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employers might move from one State to another to avoid a payroll tax?

I doubt it. In effect, the feature of interstate competition was removed the minute Congress passed H. R. 7260 in 1935. Interstate competition has not been a factor since that time.

The second point I wish to make is that the States are already seriously restricted in their administration of unemployment compensation laws by the limitations placed upon their administrative funds.

H. R. 5173, the Reed bill, which has been approved by your committee and passed by the House and is now before the Senate Finance Committee, would partially correct this situation by returning to the States part of the surplus collections from the Federal unemployment tax and by permitting State legislatures to appropriate some part of these funds for administrative expenses.

But I fear that if you would pass this bill, forcing every State to bring into its program the small employers who have only from 1 to 7 employees, the additional administrative burden upon some State agencies would be so heavy that the Congress would find itself compelled to make far greater administrative grants to the States—with the result that there would be little if any money left from the Federal employment tax for distribution to the States under the Reed bill. In fact it is doubtful that there would even be adequate funds to build up the Federal employment account out of which you have proposed that the Federal Government make advances to the States to protect the solvency of their unemployment compensation systems.

The Congress, in effect, forced the immediate extension of unemployment compensation systems to all States by the original act of 1935. It gave the States solvency protection through establishment of the George loan fund during and after World War II.

This committee has approved legislation—the Reed bill—which would make solvency protection permanent and would return the surplus Federal tax collections to the States where this money belongs. We feel that with the enactment of the Reed bill the Congress will have met its full responsibility in unemployment compensation, at least for the present.

The State legislatures are not ignorant of the unemploymentcompensation problem. They have had nearly 20 years of experience in dealing with it. They are far closer to the picture in their respective States than is the average Member of Congress or any Federal agency. I doubt that any session of any State legislature goes by in which the members of that State legislature do not have to make a study of some phase of unemployment compensation. They and the administrators of the various State laws are the experts on this subject.

Each of these legislatures is cognizant of the coverage problems of its own State--and these coverage problems vary widely. The administrator of the unemployment compensation law of an industrial State may have more employers located in one building than all of the employees in many rural communities.

It is unnecessary and unwise to force all of these States into a common mold.

In these remarks I have not referred to the equity involved in coverage of small employers and their employees. I believe there is a question of equity here. It may be unfair to tax an employer of 8 and not tax his neighbor who has only 7 employees. It may be unfair to provide unemployment compensation to the employee of a large employer and not to the employee of a smaller employer. I am not speaking of the question of extension of this program; I am objecting seriously to the proposal for further Federal dictation of State policies.

There are other provisions of H. R. 8857 to which the association I represent also objects—and for similar reasons.

There are substantial differences from State to State in the occupational coverage of the unemployment compensation laws. Some States have found it advisable to cover or to exempt certain types of agricultural processors, loggers, and others that might be called rural occupations. These decisions as to the coverage of State laws have been made by the State legislatures elected by the people of their respective States. So why should we question their decisions at the national level?

Our group is expressing no position as to what the various States. should do about bringing the agricultural processors referred to in this bill under the State unemployment compensation laws.

We do object again to legislation by Congress in what we conceive to be a field of State responsibility.

H. R. 8857 would permit the States to give reduced rates to new employers on the basis of 1 year's employment experience instead of the 3 years now required.

In a general way, we favor this relaxation of Federal requirements solely for the same reason that we have opposed the other provisions of H. R. 8857–because it is in the direction of giving the States more latitude in State legislation. If the Congress should enact this provision I have not the faintest idea whether any States would take advantage of it or not.

At the present time, because of the technicalities of State laws, as many as 4 or 5 years elapse before a new employer can become eligible for experience rating. The Federal law does not now require such a long period. Yet the States have not taken advantage of the latitude given by the present Federal act in order to shorten this period.

It has often been said that new employers suffer a competitive disadvantage because they have to pay a higher unemployment compensation tax than old employers do. This is because after a time old employers with a favorable employment experience are given the advantage of reduced rates.

However, we should not overlook the fact that every old employer in a State has once upon a time paid higher tax rates and has thus in effect previously contributed his share of the unemployment fund which is held in reserve for the benefit of the unemployed.

