7. Elimination of national delegate service in the absence of previous railroad employment. In the conventions of the railroad brotherhoods, there are a considerable number of delegates who are not railroad employees and whose service as delegates is now taxed under the Railroad Retirement Taxing Act. Practically all such persons will never receive benefits under the act, because they would not have the minimum of 120 months' service required for eligibility for benefits. The work of collecting the taxes on this small and irregular service and of keeping compensation records in the Board is not justified by the small amount of taxes and benefits involved. Appropriate amendments to the Railroad Retirement Tax Act are also included in the bill. There is no way of knowing the number of individuals who would be affected, but it is probably small. A rough estimate of the cost is about $10,000 a year.

8. Elimination of deductions because of failure of children to attend school.— Under the Railroad Retirement Act, a child of a deceased employee is entitled to benefits until he reaches age 18, except that if he is age 16 or over and is not attending school, no benefit wil be paid for any month while he is not so attending. Such a provision was originally in the Social Security Act, but has been removed, and there is no good reason for continuing it under the Railroad Retirement Act. Some 150 children, whose annuities are now being withheld under the schoolattendance clause, would be affected by this provision. Most of these children, however, are in families already receiving a social security minimum amount. The total benefits to the family would therefore not be affected in these cases, although a recalculation of the individual benefits may have to be made. The amendment will have little effect on the total cost of the bill.

The table on the following page gives the costs of the amendments in the bill to the Railroad Retirement Act. Both dollar costs and tax rates are given. The table and the footnote show that the increased revenue from the increase in the taxable ceiling to $350 per month is more than enough to pay the increased benefits without increase in the tax rate.

Cost and tax rate summary—A. Additional annual costs and corresponding level tax rate required by amendments in H. R. 7840 to the Railroad Retirement Act [Assumes level annual payroll of $5,450 million on basis of $350 monthly compensation ceiling]

Provision

Annual dollar cost (in thousands)

Level cost (percent of taxable payroll)

1. Additional benefits resulting from increase in ceiling to $350 per month: Retirement benefits.

Survivor benefits.

2. Reduction of eligibility age for widows and parents to 60

3. Change in disability work clause.

4. Disabled child, continuation of benefit to widow and child.

5. Disregard compensation after age 65 if use would reduce annuity.

6. Allow widow full widow's annuity and any annuity based on her own compensation...

7. Elimination of credit for national delegate service for persons who have no other creditable service..

8. Elimination of provision for suspension of benefit of child over 16 not attending school.

Total...

Under the present Railroad Retirement Act, benefits cost $670.5 million per year on a level basis. The proposed amendments would thus increase the required annual outlay to $724.3 million ($670.5 plus $53.8). This would be equivalent to a 13.29 percent tax rate on the $5,450 million covered payroll based on a $350-per-month ceiling. The latter payroll compares with the $5,000 million assumed level annual payroll based on the present $300-per-month creditable ceiling on taxes and compensation.

The existing tax rates are not changed by the proposed amendments. However, because of the increased payroll there will be available $56 million in additional tax revenue. This compares with the annual cost of $53.8 million resulting from the benefit liberalizations of the proposed amendments.

RAILROAD UNEMPLOYMENT INSURANCE ACT AMENDMENTS

The provision of the bill mentioned earlier increasing the tax and benefit base from $300 to $350 a month applies also to the Railroad Unemployment Insurance Act contributions and benefits. As stated previously, it is estimated that the increase in the contribution base to $350 a month would increase the taxable payroll by about 9 percent. This would add, at the current contribution rate for unemployment insurance of 0.5 percent, about $24 million a year to the contributions paid by the railroads. However, it would make necessary an increase in the contribution rate from 0.5 percent to 1 percent by about January 1, 1957, The bill in effect provides for two changes in the benefit formula of the Railroad Unemployment Insurance Act which includes both unemployment and sickness benefits. The first change is to add the new bracket to the present formula. This additional benefit bracket would bring the benefit schedule more in line with the earnings of employees at the present time. It also would help to carry out the recommendation of the President that unemployment insurance benefits be increased in the various unemployment insurance systems so as to more nearly approach 50 percent of wages. The present formula provides that any employee whose earnings in a base year exceeded $3,500 would have a benefit rate of $7.50 a day. The bill provides that a new rate be provided as follows:

$3,500 to $3,999.99_.

$4,000 and over---

Per day

$7.50 8.00

The addition of the $8 benefit rate would have no effect on benefits until July 1956 since 1955 would be the first base year in which any employee could have creditable compensation of $4,000 or more.

Increasing the earnings to $350 a month would have some effect on all benefit rates in the existing schedule, but would affect principally those now in the top 3 or 4 compensation ranges.

However, the increased earnings limit for the second half of 1954 will have a slight effect on benefit rates starting July 1955. It is estimated that the effect of the $350 a month limit and $8 benefit rate, excluding the proviso, would be to increase benefits by about 3.5 to 4 percent beginning with July 1956. Over a long period of time the addition of the $8 per day bracket would probably increase benefits by about 5 percent.

