STATEMENT OF THE AMERICAN FARM BUREAU FEDERATION

TO THE RAILROAD RETIREMENT SUBCOMMITTEE

OF THE SENATE COMMITTEE ON LABOR AND PUBLIC WELFARE

Presented by:

Matt Triggs, Assistant Legislative Director

May 31, 1973

We welcome the opportunity to present Farm Bureau's views to the Committee.

Farm Bureau is a voluntary organization of 2,175,780 families in forty

nine states and Puerto Rico.

The interests of our members would be adversely affected by the enactment of H. R. 7200.

H. R. 7200 would (1) reduce the tax that railroad workers pay for Railroad Retirement programs from 10.6% to 5.85% of taxable pay (2) increase the tax railroads pay from 10.6% to 15.35% of taxable earnings, and (3) authorize railroads to recoup the increased tax by automatic non-suspendable increases in freight rates.

The effect would be that railroad workers would successfully transfer to farmers and other shippers and to consumers, on a continuing basis, about one half of the contribution they now make for retirement.

This transfer of payment obligations does nothing to reduce the actuarial deficiency of the Railroad Retirement Fund. In fact if H. R. 7200 is enacted the actuarial deficit would be substantially increased by (1) extending the temporary benefit increases authorized in recent years despite the fact that no provision has been made to finance these benefits, and (2) providing a new benefit, retirement at full pension rates for male employees at age sixty with thirty years service.

Farmers pay large freight bills not only to ship their products to market but also for the farm machinery and supplies they purchase for production purposes and for the consumer products they buy. The burden of the new cost resulting from H. R. 7200 would be particularly heavy for farmers who, because of distance to market or source of supply, are dependent on rail service.

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We recognize that railroad employees make larger payments for retirement than employees covered by Social Security, but they are also entitled to receive larger benefits--benefits which railroad unions have advocated in the past with full recognition of the costs to the retirement fund.

We recognize the argument that what is involved is a transfer to consumers of the pension costs of an existing program--a transfer which can and does proceed in other cases without Congressional action. But the Railroad Retirement Act is a statute. The lengthy considerations given by the Congress to the statute over the years should not now be brushed aside. Congress should not necessarily endorse whatever method of sharing pension costs the unions and the industry may propose.

In this respect much attention has been given to the argument that what Congress is being asked to do is merely to affirm a labor-management agreement that the parties have worked out. The persuasiveness of this argument is diminished by the fact that both parties have agreed that the consumer and shipper should pay the costs of the shifted obligation.

We recognize the need of carriers for more expeditious action on wagecost increases. We have supported more flexible and expeditious rate making policy. But, as members of this Committee know, rate-making policy is a complex question involving consideration of innumerable factors. Legislation to amend rate-making principles and procedures, based on comprehensive hearings, is to be considered by the Commerce Committee in the near future.

We recognize the need to improve the precarious financial status of the Railroad Retirement Fund. But H. R. 7200 does not deal with this problem. Although railroads and railroad unions were committed to submitting a solution to the problem of the financial status of the Fund they have not done so. They now ask for more time. But the enactment of H. R. 7200 would make it more difficult to resolve the financial problem, would add to the actuarial

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deficit and would create precedents which narrow the options available. We would be farther from a solution--not nearer to a solution--if H. R. 7200 were enacted.

Major trends in the transportation industry in recent decades have been

(1) a steady decline in the percentage of the total traffic shipped by rail and (2) a steady decline in railroad employment. The enactment of H. R. 7200 would accelerate both of these trends. In the final analysis these trends exist because of the fact that in more and more situations the rates and services of rail carriers have not been competitive; they are becoming less competitive. enactment of H. R. 7200 can only further reduce the competive status of railroads and give new impetus to the above trends. This is a short-run expedient which solves nothing, makes the problem more difficult and will have an adverse impact on railroads, railroad employment and the nation.

The

We appreciate the complexity of the problem. Congress is being asked to act hastily because the temporary increase in benefits is near expiration.

