Mr. WEBER. Yes, I gave it to the best of my recollection. On checking, it develops that by December 31, 1969, expenditures under the contract amounted to $198,491.

Senator BYRD. So, there is still $320,000 remaining not yet expended and then I understood a project officer has been assigned virtually full time to monitor the program. Then you have a project officer, whatever his salary might be, say $18,000 or $20,000, to monitor a program which amounts to expenditures up to this point amount to-$134,000. It seems to me that if you have to spend that much monitoring the program, it might be well to cut the program out. May I ask this, What are the objectives of this contract that we have? What is the purpose of this contract?

Secretary SHULTZ. Could I comment first on this point of monitoring programs. We think it is very important to monitor programs. That does not mean you have to have somebody assigned full time to everything, but that you try to keep track of what is going on, and to give people the feeling as well as the reality that you have a management system of some kind and that you let a contract for a purpose and you intend to follow through and see that you achieve that purpose. So, we think that this function of auditing and monitoring and following up is something important to do. I must say every time we turn in a new direction it seems to create a crisis. People think it is all wrong and what not, but we think it is right and we should continue to do it. To some extent, if you get people into a frame of mind, you will not have to do as much monitoring because they will be monitoring themselves. So, we think this is an important function to perform.

I would like to ask Mr. Weber to respond to your question about the details of objectives into which this contract is to fit.

Mr. WEBER. Senator, as was indicated earlier, the contract was negotiated by our predecessors. My understanding of the situation in which it arose and its objectives is as follows. Passage of the WIN legislation amendments to social security was associated with some controversy, particularly with respect to what you might call the organized welfare community; that is, groups of welfare recipients and in many instances welfare workers. Apparently, it was felt to be desirable to provide this grant to a group which could communicate with the welfare recipients who would be subject to the provisions of the WIN

program.

Senator BYRD. Sort of public relations outfit.

Mr. WEBER. No, sir. No, sir. Well, to some extent-everything has a little public relations to it. The form of the communication would be to explain the opportunities open under the program with respect to training, with respect to child care, with respect to basic education. To that extent that had a very positive direction.

Second, under the regulations associated with the law, to explain to the people their rights under the program; that is, their right to adequate child care, their right to use an appeals procedure. These are all spelled out in the administrative regulations.

And third, to provide a de facto grievance procedure. That is, if somebody had a grievance and felt he was denied benefits or was not getting the proper training, this organization would provide a channel by which these grievances could be brought to light and subject

to constructive treatment. As I indicated earlier, we have been watching this very closely and watching it build up on a city by city basis. There have been incidents, for example, where some of the people associated with the contract have, in our estimation, made statements that they should not have made.

Senator BYRD. When does the contract expire?

Mr. WEBER. It is a 3-year contract. But by and large, on the other hand, I have to report to you that our regional manpower administrators have said that in many instances this contract has provided a useful input in helping overcome local resistance to the program. And, of course, we are going to closely monitor it.

Senator BYRD. Thank you very much, Mr. Weber and Mr. Secretary. Thank you, Mr. Chairman.

Senator McCARTHY. Senator Fannin.

Senator FANNIN. I apologize for not being here earlier. I did have a conflict. I would like to talk to the Secretary for a few minutes. I do not want to be repetitious and I do not know what happened. So, if you do have a few minutes I would like to meet with you in the back of this room later.

Senator MCCARTHY. Thank you very much, Mr. Secretary.
Secretary SHULTZ. Thank you, Mr. Chairman.

Senator MCCARTHY. Mr. Murray Weidenbaum. Mr. Weidenbaum, if you do not object, could you have your statement included in the record and just tell us about the particular tax consequences of it?

STATEMENT OF HON. MURRAY L. WEIDENBAUM, ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY

Mr. WEIDENBAUM. Fine. I would like to summarize my statement very briefly, Mr. Chairman. By and large, the Treasury Department is pleased to testify in favor of H.R. 14705 but urges that some important changes be made in it from the House version.

Specifically, we favor a national trigger with full Federal financing of the extended benefits program, although we would accept the House bill with its State and national triggers and Federal and State sharing

of costs.