The second change in the Unemployment Insurance Act provides that the employee's daily benefit rate should not be less than 50 percent of the daily rate of compensation for the employee's last employment in which he engaged for an employer preceding the registration period, but that no such rate should be increased above $8 per day.

The majority of the Board is in agreement on all of the proposed amendments except for the proposed method of achieving increases in unemployment benefits. The separate statements on this provision from the Chairman of the Board and from the labor member of the Board are attached.

This is the report of Chairman Kelly and Board Member Harper, a majority of the Board. A separate statement from the carrier member concerning the bill is attached.

All three members of the Board, however, call attention to a suggestion from the Board's budget officer that if the committee reports out a bill as a result of this hearing, a section substantially as follows should be included in the bill as reported by the committee so that, if the bill is enacted, the Board may immediately start processing adjustments necessitated by the changes in the Railroad Retirement Act:

"SECTION —. In order to carry out the purposes of this Act, there shall be set aside as of enactment date, as an additional amount appropriated to Salaries and Expenses, Railroad Retirement Board (Trust Account), $500,000 to be derived from the Railroad Retirement Account and apportioned by the Bureau of the Budget as required, for administrative expenses in administering the provisions of this Act. Any unobligated balance on June 30, 1955, of the amount hereby appropriated shall revert to the Railroad Retirement Account."

STATEMENT OF COL. RAYMOND J. KELLY, CHAIRMAN OF THE RAILROAD RETIREMEN

BOARD

The problems created by the proposed amendments to the Railroad Retire ment Act, as described in the statement by the majority of the Board, are

I am in favor of the amendment to the Railroad Unemployment Insurance Act which would increase benefit rates for unemployment and sickness benefits. Such action would be in accordance with the recommendations contained in the President's economic message.

At the present time our railroad unemployment and sickness benefits are about 40 percent of average weekly wages. Our benefits should be higher to be in line with the President's recommendation; closer to 50 percent of average weekly wages.

While I do favor an increase in benefit rates, I am not in favor of the method proposed in H. R. 7840 for increasing them. It proposes to get these results the hard way by changing the whole benefit formula in the present law.

The present formula is a fairly simple one. It is one Congress gave us in 1938. It is one the labor organizations favored in 1938 and have since supported.

This formula provides a daily benefit_rate based on an employee's annual compensation in the railroad industry. For each of ten different categories of annual compensation, there is a benefit rate specified in the law. Within any benefit year (July 1 to June 30) a benefit rate does not change.

We can easily tell from the Board's wage records what benefit rate an employee is entitled to and he can easily understand how we arrived at it.

I can understand how a benefit rate is determined under the present law. It is not easy for me to understand how it would be determined under the proposed amendment and I do not think railroad employees will find it easy to understand either.

It would cost us about $700,000 to administer the proposed amendment and it would be expensive for the railroads to provide us with the necessary information to administer it.

We don't need a new and more complicated formula in order to get higher benefit rates.

We don't need to spend a lot of money on administration to get these results. We can get these results and the results the President wants, without much increase in administrative costs. We can do it by sticking to the basic benefit formula we now have and revising the scale of benefits upward.

Here is one way to do it:

1. Increase the amount recognized as compensation in any one month from $300 to $350 (as provided in sec. 305 of H. R. 7840).

2. Add a new top benefit rate of $8.50 for earnings over $4,000.

3. Split the lowest 2 wage brackets into 3 with benefit rates of $3, $3.50, and $4. 4. Raise remaining benefit rates by 50 cents.

A comparison of the present table of benefit rates and the new table of benefit rates is set forth below:

This proposal might possibly pay out in benefits about $18 million more a year. It would cost us very little more in administrative expense to pay benefits under this proposal.

The structure of the present benefit formula which has stood the tests of 15 years of benefit payments would remain unchanged.

I recommend it for your consideration and the consideration of the railroad labor organizations and carriers.

Average benefit payments as a percentage of average weekly wage

Benefit payments would be increased by the following percentages: 11 percent for unemployment benefits; 12 percent for sickness benefits. (Estimated by the Office of the Director of Research.)

STATEMENT BY HORACE W. HARPER, LABOR MEMBER OF THE RAILROAD RETIREMENT

BOARD

As stated in the report by the Railroad Retirement Board on H. R. 7840, I am submitting a separate statement on the proviso in section 304 of the bill. I believe that this proviso is important and necessary, and should be approved for the following reasons:

The Railroad Unemployment Insurance Act has never provided adequately for the railroad employees who, because of sickness or lack of available work, or because they entered railroad employment late in the benefit year were not able to work more than a few months in the base year. Nor does it provide adequately for individuals whose rate of earnings has increased substantially after the end of the base year, and before the period of unemployment. The annual compensation base used to determine benefit rates is adequate for most employees fortunate enough to be fully employed in the base year, and on the whole, is more satisfactory than State law provisions. However, there remains this group for whom benefits are inadequate. The proviso that benefit rates should be at least 50 percent of the daily rate of compensation in last employment, subject to the $8 per day maximum is designed to take care of them.