However,

we believe the parties should be expected to produce something better than H. R. 7200--an answer that does not involve shifting the burden to others. We recommend that the Congress avoid any change in benefits or the sharing

of costs, or any change which would narrow the options available. We recommend that action be taken to stabilize the current situation for a few months to provide the parties an incentive and an opportunity to present more satisfactory proposals

than those in H. R. 7200.

Senator HATHAWAY. The subcommittee will go into executive session in 2 minutes.

[Whereupon, at 11:30 a.m., the subcommittee proceeded into executive session.]

APPENDIX A

Public Law 93-69

93rd Congress, H. R. 7200

July 10, 1973

An Act

To amend the Railroad Retirement Act of 1937 and the Railroad Retirement Tax Act to revise certain eligibility conditions for annuities; to change the railroad retirement tax rates; and to amend the Interstate Commerce Act in order to improve the procedures pertaining to certain rate adjustments for carriers subject to part I of the Act, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

87 STAT. 162

Railroads.

Retirement annui

TITLE I-RAILROAD RETIREMENT ACT AMENDMENTS ties and tax

rates.

SEC. 101. Section 2(a) of the Railroad Retirement Act of 1937 is Interstate and amended

intrastate rate

(1) by striking out "Women" in paragraph 2 and inserting in adjustments. lieu thereof "Individuals";

(2) by striking out "Men who will have attained the age of sixty and will have completed thirty years of service, or individuals" in paragraph 3 and inserting in lieu thereof "Individuals";

and

60 Stat. 727; 75 Stat. 585. 45 USC 228b.

(3) by striking out "such men or" in paragraph 3 thereof. SEC. 102. (a) Section 3201 of the Internal Revenue Code of 1954 Employee re(relating to the rate of tax on employees under the Railroad Retire- tirement tax ment Tax Act) is amended by striking out all that appears therein and rates, reducinserting in lieu thereof the following:

tion.

80 Stat. 1078.

"In addition to other taxes, there is hereby imposed on the income 73 Stat. 28; of every employee a tax equal to the rate of the tax imposed with 26 USC 3201. respect to wages by section 3101 (a) of the Internal Revenue Code

of 1954 plus the rate imposed by section 3101 (b) of such Code of so 86 Stat. 1362, much of the compensation paid to such employee for services rendered 1363.

by him after September 30, 1973, as is not in excess of an amount equal to one-twelfth of the current maximum annual taxable 'wages'

as defined in section 3121 of the Internal Revenue Code of 1954 for 68A Stat. 417; any month after September 30, 1973."

(b) Section 3202 (a) of such Code is amended

86 Stat. 419, 1365.

(1) by striking out "1965" wherever it appears in the second 80 Stat. 1088. sentence thereof and inserting in lieu thereof "1973";

(2) by striking out "(i) $450, or (ii)" wherever it appears in

the second sentence thereof; and

(3) by striking out ", whichever is greater," wherever it appears

in the second sentence thereof.

(c) Section 3211(a) of such Code (relating to the rate of tax on Employee repreemployee representatives under the Railroad Retirement Tax Act) is sentatives, tax. amended by striking out all that appears therein and inserting in lieu 73 Stat. 29; thereof the following:

"(a) In addition to other taxes, there is hereby imposed on the income of each employee representative a tax equal to 9.5 percent plus the sum of the rates of tax imposed with respect to wages by sections 3101 (a), 3101 (b), 3111(a), 3111(b) of the Internal Revenue Code of 1954 of so much of the compensation paid to such employee representative for services rendered by him after September 30, 1973, as is not in excess of an amount equal to one-twelfth of the current maximum annual taxable 'wages' as defined in section 3121 of the Internal Revenue Code of 1954 for any month after September 30, 1973."

80 Stat. 1078, 1088.

(d) Section 3221(a) of such Code (relating to the rate of tax on Employers, employers under the Railroad Retirement Tax Act) is amended by excise tax. striking out "In addition to other taxes" and all that follows to "except that" and inserting in lieu thereof the following: