worked. I want to make it clear that the administration still supports very strongly these two provisions.

I turn to judicial review.

Under H.R. 14705 and under the administration proposal, a State is explicitly permitted to apeal to Federal courts a finding of the Secretary which is adverse to the State. Such a finding may be made under the administrative grant provisions of section 303 of the Social Security Act, or under the conditions for tax credit, additional and normal, in sections 3303 and 3304 of the Federal Unemployment normal, in sections 3303 and 3304 of the Federal Unemployment Tax Act.

Federal-State extended benefit program.

High national unemployment is attributable to national factors, and the administration proposed a national remedy-a Federal program of extended unemployment compensation in times of high national unemployment. That program would be 100 percent federally financed-but operated by States as agents of the Federal Government and utilizing provisions of State law. The program could be operative at any time after 60 days beyond the enactment of the act.

H.R. 14705, on the other hand, would establish a Federal-State program of extended benefits. The program would be triggered into operation in all States by a national insured unemployment rate of 4.5 percent for 3 consecutive months. It would be triggered into operation in an individual State by a State-insured unemployment rate for any consecutive 13-week period which was 20 percent higher than the average for the same period in the 2 prior years, and at least 4 percent. It would have to be in effect in every State by January 1, 1972, and could be put into effect earlier on an individual State basis. In other words, it is optional with each State whether extended benefits may be payable before January 1, 1972.

Each State would pay half the cost of extended benefits in that State, and the Federal Government would pay the other half. Both proposals provide for a 50 percent extension of benefit duration for workers who exhaust their regular benefits.

The House action is acceptable to the administration. It should be noted, however, that the House-passed program does not have to be in effect in all States until January 1, 1972, in order to give State legislatures time to act. This committee may wish to consider filling this gap by a temporary national program.

I turn now to taxable wage base questions.

Additional FUTA revenue is needed, as this committee well knows, to finance administrative costs. It is also needed for the extended benefit program. The fairest way to raise that additional revenue, on a permanent or long-range basis, is to raise the taxable wage base.

Clearly, the $3,000 taxable wage base now in the Federal Unemployment Tax Act is an anachronism which cannot be justified on any basis. It was imposed in 1939 to conform the tax base to that used in the old age insurance program, for the convenience of employers in their recordkeeping and reporting. In 1940, 93 percent of all wages in cov

ered employment were still taxable. By 1969, only 46 percent of in covered employment are taxable under the Federal act.

The administration's bill would have increased the taxable base to $4,800 and then to $6,000, and would not have increase Federal unemployment tax rates.

H.R. 14705 would raise the Federal unemployment tax rate 3.1 to 3.2 percent, effective January 1, 1970, and the_ta wage base from $3,000 to $4,200, effective aJnuary 1, 1972. For and 1971, all of the added 0.1 percent net tax would be set aside f extended benefit account. Thereafter, that account would receiv percent of taxable wages.

The increase in the taxable wage base to $4,200, proposed by 14705, is better than the present taxable base, but it is inadequa will affect about 53 percent of total wages in covered employ when it becomes effective in 1972 but only 48 percent by 1975.

By contrast, an increase in the wage base to $6,000 in two ($4,800 for 1972-74, and $6,000 thereafter) would result in t 59 percent of total wages in 1972 and 63 percent in 1975.

The $3,000 wage base is grossly inequitable, for both the Feder for administration and the State tax for benefits.

On a national basis, employers in the States with the lowest w and generally in the light industries that are highly competitiv ready pay net Federal taxes representing a greater proportion of payrolls than do employers in the higher wage States and the industries. But in times of high national unemployment, it is the wage durable goods industries, and the industrial States that hav higher rates of unemployment as well as high benefit amounts. the industries and States which account for a larger share of exte benefit costs already pay a relatively lower effective Federal tax These individual and interstate differences would be increased by rate increase, but would be decreased—although not eliminated an increase in the taxable wage base.

On a State basis, the present $3,000 wage base subverts the purpose of experiencing rating. Experience rating is intended to tribute the program's cost among employers by varying their co bution rates in relation to the amount of unemployment experie by their workers. For both practical and political reasons there upper limit to State maximum rates, so that any employer's costs a the maximum rate are shifted to other employers. Hence, the minimum rate must be increased if adequate State revenue is collected. As a result, the tax schedule is compressed to a point v the wide differences in employers' experience with unemployment not be accurately reflected by differences in their assigned tax rat With a low base, different employers are taxed on a widely diff percentage of their total payrolls. Some employers pay on 90 pe or more of their payroll, others on only 20 percent or less. C quently, the State's maximum rate awarded for the worst exper can, and frequently does, turn out to be a lower rate on total pay for some employers than the minimum rate is for other employer

one State, for example, the minimum rate of 1 percent of $3,000 represents an effective rate of 0.9 percent for an employer paying on 90 percent of his total payroll, while the maximum rate of 4 percent represents an effective rate of 0.6 percent for an employer paying on 15 percent of his total payroll. Such accidential and unfair variations in tax assessment would be reduced by a substantial increase in the taxable wage base.

