reasons. First, because we believe that it would bring in far more revenue than needed, and second and more important, because it would upset the unemployment compensation revenue raising systems of the States. Each State-with the sole exception of Alaska-would be forced to make substantial increases in its tax base, by 100 percent in the case of 27 States and the District of Columbia. The financing of administrative expenses, and the financing of the Federal share of the extended benefit program (particularly if this be borne equally by the State and the Federal Government), should not be done at the expense of the individual State financing plans. The States have been given the freedom to adjust their tax rates and their bases so as to meet their own individual problems. If they need more revenue for benefits, they can adjust their tax bases upwards at any time they see fit, and 22 States have already done so. H.R. 14705 would increase the taxable wage base to $4,200 in 1972. While this still represents a large increase, we think that it is more equitable than the administration's proposal. CONCLUSIONS The federation supports H.R. 14705 as a reasonable and workable compromise, although we would prefer to have certain provisions altered or deleted. The coverage provisions of the bill are very desirable, but they should not be extended. We strongly endorse a provision for a system of extended benefits. However, we oppose raising the taxable wage base higher than the $4,200 amount provided for in H.R. 14705. Most important, we emphasize our continued opposition to Federal benefit standards. Thank you very much for the opportunity to present retailings' views to you. I think I covered it in 10 minutes. Senator BENNETT. Nine. Senator ANDERSON. Senator Harris? Senator HARRIS. No questions, Mr. Chairman. Senator BENNETT, No questions. Senator ANDERSON. Thank you very much. Thank you for being on time. Mr. KILBRIDE. Thank you very much. Senator ANDERSON. Mr. Gulan. STATEMENT OF JEROME R. GULAN, LEGISLATIVE DIRECTOR, Mr. GULAN. Thank you, Mr. Chairman. I am sure I can proceed under the 10-minute rule here. Our testimony today will be limited to that portion of this unemployment compensation bill which would replace the present four employees in 20 weeks in any calendar year test for coverage by a test of $300 or more in payroll quarterly. It is so limited because this is the nly area in which we have a clear mandate from our members. By substituting for the current coverage test of four employees in O weeks a new test of $300 or more in payroll in any quarter, it would lanket into the unemployment system an additional estimated ,600,000 employees of small business. H SS HI THUSS Now, fully recognizing the security needs and desires of these en ployees-all quite understandable and legitimate-we think it on just to ask a question about the additional cost burdens which are po sible. After all, it is acknowledged by experts in economics, and ind cated in our continuing economic surveys, that small business is a ready undergoing a severe financial squeeze. We must all assent to th statement that a weakened goose cannot produce high-quality golde eggs-employment, wage, or security wise. In computing these cost burdens let us assume that newly covere employees will be averaging $4,800 yearly in earnings, and that newl covered employees will, in 1972, be required to pay into the unemploy ment compensation system an average 3.1 percent of payrolls subjec to the unemployment compensation tax. This is an assumption becaus rates vary among the States and because experience rating does chang the tax burden, and further because there is no certainty that thes employees will be averaging $4,800 annually. On this basis, however, the newly covered small business employer: would have added to their costs, that year, for 1,600,000 employees an additional burden totaling some $236,800,000 yearly, or an average of $148 additional per employee. Carrying forward these assumptions to 1974 and later, this additional burden could rise to $297 million, or an average of $186 per employee. In the meantime, what is involved in the current repeal of the 7percent investment credit, with no exception for small business? The results of our economic survey during 1967 furnish some indications. In that survey we asked our members if they had purchased equipment during the past year, and whether in so doing they had taken advantage of the 7-percent investment credit. In the 0-3 employee category, which is the category which will be affected by the replacement of the present unemployment compensation coverage test, an average 36 percent of respondents indicated that they had purchased equipment during the preceding year. Of this number, just about 80 percent indicated that in so doing, they have taken advantage of the investment credit to the tune of an average tax saving of $199 each. This is an advantage which was taken away from them at the same time that it was proposed to add to their costs by perhaps $148 to $186 yearly per employee. And what of their financial position? Indications from our continuing economic surveys confirm observations made independently by prominent economists: Small business is undergoing an intensifying economic squeeze and our surveys indicate that this squeeze is most severe in the very size category that this change in the unemployment compensation program would affect those firms in the 0-3 employee category. As a strong suggestion of what is going on within the small business sector, let us turn to one of the questions in our current economic survey, that in which we ask how sales volume at time of query compares with the preceding year. The proportion of respondents answering higher has declined steadily from February 1969 to date. However, we see this phenomenon: On the one hand a considerably larger proportion of firms with 50 or more employees reported, 1969 second quarter, sales higher than the preceding year, and this proportion has tended to increase, while on the other a considerably smaller