Actually in State laws using reserve percentage principle, the proposed amendment will only change the timing of an employer's tax payments. Over a relatively short period of years the amount paid by a new employer will amount to the same amount under the present plan as under the shortened plan proposed in the bill.

Furthermore, in comparing the new employers' tax rate with the old employers' tax rate we are dealing strictly with averages. There are many old employers in the United States still paying 2.7 percent of payrolls for unemployment compensation; there are many paying 3.6 percent and even 4 percent.

The States, exercising the discretion given them by Congress have adopted a side variety of taxing plans and some States have seen fit to levy taxes substantially higher than the Federal tax.

The purpose of the additional credit provision has been to carry out one of the primary purposes of the original unemployment compensation laws, which was expressed by the Senate Finance Committee in its report of May 13, 1935. At that time the committee added to the bill the provision under which States are permitted to establish experience-rating plans for the purpose of employment stabilization.

The CHAIRMAN. I am wondering if you would be willing to submit the rest of your paper for the record.

Mr. McČURRY. Yes.

The CHAIRMAN. I would like to get all the witnesses taken care of this morning.

Mr. McCURRY. Yes.

The CHAIRMAN. I appreciate it very much. I notice that the next gentleman who appears has a statement practically as long as yours. I want to be fair with all the witnesses, and we do have to leave here.

Mr. McCURRY. I understand.

The CHAIRMAN. Thank you so much. Without objection on the part of the committee we will submit the rest of the statement for the record.



The Senate Finance Committee said, "Under the bill, as we recommend that it be amended, the States will also have freedom of choice with regard to the type of unemployment-compensation law they wish to enact.'

Referring to provisions for experience rating the committee said, "As we deem it desirable to permit the States freedom of choice in this respect, we also believe that the Federal law should provide for recognition of credits allowed by the States to employers who have regularized their employment. In his message dealing with the subject of social security, the President urged that unemployment compensation should be set up under conditions which will tend toward the regularization of employment. All unemployment cannot be prevented by any employers, but many employers can do much more than they have done in the past to regularize employment. Everyone will agree that it is much better to prevent unemployment than to compensate it.”

This bill would also eliminate the employer's privilege of paying the Federal unemployment tax in quarterly installments. . Apparently this provision is inserted in the bill in recognition of the tremendous administrative cost that will be involved in extending coverage nationally to the tiniest employers.

Apparently the majority of employers pay on an annual basis at the present time. However, for the minority this change would presumably be an additional burden.

If the Congress should decide to leave the question of additional coverage to the States there would apparently be no need for this provision. For these reasons we are opposed to it.



We have no position to express on the basic purpose involved in these billsextension of unemployment benefits for Federal employees when they lose their jobs.

We do feel strongly that if this step is to be taken by the Federal Government then these employees should be covered under the respective State laws as provided in the Forand and Mason bills (H. R. 6537 and H. R. 6539). All industrial employees are covered under State laws. We believe that if Government employees are to be covered, then exactly the same benefits and the same provisions in every other respect should apply to them as to people who have worked in private industry or commerce. Every man who receives unemployment benefits should receive the same benefits his neighbor receives under the same circumstances.

We are opposed to bringing Federal employees under the District of Columbia law as provided in H. R. 7054.

This bill would provide a separate system of benefits throughout the United States for people who happen to have had their employment experience with the Federal Government. Such a system of benefits would not necessarily be better than that provided by State law-would not necessarily be worse than that provided by State law-but would be different.

We can see no logical reason for applying two systems of benefits in the same State. On the other hand, application of two systems in the same State seems to us an administratively difficult and costly way to produce a grossly inequitable and unfair system of unemployment compensation.


In 1942 it was claimed that by converting to war the Federal Government would create unemployment—that unemployment created by Federal action was a responsibility of the Federal Treasury—that therefore the Federal Government should pay supplementary unemployment benefits. This resulted in the war displacement benefit controversy of that year.

Since 1942 similar proposals have been made time after time. These proposals are based apparently on two primary assumptions:

First, that the Federal Government should assume responsibility in any case in which Federal activities may be responsible for production shifts which result in unemployment.