The Federal funds needed for both extended benefits and administration should be obtained by increasing the wage base to $4,800 in 1972 and to $6,000 beginning in 1975. The advance funding of the extended benefit program, which the House considered desirable, could be achieved by a temporary tax rate increase applicable to wages in 1970 and 1971. When the first step increase in the wage base becomes effective, the tax rate should revert to its present 3.1-percent level.

If the base is raised sufficiently to produce the needed revenue, not only will the Federal tax burden be more equitably distributed, but the resulting increase in the State tax base will increase both the equity of present State taxes, and the ability of the States to finance any future high unemployment costs that may occur.

I recommended, therefore, that the bill be amended to make the 0.1 percent rate increase apply only to wages paid in 1970 and 1971, and to increase the taxable wage base to $4,800 for 1972, 1973, and 1974, and to $6,000 thereafter.

MISCELLANEOUS PROVISIONS

Under both bills, States would be permitted to allow new and newly covered employers a reduced rate, not less than 1 percent, on a basis other than experience.

Both would establish a Federal research program on unemployment insurance, a Federal program for training Federal and State personnel administering unemployment insurance, and a Federal Advisory Council on Unemployment Insurance.

H.R. 14705 would provide that accrued leave of ex-servicemen would be treated like accrued leave of other unemployed workers in the State. This would permit earlier payment to ex-servicemen in about half the States. While this provision was not in H.R. 12625, we believe such a provision would be desirable.

CONCLUSION

I hope that this committee will recommend, and the Congress will enact soon, a bill which will strengthen the unemployment insurance program and thus make it better able to fulfill its proper role in the Nation's economy.

I am submitting for the record a more detailed discussion of the legislation.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Mr. Secretary.

(A supplemental statement of Secretary Shultz follows:)

ATTACHMENT TO STATEMENT OF SECRETARY OF LABOR, GEORGE P. SH

This statement is submitted to your Committee as an expansion of testimony in support of legislation to improve the Federal-State unemp insurance system. Unemployment insurance is of such importance to our e that we must assure that it is kept up to date.

Unemployment insurance represents the individual wage earner's first against income loss during unemployment. For the economy as a who a major stabilizing force. In the recession year of 1961, 3.4 billion in benefits was paid to 7.1 million workers. The contribution to the economy unemployment insurance undoubtdely had a moderating influence on the of the recession. Even in as prosperous a period as 1969 about 4.1 million ployed individuals received at least one benefit payment. We expect tha time in 1970, the program's cumulative benefit expenditures will reach million mark.

Unemployment insurance payments represent earned rights under a designed to strengthen a worker's attachment to the labor force, and to end and assist him back to work as promptly as possible, and at the same t maintain his dignity.

The program is one of shared responsibility between the Federal Gover and the States. The Federal Government establishes the overall framewo broad guidelines, while the States translate those guides into specific pro which they administer.

The system has worked well, but its benefits can be strengthened and ext and the method of financing made more equitable. In his message of las the President noted the major weaknesses, and called on both the Congre the State legislatures to take remedial action.

Your Committee has before it a bill, H.R. 14705 representing the action by the House of Representatives on the Administration's recommendatio changes in Federal unemployment insurance statutes contained in H.R. The booklet of charts and tables which you have each been given cont detailed comparison of H.R. 14705 and the recommendations in H.R. 1262 believe that H.R. 12625 is a more desirable approach to the program's nesses. In general, however, with several exceptions which are hereinafte cussed, H.R. 14705 deals with the problem areas in a way which is accep I do not want to minimize the importance of any aspect of the legisl However, I shall focus on the pressing need for—

(1) narrowing the gaps in coverage,

(2) providing an extended benefits program for periods of unemployment,

(3) dealing with some of the criticisms of the conditions for payi denying benefits,

(4) providing for judicial review of a Secretary's findings adverse State.

Coverage

The effectiveness of any social insurance program ultimately is determin its coverage of those subject to the risk insured against.

The authors of the Social Security Act in 1935 believed that universal cov of wage and salary workers under unemployment insurance would be desi They did not provide it for practical reasons. Their expectation was that the initial difficulties of getting the system into operation had been dealt ways could and would be developed to extend the system to those left out. progress has been slow.