proportion of firms in the 0-3 em ployee category reported during the same period sales higher than last year, and this proportion has tended to decline. This, again, tends to tie in with independently made observations of others that the smallest of small firms are feeling the pinch most keenly. It might be helpful to observe that in answering the forementioned question our members are not necessarily adjusting for the continuing price inflation which has taken place during the past year. Gentlemen, on this statement we have made certain assumptions on the basis of which, we have arrived at certain numerical conclusions. In all honesty we must say, as we have implied clearly, that the conclusions may not be statistically valid. But this much we can say without fear of successful contradiction-that during the period of our observations it is true that Government has been adding to the cost burden of small business, and will continue to do so under H.R. 14705, and most especially to those smaller small businesses which are least able to get by and most in trouble now. This is being done against the backdrop of the official position, that stated in the wording of the Small Business Act of 1965, which declares a policy of encouraging small business growth. We recognize the questions of equity involved. We can understand the pressures on all in Government, and on the members of this Committee. We recognize the many and diverse claims that are being made on those in Government. But at the same time, we do feel that in changing this coverage test, a decision will be made against small business and one that will reflect unfavorably not only on small business, but necessarily also on its employment ability. For this reason, we oppose the proposed change in this coverage test. Mr. Chairman, that concludes my statement, I believe, in the required time. Senator ANDERSON. Thank you very much. Are there questions? STATEMENT OF JEROME R. GULAN, LEGISLATIVE DIRECTOR, NATIONAL FEDERATION The National Federation of Independent Business thanks the Committee for the opportunity to present testimony concerning Employment Security measures and their importance to the 5 million small businesses throughout the United States. The Federation now represents almost 278,000 small and independent business nd professional people in the country, or approximately one out of every 20 -usinesses. Few people today would question the importance of small business in our ecoomic mainstream, or the wisdom of helping to maintain and strengthen its enewing influence in the economy. Our testimony today will be limited to that portion of this unemployment ompensation bill which would replace the present 4 employees in 20 weeks in any alendar year test for coverage by a test of $300 or more in payroll quarterly. It so limited because this is the only area in which we have a clear Mandate om our members. Although the Federation has not polled its members on the particular provions contained in H.R. 14705, we have polled repeatedly over the years on very milar proposals. Mr. Chairman, and members of this Committee, on behalf of our members we ould like to ask a simple question, and this is it: "Is there a doctor in the use?-specifically a physician to treat the schizophrenia that seems to have oken out in governmental attitudes toward small business? For instance, as we understand it, and as our members understand it, the attide of succeeding Administrations and Congresses, including the current Admin SS istration and Congress, toward small business is spelled out clearly in Section 20 of the Small Business Act of 1965, which reads, in part, as follows: "The essence of the American economic system of private enterprise is fre competition. Only through full and free competition can free markets, free entr into business, and opportunities for the expression and growth of personal initi tive and individual judgement be assured. The preservation and expansion such competition is basic not only to the economic well-being but to the securit of this Nation. Such security and well-being cannot be realized unless the actua and potential capacity of small business is encouraged and developed. . . .' Yet, gentlemen, within the past year we have seen done many things whic absolutely contradict this fine expression of policy. Among these have been th gradual choking off of the ability of the Small Business Administration to assis in all phases of existing programs that would provide financial assistance to smal business, repeal of the 7% Investment Credit which has been so useful in assistin the financing of small business modernizations made absolutely essential in orde that by increasing productivity, these units might compensate for increased cos and thus remain competitive and now this proposal contained in H.R. 14705. What would this phase of H.R. 14705 do? By substituting for the current cov erage test of 4 employees in 20 weeks a new test of $300 or more in payroll in an quarter, it would blanket into the Unemployment system an additional estimate 1,600,000 employees of small business. Now, fully recognizing the security needs and desires of these employees—al quite understandable and legitimate-we think it only just to ask a question about the additional cost burdens which are possible. After all, it is acknowledge by experts in economics, and indicated in our continuing economic surveys, tha small business is already undergoing a severe financial squeeze. We must al assent to the statement that a weakened goose cannot produce high quality golden eggs-employment, wage, or security-wise. In computing these cost burdens let us assume that newly-covered employees will be averaging $4,800 yearly in earnings, and that newly-covered employees will, in 1972, be required to pay into the Unemployment Compensation system an average 3.1 per cent of payrolls subject to the unemployment compensation tax. This is an assumption because rates vary among the States and because experience-rating does change the tax burden, and further because there is no certainty