for a hearing before the Bureau of the Budget.

The main body of this letter, as indicated above, consists of certain criticisms of the bill which can be summarized and answered as follows: 1. “Possible serious consequences from a fiscal standpoint and otherwise

* of removing the better risks from our system of social insurance or of making provision for greater benefits than present enacted revenue provisions will sustain."

The Treasury wisely admits that it is not within its competence really to discuss this policy:

It must be admitted that the railroad industry is a slightly better than average unemployment insurance "risk.” It is for this reason that we can propose slightly more liberal benefits to railroad workers at substantially less cost to the railroad employers, but there can be no fiscal consequences and no "serious effect upon the financial stability of the various State funds” except in those States which have a. completely pooled fund without merit rating. Since every State unemployment compensation law, with two exceptions, either now provides or has under contemplation a system of merit rating by which the contribution rates of the better risks will be reduced according to some measure of their employment experience, this argument of the Treasury's is completely fallacious.

The Treasury provides no evidence to support the contention that the bill makes "provision for greater benefits than presently enacted revenue provisions will sustain."

2. The Treasury is worried about the constitutional question involved in the transfer proposals and the adverse action of States to the correction of methods proposed.

Again the Treasury admits that it is the Social Security Board and not the Treasury which competent to comment upon this policy. We submit further that it is probably within the jurisdiction of the Department of Justice rather than the Treasury to worry about constitutional issues, especially when the Treasury has presented no evidence that there is any constitutional issue involved. These proposals are exactly no more and no less constitutional than the provisions of title 3 of the Social Security Act, which the Treasury may remember the Supreme Court has already passed on. 3. The Treasury “is opposed to the collection of taxes (or contributions)

by any other agency than the Treasury Department,” and fears “unnecessary duplication of facilities and functions."

Apparently it has not come to the attention of the Treasury that there already exists unnecessary duplication of facilities and functions under the present Federal-State unemployment compensation program. In my yesterday's testimony reference was made to a few of these State administrators who have already vigorously criticized the present duplication.

We know further from our own experience with the Carriers Taxing Act and the Railroad Retirement Act that there is irritating and expensive duplication of functions between the Treasury and the Railroad Retirement Board, the nature of which we shall be glad to elaborate if time permits.

The Treasury does not call attention to the fact that its sole function under the Carriers Taxing Act and Railroad Retirement Acts is to deposit the monies and write the benefit and annuity checks. Everything else of any consequence is performed by the Railroad Retirement Board or the Interstate Commerce Commission.

The Treasury has not seen fit to point out that it has not been required to use its far-flung facilities for tax collection in the effort to collect the carriers' taxes



from the few large and responsible taxpayers involved. They are undoubtedly necessary for the discovery of and the collection of taxes from, corner groceries and fly-by-night employers. They are probably of little assistance in the discovery of interstate railroads, most of which are reasonably well known.

4. “The Treasury is also opposed to the proposal that a special fund be established for meeting costs of administration. There is no apparent reason why 10 percent of the amounts collected under the bill should not be covered into the general fund of the Treasury, as are the similar receipts now collected under title 9 of the Social Security Act.”

The reason is perfectly apparent, although public protest against the alleged misuse of Social Security taxes may not have come to the attention of the Treasury. The reason is two-fold. First, Social Security taxes should be used solely for Social Security purposes, We are opposed to the present situation under which the Treasury collects about $70,000,000 or $80,000,000 a year under title 9, while there is appropriated only $40,000,000 a year for the administration of State unemployment compensation laws. Second, all the available evidence indicates that the costs of administering unemployment insurance vary from year to year in accordance with the volume of employment and unemployment, from about 8 percent to 13 or 14 percent of contributions. We have no confidence that the Treasury or the Bureau of the Budget can predict the volume of unemployment 13 months in advance. We know that the Social Security Board in December could not predict the volume of claims to be expected on January 1, 1938, and that neither the Social Security Board nor the Bureau of the Budget was particularly successful in estimating the costs of administering unemployment compensation in the States even for the first quarter of 1938. The 23 States which began to pay benefits on January 1, 1938, were allotted by the Social Security Board (not counting Wagenot-Peiser and State and local funds) $11,559,900 (Social Security Bulletin, April 1938). If this rate of expenditure were continued for the year, it would amount to between 12 and 13 percent of the estimated collections in these States. If the cost of administering unemployment compensation in 1939 should continue at the same level, it would amount to about $90,000,000 per year, which is more than twice as much as the amount recently appropriated in the Independent Offices Appropriation bill for this purpose.

Attention is called to the necessity of passing House Joint Resolution 676 presented to the President the day before yesterday because the Bureau of the Budget and the Social Security Board and other associated agencies had underestimated the cost of administering unemployment compensation during the first half of this current year; and to the fact that on May 12 the New York Times quoted Commissioner Andrews of New York State as saying that their funds for the administration of their unemployment administration program would be exhausted by May 15. Attention is also called to the memorandum of March 28 sent to all State unemployment insurance administrators by R. Gordon Wagenet, Director of the Bureau of Unemployment Compensation of the Social Security Board, saying that the Board would ask the Treasury to pay only 50 percent of the approved budgets for the quarter ending June 30, 1938, pending passage of a deficiency bill (New York Times, April 4).

The volume of business in most Governmental agencies is reasonably constant and can be predicted with reasonably accuracy. Under the Railroad Retirement Act, for example, it is possible to estimate in advance the number of workers who will attain the age of 65 years and within reasonable limits those who will become permanently disabled in any given year, and to estimate the cost of handling their claims, although, of course, even in the case of retirement insurance an exact knowledge of the age distribution does not make possible a precise estimate of the numbers who will retire within any 12-month period.

It is impossible to make any such estimates of the volume of claims under any plan of unemployment insurance or relief. There is no possible basis on which to estimate a budget for unemployment insurance 18 months in advance of the period for which it is to provide. Even the estimates made by the Social Security Board and the several States in December 1937 of the volume of unemployment compensation claims in the first quarter of 1933 proved to be far too low. Furthermore, the expenses of administering unemployment compensation will be heaviest during periods of business recessions and at the very times when the Government as well as industry is pressed with demands for economy. It would be unrealistic to expect any agency, despite the needs of its program, to escape the general pressure for decreased expenses. The unemployment insurance program might then be hamstrung during the very period for which its protection was devised. Because of the pressing need of the unemployed, delayed unemployment insurance benefits, resulting from even temporarily inadequate administrative appropriations, 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.

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, criticisin 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.


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 í 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.



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.



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

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

this year.

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