The beneficiaries this proviso is designed to protect are not just casual employees. They include thousands of regular railroad workers with years of railroad service. Others are at the beginning of railroad careers and may have worked as long as a year in addition to their brief base-year service before becoming unemployed or sick. They included workers in many different occupations, such as firemen, brakemen, stenographers, station agents, carmen, and machinists, not just laborers.

Fre

Of the 68,000 unemployment beneficiaries paid at a rate less than $6 per day for unemployment in the 1952-53 benefit year, 35,000 were employed in the railroad industry within 30 days of the beginning of their unemployment. In other words, this large group had substantial employment after the base year. quently, among the beneficiaries, those with low rates are employees who were forced to stop working because of sickness early in the base year. Among the sickness beneficiaries with rates under $6 the proportion still active in the industry at the time their benefits began was about the same as among those unemployed. Of those not recently employed, 53 percent had worked in the railroad industry for more than 5 years.

Benefits under the Railroad Unemployment Insurance Act in 1952-53 totaled close to $100 million, and it now appears that the total for the current benefit year will not be much different. However, to be on the safe side, I have assumed for cost purposes that benefits under the present law would average $125 million a year. For all cost estimates the Board has used an average taxable payroll of $5 billion a year. With this payroll the benefits under the present law, for longrange cost calculations, are estimated at 2.5 percent of the taxable payroll.

I have estimated that H. R. 7840, if enacted, would add 16 percent to the benefits for a year like 1952-53. Here again, to be on the safe side, I have assumed a 20-percent increase for cost estimates. Thus the total benefits including the proposal are estimated at $150 million a year. Increasing the taxable earnings limit to $350 a month will add about 9 percent to the taxable payroll, raising it to $5.45 billion a year. Thus the unemployment and sickness benefits unde H. R. 7840, for long-range cost calculations, are estimated at 2.75 percent of i taxable payroll.

The Railroad Unemployment Insurance Act sets aside an amount from co tributions equal to 0.2 percent of the taxable payroll to be used for administra

tive purposes. The administration of the law has never cost this much. However, assuming that it would, the total cost of the Railroad Unemployment Insurance Act, adding H. R. 7840 and including administration, would be 2.95 percent of payroll. Considering the conservative nature of the above calculations, I consider this to be ample evidence that the financing of the Railroad Unemployment Insurance Act is more than sufficient to provide the benefits proposed in H. R. 7840.

As of January 31, 1953, there was a total of $653 million in the Railroad Unemployment Insurance Account as a reserve to support payments under the Railroad Unemployment Insurance Act. This balance is currently earning interest at a rate of 2% percent. Contributions by employers are paid at a rate of 0.5 percent of taxable payrolls. This rate will remain in effect as long as the balance in the account is above $450 million. The income from interest and contribution is sufficient so that, on the basis of recent benefit experience, there is little prospect under the present law of an increase in the contribution rate to 1 percent before January 1958. It may not increase before January 1959. If the proposals in H. R. 7840 are enacted, our experience indicates that the contribution rate would increase 1 year sooner; that is, the contribution rate would probably increase to 1 percent in January 1957, but it might not increase before January 1958.

As I have just stated, the contribution rate under the Railroad Unemployment Insurance Act has been 0.5 percent since January 1, 1948. By contrast, the employers covered under State unemployment insurance laws now pay an average rate of about 1.5 percent to the States plus 0.3 percent to the Federal Government, and it is more probable that they will pay at a higher rate in the future than that they will pay at a lower one. Thus, now and for a number of years to come the railroads have the advantage of a relatively low rate for unemployment contributions. Rates for employers under State laws since 1948 have been as follows, including the 0.3 percent Federal tax:

One objection which is given to this proviso is that administrative difficulties and costs would be very great. It appears to me that the administrative difficulties are overemphasized and that in actual operation will not be found to be very important. While it is true that the administrative costs will increase by a relatively small amount, I do not believe that such costs should take precedence over equitable and necessary benefits in the consideration of this bill.

For the reasons given above, I believe that the increases in benefits which would follow enactment of this provision are equitable and just, and that they should be enacted by Congress.

STATEMENT OF F. C. SQUIRE, MEMBER, RAILROAD RETIREMENT BOARD

I am opposed to two of the principal provisions of H. R. 7840 for the reasons given below.

Increase in maximum compensation from $300 to $350 is inequitable

The rate of the payroll tax on the railroads is already 3 times (64 percent versus 2 percent) the payroll-tax rate on their nonrailroad competitors and other industries. To increase the tax base from a maximum of $300 per month to $350 would increase this existing discrimination by $28 million a year.

The bill proposes liberalization of the benefit rates of the Railroad Unemployment Insurance Act, the provisions of which are already far more liberal than those of the State laws

Only 2 years ago substantial increases were made by Public Law 343, approved May 15, 1952, in the daily benefit rates.