Second, that employees who lose their jobs because of Federal activities should, for some reason, be given more unemployment compensation than those who lose their jobs for other reasons.

We disagree with both of these premises. Unemployment is caused by a very wide variety of circumstances, including activities of Federal, State, and local governments, including changes in economic conditions, including bad judgment on the part of an employer, including fires and catastrophes, and including thousands of other causes. One of the earliest and most basic principles stressed by the original advocates of our present unemployment-compensation systems was that since unemployment varies from plant to plant and from industry to industry, the cost of unemployment compensation should be allocated on the basis of relative regularity or i-egularity of employment, with the industries where unemployment is frequent and heavy bearing somewhat more of the cost than where employment is regular—and with an opportunity given to each employer to reduce his own unemployment compensation tax cost by achieving the greatest possible stabilization of employment in his own business. This principle led to the establishment of experience-rating plans in unemployment compensation.

These plans do allocate the costs between industries to some extent on the basis of the relative level of unemployment in these industries. The Federal Government, as a consumer of industry, has shared a large part of the cost of unemployment benefits that have been paid through the years—just as other customers of industry have shared these costs.

Furthermore, the need of an employee who happens to be out of work is in no sense related to the question Who or what caused his unemployment? If the Federal Government by some action-some law-some Executive order-some procurement provision--should cause a plant to close down and cause its employees to lose their jobs, these employees on the average would face exactly the same problems as their neighbors who might be out of work because lightning had struck a plant. Needs in these cases are not usually related to the reason for a layoff.

The bill before your committee is no different in principle from the large number of bills that have been proposed over the years.

There is no more reason why the committee should report this bill than any of the others. The responsibility for unemployment benefits belongs to the States. They are able to meet this responsibility. We are opposed to any Federal system of unemployment compensation.

The CHAIRMAN. Are there any questions? The Chair hears none. We thank you very much.

Mr. McČURRY. Thank you, sir, very much.

The CHAIRMAN. The next witness is Mr. Charles S. Maddock, assistant director, legal department, Hercules Powder Co., Inc., Wilmington, Del., representing the Council of State Chambers of Commerce. We will be very glad to hear your statement, Mr. Maddock

Mr. Mason. Could not these witnesses give a 5-minute summary of their testimony and then have the rest placed in the record ?

The CHAIRMAN. They could, but I do not want them to feel that I am trying to foreclose them. I know we have such a terrific legislative load before us.


Mr. MADDOCK. I have timed my remarks and they come slightly under 10 minutes, if that is satisfactory with the chairman.

The CHAIRMAN. You go right ahead.

Mr. MADDOCK. Mr. Chairman and members of the committee, my name is Charles S. Maddock. I am an attorney and my home is in Newark, Del. I am a member of the social security committee of the Council of State Chambers of Commerce. The principles expressed in this statement have been endorsed by the State chambers of commerce of 27 States. A list of the State chambers that have authorized this statement in their behalf is attached as appendix A.

My remarks are concerned with H. R. 8857, which contains four basic proposals:

1. To extend coverage under the Federal Unemployment Tax Act to any employer who at any time pays wages for employment with respect to one or more individuals;

2. To permit any State to extend experience-rating rates to new employers if they have had at least 1 year of coverage under the State law;

3. To amend_the definition “agricultural labor” in the Federal Unemployment Tax Act so that it is the same definition as is contained in the Federal Insurance Contributions Act;

4. To eliminate the privilege of paying the Federal unemployment tax in quarterly installments.

The organizations for whom I speak are opposed to the provisions of the bill which reflect items 1 and 3, because they represent an effort on the part of the Federal Government to impose upon the States a Federal philosophy of unemployment compensation in an area which should be left to the States. I should like to make it clear that my comments are not directed to an opposition to the principles embodied in these points. We are, however, opposed to the accomplishment of these objectives through Federal action rather than leaving to the individual 'State legislatures the determination of whether or not either, or both, of these provisions, or any other similar provision, is suitable for the individual State law under the peculiar conditions existing in the several States.

Our opposition, therefore, is not to the substance of the proposed changes, but rather to the philosophy which permits the Federal Government either to coerce or induce the various States to adopt un

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