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employment compensation policies which fit the Federal will, rather than leaving to the States the determination of coverage under their own laws.

It is interesting to note that the experience-rating provisions of H. R. 8857 recognize the importance of leaving to the States the determination of their unemployment-compensation policy. This is a permissive provision rather than a requirement that the States take a federally dictated action as is true in the case of extension of coverage to one or more, and in the changed definition of "agricultural labor."

We feel that the question of coverage of the various State unemployment-compensation laws should be left to the States and not imposed upon the States by the Federal Government for various


1. The citizens of our various States, rightly or wrongly, hold different philosophies and views regarding the purpose and desirable aspects of these unemployment-compensation laws and the extent to which coverage should exist. We believe that the local State legislative units, being closer to the actual community problems and the employment pattern of their States, are in a better position than the Federal Congress to determine the extent to which coverage should apply in the individual States.

There are a great many variations in the coverage aspects of the various State laws with respect to the number of employees that an employer must have before coverage attaches. This question of coverage has been left reasonably open for the States themselves to determine since the passage of the original Federal law in 1935.

Operating under the basic Federal law the various States have felt their own way through the problem and, presumably on the basis of considered judgment, the State legislators have arrived at their own ideas as to what coverage should be in their own States.

For example, although 23 jurisdictions require 8 or more employees, some jurisdictions specify 6, soma 4, some 3, 15 States 1, and i State 2; other jurisdictions do not specify any specific number of employees but do have a requirement as to a minimum, annual or quarterly payroll; in some, the number of required workers varies, depending upon a quarterly or yearly payroll. There are also variations in the period of employment required. In short, there are wide differences in the requirements for coverage under the State laws designed to meet the particular problems in the various States.

In Delaware, the proposed provisions of H. R. 8857, providing coverage for one or more individuals, is in effect, if there is employment for 28 weeks. However, we in Delaware do not feel that simply because conditions in our State make such a provision desirable, that this same provision should be imposed by Federal law upon other States where conditions may be entirely different. In Delaware we feel that we should be free to determine how our interests are best served in this regard and we respect the right of other States to make this determination for themselves.

State legislators are closer to local problems and are better able to evaluate even minor differences in factual situations that may exist in their State as against those that exist in other States. These legislators are also in a position to reflect more accurately and implement more promptly the will of the citizens of the State on the very personal 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:)

APPENDIX A 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
Kansas State Chamber of Commerce
Kentucky Chamber of Commerce
Maine State Chamber of Commerce
Massachusetts State Chamber of Commerce
Mississippi Economic Council
Missouri State Chamber of Commerce
New Jersey State Chamber of Commerce
Empire State Chamber of Commerce, Inc. (New York)
Ohio Chamber of Commerce
State of Oklahoma Chamber of Commerce
Pennsylvania State Chamber of Commerce
South Carolina State Chamber of Commerce
South Texas Chamber of Commerce
West Texas Chamber of Commerce
Virginia State Chamber of Commerce
West Virginia Chamber of Commerce
Wisconsin 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.



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 tax 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


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