that these employees will be averaging $4,800 yearly. On this basis, however, the newly-covered small business employers would have added to their costs, that year, for 1,600,000 employees, an additional burden totaling some $236,800,000 yearly, or an average $148 additional per employee. Carrying forward these assumptions to 1974 and later, this additional burden could rise to $297,000,000, or an average $186 per employee. In the meantime, what is involved in the current repeal of the 7% Investment Credit, with no exception for small business? The results of our economic survey during 1967 furnish some indications. In that survey we asked our members if they had purchased equipment during the past year, and whether in so doing they had taken advantage of the 7% Investment Credit. In the 0-3 employee stratification (which is the stratification which will be affected by replacement of the current Unemployment Compensation coverage test), an average of 36 percent of respondents indicated that they had purchased equipment during the preceding year. Of this number, just about 80 percent indicated that in so doing, they have taken advantage of the Investment Credit to the tune of an average tax saving of $199 each. This is an advantage which was taken away from them at the same time that it was proposed to add to their costs by perhaps $148 to $186 yearly per employee. And what of their financial position? Indications from our continuing economic surveys confirm observations made independently by prominent economists: small business is undergoing an intensifying economic squeeze—and our surveys indicate that this squeeze is most severe in the very size category that this change in the Unemployment Compensation program would affect-those firms in the 0-3 employee category. As a strong suggestion of what is going on within the small business sector, let us turn to one of the questions in our current economic survey, that in which we ask how sales volume at time of query compares with last year. The proportion of respondents answering higher has declined steadily from February, 1969, to date. However, we see this phenomenon : On the one hand a considerably larger proportion of firms with 50 or more employees reported, 1969 Second Quarter, sales higher than a year earlier, and this proportion has tended to increase, while on the other a considerably smaller 8 яні RESS proportion of firms in the 0-3 employee category reported during the same period sales higher than last year, and this proportion has tended to decline. This, again, tends to tie in with independently made observations of others-that the smallest of small firms are feeling the pinch most keenly. It might be helpful to observe that in answering the forementioned question our members are not necessarily adjusting for the continuing price inflation which has taken place during the past year. Gentlemen, in this testimony we have made certain assumptions on the basis of which we have arrived at certain numerical conclusions. In all honesty we must say, as we have implied clearly, that the conclusions may not be statistically valid. But this much we can say without fear of successful contradiction-that during the period of our observations, it is true that government has been adding to the cost burden of small business, and will continue to do so under H.R. 14705, and most especially to those smaller small businesses which are least able to get by and most in trouble now. This is being done against the backdrop of the official position, that stated in the wording of the Small Business Act of 1965, which declares a policy of encouraging small business growth. We recognize the questions of equity involved. We can understand the pressures on all in government, and on the Members of this Committee. We recognize the many and diverse claims that are being made on those in Government. But we do feel that in changing this coverage test, a decision will be made against small business and one that will reflect unfavorably not only on small business, but necessarily also on its employment ability. For this reason, we oppose the proposed change in this test. In conclusion, however, we are not so naive as to believe that our point of view will necessarily carry. In such case, we would suggest a compromise along the line so often opted for by our members in their The Mandate votes, and it is this: that if the Congress does decide for this change, it make an amendment to the law requiring that employees pay a fair share of the tax burden. Unemployment compensation is a benefit for employees-it aims to protect them against want while they are out of jobs and seeking new positions. It is only right that they should pay at least part of the taxes that support the program, just as they do in the Social Security program. On behalf of our members, we thank you. Senator ANDERSON. Mr. McCallister. STATEMENT OF FRANK McCALLISTER, CHAIRMAN, NATIONAL Mr. McCALLISTER. Thank you, Mr. Chairman, members of the committee. Mr. Chairman, let me say first of all that I regret that the preceding chairman of the National Sharecroppers Fund cannot be with you this morning, Dr. Frank Graham. He used to be a Member of this august body and was one of the most favorite Senators to sit in the U.S. Senate but he has had to retire because he is not well and I just succeeded him as chairman of the National Sharecroppers Fund a few months ago. I also want to start off by endorsing the testimony and supporting the testimony of Congressman Sisk, of the AFL-CIO, and of the Brotherhood of Teamsters. I think they made very valid statements which should be given careful consideration by the members of this committee. I had the privilege of attending a manpower conference conducted by Senator Harris in Oklahoma and it was made very clear there that the farmworkers, because of automation and changing technology, are the most disadvantaged part of our work force and we really should give them a hand up and let them have the same benefits at least that the other workers have in our society in 1970. |