We have attached to our statement table I, which compares on a cost per employee basis the present and proposed status of both social security unemployment compensation. The State unemployment compensation tax cost on the table has been computed at the standard 2.7-percent tax rate. The rate assigned to most new employers. Admittedly that rate could be lower. It could be one-tenth of 1 percent. But it also could be higher. For example, 4 percent. We think this table brings to light, first, the hidden or "iceberg" effect of the changes in the Federal unemployment taxable wage base on State unemployment compensation tax costs and, second, the total impact of payroll taxes which is to all employers and which should be to the Congress a matter of serious concern. We think the table demonstrates the reasonableness of H.R. 14705 in contrast to H.R. 12625, the initial administration bill. It is undeniable that in the past Congress has come to expect opposition from employers and business associations to proposed social insurance tax increases and social welfare changes. Our reaction, however, has been compelled by excessively liberal and costly proposals. We have come forward today in support of H.R. 14705 even though employers and State chambers of commerce are not entirely satisfied with the House-passed version of the bill. We reiterate our view that it represents a fair and reasonable accommodation of conflicting viewpoints. We urge that there be no further substantive amendments to H.R. 14705, particularly an increase in the taxable wage base beyond $4,200 and the inclusion of Federal weekly benefit standards. Thank you. Senator WILLIAMS. No questions. Senator ANDERSON. Thank you very much. (Mr. Henkel's prepared statement follows:) PREPARED STATEMENT OF PAUL P. HENKEL ON BEHALF OF THE COUNCIL OF STATE CHAMBERS OF COMMERCE I am Paul P. Henkel. I am Manager of Payroll Taxes for the Union Carbide Corporation, but I appear here today as Chairman of the Social Security Committee of the Council of State Chambers of Commerce. I am testifying for the member state chambers of commerce listed at the end of this statement who have specifically authorized me to represent them on this occasion. Accompanying me is William R. Brown, Associate Research Director of the Council of State Chambers of Commerce. We appear today to express general support for H.R. 14705 despite the fact that we have serious reservations and objections to a few of its provisions. Our reservations and objections concern: (1) the increase in the Federal Unemployment Compensation taxable wage base to $4200 in 1972; (2) the inclusion of Federal benefit eligibility standards. FEDERAL-STATE EXTENDED BENEFIT PROGRAM It is a pleasure to express our support of the objective of H.R. 14705 to establish a permanent program of extended unemployment benefits. We are pleased that the Administration has accepted the House-passed version of a jointly financed Federal-State financed extended benefit program. We also are pleased that the Interstate Conference of Employment Security Agencies overwhelmingly favor this type of extended benefit program. Our position on H.R. 14705 is similar to that which we took before this Committee in 1966 on H.R. 15119. That bill, too, would have established a Federal e extended benefit program during periods of high unemployment. But, as Chairman of this Committee observed in opening the current hearings, there a deadlock between the House-Senate conferees after the Senate amended House-passed bill. We would hope that the Senate will accept the House bill hout major amendment and thus preclude another deadlock. FINANCING PROVISIONS Ithough we support the establishment of the Federal-State extended benefit IN PRACTICE HIGHER BASES MEAN HIGHER TAXES RESS . Shultz contended that there is inequity in that employers in a low wage stry or State pay at a higher "effective" tax rate, and that this will be died by increasing the taxable wage base. We disagree with this contention the effect of the remedy. A higher taxable wage base can mean higher taxes in a low wage industry or State. There are very few employers who do not some employees who earn more than $3000. . Shultz contended that the States will be free to adjust their tax rates event the $6000 wage base from producing excessive revenues. But the exnce of State Chambers of Commerce in seeking to obtain tax rate revision eir States indicates that the "theory" is less than perfect in practice. EQUITY IN FEDERAL AND STATE UNEMPLOYMENT COMPENSATION TAXES te unemployment compensation taxes, used solely to finance unemployment ts, can vary by tax rate and taxable wage base. The minimum taxable base set by the Federal Unemployment Tax Act is $3000. That figure is he more common base among all the States. A given State's benefit cost e financed by infinite combinations of tax rates and taxable wage bases. ty-two States in recognition of their needs already have increased their HL taxable wage base above $3000* without Federal Government dictation. This does not mean, however, that other States must do so in order to preserve unemployment compensation financing capability. They can do so when the need exists. Dr. Shultz, in his statement to this Committee, placed major emphasis on the need to increase the State taxable wage bases because, under the present bases, taxable payrolls are a decreasing proportion of total wages. In our opinion, the relationship Dr. Shultz seeks to establish between taxable and total wages is entirely irrelevant. What is relevant is that, although there is considerable variation among the States with regard to their experience rating systems, all of the State systems endeavor to relate the employer's State unemployment compensation tax to the benefit costs for which he is responsible. For example, two employers may pay the same total wages, but if one has a better experience rating than the other, he will pay less unemployment compensation tax in proportion to his total wages than will the other employer. We think this is proper and equitable. Dr. Shultz also advanced the theory that a $6000 taxable wage base will permit State experience rating to "accurately" reflect the differences in employer's assigned tax rates. This is not an original theory-it has been advanced for many years by theorists who seek a perfect experience rating system. We disagree with this theory too. If an employer pays $3600 a year per employee, an increase in the taxable wage base above this amount does not raise the employer's tax cost at all. This is inequitable. The only equitable way taxes can be raised for all employers, whether high-wage or low-wage employers, is to increase the tax rate. Therefore, it is a wide range of rates, rather than a high wage base, which respond to indivdual employer benefit costs and will permit experience