Senator BYRD. Are we to assume, then, that Washington is corr and that 48 of the 50 States are wrong, and two of the 50 States right?

Secretary SHULTZ. No, sir. I think there is a different kind of pr lem here. It is essentially the same problem that made it necessary have a Federal Unemployment Tax Act to bring the unemploym compensation system into being in the first place, that is it is diffic for any one State acting all by itself to project benefit levelsthereby tax costs-that are far in advance of other sister States which industry may be competing. So, somehow or other you have orchestrate a set of State actions so that States do not wind up und cutting each other. That is what we are hoping to do, to get eve body into the spirit moving ahead on this so that one is not going undercut the other. If that does not succeed, then you have problem of possible Federal action.

In this regard, I would call your attention to my statement on j the same point but applied to another area. Let me just reread statement of Governor Reagan about the coverage of farm labor. I on exactly the same problem.

"We cannot serve our California workers well by being so far front as to jeopardize the farms which provide these jobs.

The same point, of trying to get everybody to move along more less in concert, applies to the level of benefits.

Senator BYRD. I am in favor of that approach but what concerns and I had no idea that this administration would even consider, e consider advocating a national standard, because the whole thrust this administration has been to return to the individual States po and sovereignty that has been taken away from them by the Fede Government.

This approach, if we ever go to such an approach as this, wo further encroach on the rights of the States. As I say, I believe in program. I think it is a good program. But I think it must and sho be handled at the State level and contrary to probably the majo of my colleagues on this committee, I think it would be very wro very undesirable, for the Federal Government to come in here and to demand that there be national standards and every State shall exactly as every other State does and have a determination made in the city of Washington. I do not think the people here are sm enough to make all the decisions for this great big country. Anyw that is a question of philosophy, but I must say I am a little distur by the testimony this morning that unless the States do such and s that 2 years from now, or some other time, we are going to force ac on the States. I think the approach, the correct approach, is the one t you are taking and that is working with the States and trying to fect this program for the benefit of the unemployed and all the pers within the various States.

Now, to get back to this contract that there has been some discuss of, as I understand it, the contract is for $454,000 of which $134, has been expended to date. Is that roughly correct?

Mr. WEBER. I am not precisely sure of the latter figure but it i that vicinity.

Senator BYRD. It is a figure that someone gave; roughly that.

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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

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to constructive treatment. As I indicated earlier, we have been wa ing this very closely and watching it build up on a city by city b There have been incidents, for example, where some of the pe associated with the contract have, in our estimation, made statem 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 of hand, I have to report to you that our regional manpower adr istrators have said that in many instances this contract has provi a useful input in helping overcome local resistance to the progr And, of course, we are going to closely monitor it.

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

Senator MCCARTHY. Senator Fannin.

Senator FANNIN. I apologize for not being here earlier. I did h a conflict. I would like to talk to the Secretary for a few minu I do not want to be repetitious and I do not know what happen So, if you do have a few minutes I would like to meet with you in 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. Weidenba if you do not object, could you have your statement included in record and just tell us about the particular tax consequences of it?

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

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

Specifically, we favor a national trigger with full Federal financ of the extended benefits program, although we would accept the Ho bill with its State and national triggers and Federal and State shar of costs.

And as Secretary Shultz has stated, should the Finance Commi go along with the House bill, we urge the temporary rate increase lieu of a permanent increase for the interim period, 1970 and 19

We strongly endorse increasing the taxable wage base by stages the ultimate of $6,000 in 1975 along the lines of Secretary Shu testimony.

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

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

ESS

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 new budget. In one of those special analyses we show what the bud results are, excluding the trust funds. Yes. Excluding the trust fun we estimate in the fiscal year 1971, we will spend somewhat more th $7 billion above revenues coming into the Federal fund.

Senator WILLIAMS. In other words, may we project a surplus n year of about a million and a half or whatever the cash projected You are actually going to have to be back here in a few days request us to raise the ceiling on the national debt by $8 to $10 billion so t 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 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 o company having to expand its borrowing capacity with the bank finance a profit or accumulated surplus?

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

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

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

Mr. WEIDENBAUM. Yes, sir.

Senator WILLIAMS. And in most instances those pension accounts increasing. Now, if they reported to their stockholders on the amo of earnings and included in that the increase in their pension fu 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 Federal Government.

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

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

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