And as Secretary Shultz has stated, should the Finance Committee go along with the House bill, we urge the temporary rate increase in lieu of a permanent increase for the interim period, 1970 and 1971. We strongly endorse increasing the taxable wage base by stages to the ultimate of $6,000 in 1975 along the lines of Secretary Shultz' testimony.

As for farm coverage recommended by Secretary Shultz and which was in the original recommendation of the administration but not in the House bill, I wish to report that from the viewpoint of tax administration, including at least the larger farm employers, would not provide any problems of tax collection for the Treasury, By and large we are collecting from these and actually smaller farm employers in the social security program under the Federal Insurance Contribution Act.

As I say, with these and other recommended amendments, the Treausry Department would be pleased to endorse the bill. Senator MCCARTHY. Senator Williams?

Senator WILLIAMS. Just one question. These funds, this tax is paid in its entirety by the employers.

Mr. WEIDENBAUM. Yes, sir.

Senator WILLIAMS. Now, it is paid and collected by the Federal Government but it is deposited or accepted somewhat to the credit of the respective States, that is right.

Mr. WEIDENBAUM. The Internal Revenue Service collects Federal tax which is available for administration and repayable advances to States. This is put into the Unemployment Trust Funds. This tax we recommend now be used also to finance the extended benefit program. The States themselves collect the larger portion from employers and that also funnels into the Unemployment Trust Fund as States' deposits. The Treasury in turn makes disbursements to the States as the funds are needed. Meanwhile, the funds are invested in earning Treasury securities.

Senator WILLIAMS. In other words, it is recognized that the funds in effect belong to the States and the Treasury Department for the Government acts merely as the trustee.

Mr. WEIDENBAUM. Yes, sir.

Senator WILLIAMS. Now, since this money does not belong to the Government, just how and by what line of reasoning do we take the accumulation in that trust fund and use it to offset our deficits when we report it to the taxpayer since we cannot use it for any purpose except to go back to the States?

Mr. WEIDENBAUM. Let me assure you, Senator, that the State deposits to the Unemployment Trust Fund are used for no other purpose than to be paid to the States for benefit payments. The unused balances at any point are invested in earning Treasury securities. Now, when we under the unified budget, which I believe is the point you are raising, when we report the results under the unified budget, we show the total of outlays from all of the funds held by the Federal Government, both the so-called Federal funds, or those under the old administrative budget, as well as all of the trust funds, whether these are veterans, life insurance, social security, or unemployment trust funds. And under revenues we show the total of all receipts coming into the Federal Government, whether these go to trust funds or other funds. This procedure came from the recommendations of the Presidential Commission on Budget Concepts, a bipartisan commission, which statedI am pleased to report because I was one of the consultants to the commission--that the public would get a better, a truer picture of the Federal financial condition if the unified budget would show all of the inflows of revenue to the Federal Government and all of the expenditures out of the Federal Government.

Senator WILLIAMS. The point I am making is that by using these trust funds of which we are the trustee, no Federal money is put into that trust fund directly. This is all money collected by the States or collected by the Government in behalf of the employers in the States. By using that, it enables the administration in power to report a surplus, for example, the accumulation of trust funds this year, all of them, about $812 billion, making them report a surplus when in effect we are operating at a multibillion dollar deficit. Is that not correct?

Mr. WEIDENBAUM. There is a volume of special analyses in the new budget. In one of those special analyses we show what the budget results are, excluding the trust funds. Yes. Excluding the trust funds, we estimate in the fiscal year 1971, we will spend somewhat more than $7 billion above revenues coming into the Federal fund.

Senator WILLIAMS. In other words, may we project a surplus next year of about a million and a half or whatever the cash projected is. You are actually going to have to be back here in a few days requesting us to raise the ceiling on the national debt by $8 to $10 billion so that you can finance this surplus, is that not true?

Mr. WEIDENBAUM. That is not quite it.

Senator WILLIAMS. Will you be back asking for an increase in the national debt?

Mr. WEIDENBAUM. I believe we will be.

Senator WILLIAMS. Sure.

Mr. WEIDENBAUM. But that

Senator WILLIAMS. In private industry, did you ever hear of a company having to expand its borrowing capacity with the bank to finance a profit or accumulated surplus?

Mr. WEIDENBAUM. Oh, yes. All the time. I speak from years of experience in private industry, sir. It is most common for a large corporation, a profitable large corporation, to finance its capital expenditures through borrowing.