rating to operate most effectively. PER-EMPLOYEE PAYROLL TAX COSTS We wish to point out that the Administration proposes to increase the social security taxable wage base to $9000 in 1971. As you know, the employer social security tax rate is scheduled to increase from 4.8% to 5.2%, also in 1971. It is our view that the Congress must take these increases into consideration while deciding upon the changes in and the costs of the Federal-State unemployment compensation programs. We have attached Table I which compares on a "cost per employee" basis the present and proposed status of both social security and unemployment compensation. The State unemployment compensation tax cost has been computed at the standard 2.7% tax rate-the rate assigned to most new employers. Admittedly, that rate could be lower, for example .1%, but it also could be higher, for example 4.0%. We think this Table brings to light: (1) the hidden "iceberg" effect of changes in the Federal unemployment taxable wage base on State unemployment compensation tax costs; and (2) the total impact of payroll taxes which is to all employers, and which should be to the Congress, a matter of serious concern. We think the Table demonstrates the reasonableness of H.R. 14705 in contrast to H.R. 12625, the initial Administration bill. CONCLUSION It is undeniable that in the past, Congress has come to expect opposition from employers and business associations to proposed social insurance tax increases and social welfare changes. Our reaction, however, has been compelled by excessively liberal and costly proposals. We have come forward today in support of H.R. 14705, even though employers and State Chambers of Commerce are not entirely satisfied with the Housepassed version of the bill. We reiterate our view that it represents a fair and reasonable accommodation of conflicting viewpoints. We urge that there be no further substantive amendments to H.R. 14705— ticularly, an increase in the taxable wage base beyond $4200 and the insion of Federal weekly benefit 'standards. ansas State Chamber of The following State Chambers of Commerce have endorsed this statement: ommerce bama State Chamber of Commerce orado Association of Commerce Industry necticut State Chamber of ommerce, Inc. aware State Chamber of ommerce, Inc. ida State Chamber of Commerce rgia Chamber of Commerce ho State Chamber of Commerce ana State Chamber of Commerce sas State Chamber of Commerce tucky Chamber of Commerce ne State Chamber of Commerce higan State Chamber of ommerce nesota Association of Commerce Industry Mississippi Economic Council Empire State Chamber of Commerce Greater South Dakota Association South Texas Chamber of Commerce employer and the employee each pay the rates and amounts shown, thus the total is double these figures, ndard-not maximum or minimum tax rate. enator ANDERSON. Mr. Eubank. TEMENT OF MAHLON Z. EUBANK, DIRECTOR OF THE SOCIAL [SURANCE DEPARTMENT, COMMERCE & INDUSTRY ASSOCIAON OF NEW YORK, INC. r. EUBANK. Mr. Chairman, members of the committee, my name is lon Z. Eubank, director of the Social Insurance Department of merce & Industry Association of New York. I request that my statement be put in the record. nator ANDERSON. Without objection that will be done. r. EUBANK. The second paragraph on page 1. mmerce & Industry Association supports H.R. 14705 without dment as a reasonable compromise among the divergent views of agement, labor, and government. Some of the items supported in bill are in conflict with our testimony before the House Ways and s Committee on H.R. 12625 on October 7, 1969. Nevertheless, H.R. 5 is supported for the reasons stated herein. Secretary of Labor George P. Shultz has testified before this committee on the subject bill on February 5. He requested that three major modifications be made: 1. Providing a tax base increase from $3,000 to $4,800 for 1972–74 and to $6,000 thereafter; 2. Extending coverage protection to farm labor; and 3. Extending coverage protection to college professors and to other institutional, research, and principal administrative personnel of institutions of higher education. Our comments will relate to the first two of Secretary Shultz' modifications. The next point will be on financing. I am starting on the first paragraph on page 2. The Secretary of Labor proposes to drop the 0.1 percent tax increase but to increase the taxable wage base to $4,800 for 1972-74 and to $6,000 thereafter. A review of the Secretary's testimony before this committee does not appear to present any argument that H.R. 14705 would be insufficient as a revenue producer. The fact that it will bring in sufficient revenue is well documented in the report of the House Ways and Means Committee on H.R. 14705, particularly on pages 32-37. The basis for the change proposed by the Secretary, as we read his testimony, is that the increase in the taxable wage base to $4,800 and to $6,000 is necessary to eliminate tax inequities among employers. This we do not comprehend because it costs no more to administer unemployment benefit payments and to provide job referrals to a high-paid claimant than it does to an employee for a low-paid industry. Further, it appears to us that the latter payment services would be more likely to be costlier because of the recent trends in training programs to upgrade such employees. The increase in the tax base would be disproportionate to the increase in the tax rate and, therefore, would work to the disadvantage of firms in industry that pay high wages and give stable empolyment. These firms are now paying more unemployment taxes than their own experience requires and are, to this extent, subsidizing their competitors and/or those that are less stable. An indication of how much the increase in the tax base would increase taxable payrolls has been calculated in New York by size of firm and on an increase in the tax base from $3,000 to $4,800. ("Impact of a Tax Base Increase Under the New York State Unemployment Insurance Law," prepared by the New York State Department of Labor, Division of Employment, August 1967.) This table follows. I set out this table in my statement and I will not read it but you can note in that particular table how taxable payrolls increase by various sizes of firms both as positive accounts employers who pay more than their own way and also as to negative accounts who are the employers whose taxes are less than the benefits paid to their former employees. If we had a study on $6,000, I am sure that the percentage would be much higher. We fear that if the Secretary's proposal is adopted, there will be a surplus of funds after 1972. Perhaps it is the desire of the Secretary to have excess funds to cover the broader activities and additional responsibilities which have been placed on the Employment Service and now come out of general revenues. |