On an average day, about 16.7 million jobs are excluded from unemploy insurance almost as many as were covered in 1938. H.R. 14705 would ex coverage to 4.5 million of these jobs; a little over 1.8 million of them w be made subject to the FUTA, the others would be given protection by the de developed by Congress in 1966, of making State protection of the worke condition for State approval under the FUTA. H.R. 12625 would have exte coverage to about 800,000 more jobs.

Experience over the program's thirty years of benefit payments indicates if coverage is to be extended significantly, Federal action will be necess For example, although 24 States cover at least some employers with one wor all but 7 of the 24 did so by 1945.

The coverage extensions proposed by H.R. 14705 are very desirable, and support every one of them without exception. We believe, however that do not go far enough, and that additional jobs should be covered.

HE

ON

H.R. 14705 proposes to extend FUTA coverage by including employers who have one worker in 20 weeks or a payroll of $800 in any quarter, by including services of American citizens for an American employer outside the United States, and by amending the definitions of "employee" and "agricultural labor" so that fewer jobs would be excluded.

H.R. 14705 provides also that, for a State law to be approved under the FUTA, the State must cover employment by nonprofit organizations, with certain exclusions, and employment by State hospitals and State institutions of higher education, with certain exceptions. The State must permit each such nonprofit employer to choose between paying the State tax and reimbursing the State for benefits attributable to employment with him. This approach to coverage of nonprofit organizations, rather than covering them under the FUTA, was chosen to minimize the costs which such organizations would pay, and to eliminate any requirement that they contribute towards administration of the program. The exclusions in H.R. 14705 are broader than we recommend.

We strongly urge that the Senate retain all the coverage additions in H.R. 14705, and that it extend protection also to employees of large agricultural employers, and to those employees of institutions of higher education who would be excluded under H.R. 14705's exclusion of persons employed in an "institutional, research and principal administrative capacity." Acceptance of our recommendations would raise the total of newly covered jobs to a total of 5.3 million.

Agricultural coverage. The bill's omission of coverage for employees of large agricultural enterprises is, in my opinion, its most serious deficiency. Agricultural employment is highly concentrated in a small number of large commercial farming businesses. According to the 1964 Census of Agriculture, 1,585,022 farm operators hired workers and paid them a total of $2,799,000,000. However, just 3 percent of these farm operators (45,163) paid 54 percent of the total wages, and provided about % of all farm jobs. Three-tenths of one percent of the farm operators (5,464) paid 27.5 percent of the total wages and had about % of the farm jobs. These very large operators paid an average of $140,773 per employer. Over the past decade, the total number of operating farms has declined 28 percent, while the average farm size has increased 31 percent.

The President's unemployment insurance message recommended covering employees of large agricultural operations. He suggested that a large agricultural employer was one with at least four workers in 20 calendar weeks. The requirement of 4 workers in 20 weeks represents the size point at which nonagricultural employers have been divided into covered and noncovered. Only about 5 percent (65,000) of the farm employers who paid some wages in 1968 would have been covered. About 425,000 agricultural jobs-33 percent of the total agricultural jobs would be covered under the FUTA by this definition. Of these, 25,000 are now covered under State laws. These are not family farms, but agricultural businesses. They would be reporting to Social Security and most of them would be subject to the minimum wage law. They would have the records and be able to make the reports required by unemployment insurance.

The House Committee seriously considered a proposal which would even more clearly have limited coverage to large farms. Under the proposal, farm employers would have been covered only if they had at least 8 hired workers in 26 weeks. This proposal would cover only the very largest farms-about 2 percent of farm employers (23,000), but it would add 276,000 jobs, or about 21 percent of all farm jobs.

We are advocating unemployment insurance protection for workers in agricultural businesses. The size point selected to distinguish those farm enterprises to be covered should assure protection for a meaningful proportion of agricultural work force. We believe that the requirement of 8 workers in 26 weeks would meet this criterion.

When there is unemployment there are costs that must be borne by the individual and by society. The question is, how do we choose to pay those costs-by individual misery, private or public charity, or by social insurance. For almost 80 percent of our wage workers, we have chosen to meet the costs through a system of social insurance to maintain their income during unemployment as a matter of right. We believe this is the best way to meet the costs of unemployment. We believe that the hired workers on large farms should, as a matter of justice, be afforded the same protection.

The agricultural businesses are often competing for markets with similar businesses in other States. Therefore, Federal coverage which applies the unemployment insurance tax to the large farms in every State is needed for agricultural