Senator WILLIAMS. I understand that. I am not speaking of that. I am just speaking of your surplus of many of the-for example, just as we serve as trustee for these trust funds, many private corporations also serve as trustees for their pension accounts, do they not? Mr. WEIDENBAUM. Yes, sir.

Senator WILLIAMS. And they report to their stockholders an extra page or two in their annual report of the accumulation and the buildup of their pension accounts, do they not?

Mr. WEIDENBAUM. Yes, sir.

Senator WILLIAMS. And in most instances those pension accounts are increasing. Now, if they reported to their stockholders on the amount of earnings and included in that the increase in their pension funds, would that be permitted under the law?

Mr. WEIDENBAUM. No, sir, and in that deal

Senator WILLIAMS. That is what we are dealing with under the Federal Government.

Mr. WEIDENBAUM. I see a fundamental difference, Senator.

Senator WILLIAMS. The only difference, to be frank with you, that I can see, is that the Government is doing it in one instance and in the other instance private industry is doing it and to be frank with you, if private industry had an accounting system as the Federal Government has today, I think they would be locked up in a penitentiary.

Mr. WEIDENBAUM. Senator, as one of the people who had a small part in designing the unified budget before entering the Government, I take a good deal of comfort in being in a position of carrying out our recommendations.

Take our concern over inflation at the present time. I say this as a technician, not as someone defending a political decision. This is the line of reasoning I gave to the President's commission as a consultant at the time. To look at the impact of the Federal Government on the

economy and on inflation, we need to look at all of the dollars coming into the Federal Government, whether these are social security taxes, unemployment taxes, or income taxes. We need to look at all of the expenditures going out of the Federal Government, whether these come from trust funds or other funds. Unless we do this, we do not give the public an adequate comprehensive picture of the impact of this vast Government on our economy and on the inflationary situation specifically.

Senator WILLIAMS. Well, I will not pursue this further because I do not think that either of us is going to convince the other. But I agree that we do look at the impact of all these funds, we always do in our Committee. We go beyond that. You have got to look at the impact of the amount of taxes being collected by the respective States. That, too, is coming out of the economy. All of it is taken into consideration when you find your tax package. What I am speaking of is that we do not include in that, even though we take it into consideration, in our work here, but we do not include the surplus that may be piled up in New York or some respective State if they are having surpluses or deficits. But I will not pursue that further. I just say that we all agree we had better control this inflation and I think that it could be accomplished better if we laid the facts our clearer, where it could be better understood by the American people. Namely, that we are not living within our income. We are kidding ourselves when we say we are building up surpluses when in effect we are having to borrow $600 or $800 million a month to finance those "surpluses." It is misleading and deceiving and I do not think we are going to lick this inflation until we face up to it.

Senator MCCARTHY. John, you have to make a choice as to whether you want a Punxsutawney groundhog or the Quarryville groundhog. Either one is all right.

(Mr. Weidenbaum's prepared statements follows:)

PREPARED STATEMENT OF HON. MURRAY L. WEIDENBAUM, ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY

Mr. Chairman and Members of the Committee: I am pleased to have the opportunity today to express the views of the Department of the Treasury on The Employment Security Amendments of 1970 (H.R. 14705) as passed by the House. We need to modernize the Federal-State unemployment insurance. The system is a keystone to economic security for America's workers and represents income support for willing workers unable to work because of circumstances beyond their control.

Although basically sound, the unemployment insurance system-which was enacted in 1935-in some respects has fallen behind in a much-changed economy. It is like the long-used, well-constructed machine that is operating well but requires some improvements.

The system has not been generally revised since its inception-35 years ago. It is in much need of revision to better meet its objectives as insurance against the risks of unemployment and as a built-in mechanism to moderate the impact of significant reductions in the level of economic activity.

President Nixon in his July 8, 1969 message to the Congress proposed legislation to extend unemployment insurance coverage to millions of workers not now covered, to provide for a stand-by program which would automatically extend the duration of benefits in periods of high unemployment, and other needed improvements.

The House passed H.R. 14705 which incorporates many of these recommendations. It has failed however to provide some important improvements originally recommended, such as coverage for agricultural labor.