Mr. SCHOENE. It is our view that unemployment insurance should be dealt with in its entirety by legislation. I think that the autoworkers and the steelworkers were driven to supplementation by collective bargaining because they could not get legislative action in the States sufficiently, generally in the States, to take care of their needs. My own personal feeling is that it would be preferable generally to take care of unemployment insurance by legislation. We feel that having a nationwide system for the railroad industry alone, we can properly make our recommendations to Congress on that subject, rather than to have a structure which consists partly of legislation and partly of supplementation through collective bargaining.

Senator CLARK. You suspect, or perhaps hope, that Congress is more enlightened in this regard than some of the State legislatures? Mr. SCHOENE. Yes, sir; we do. Also, when compared with the extension of benefits, the proposed extended benefits in this case are not excessive. The steelworkers plans through supplementation provide benefits up to a year which would be comparable to the maximum benefits provided here, that is, a 26-week extension over the normal benefit payment.

I think, therefore, both when compared with action previously taken within the industry in the case of mergers and consolidations and when compared with the benefits afforded, protection afforded, in other large industries, our requests to this committee are modest. Some question arises as to the adequacy of the maximum tax rate provided in the bill, S. 226. It was my understanding that at the time S. 1313 passed the Senate last year, a 32 rate was considered adequate to support the amended benefits. We are now informed by the Railroad Retirement Board's actuaries and economists that they believe that the overall requirement to support the legislation is more nearly 334 percent.

The Chairman of the Board, as I understand it, recommended that a 4-percent maximum be adopted. We would join in that recommendation and point out, in connection with it, two things:

First, the fact that the rate is a maximum of 4 percent does not mean that that 4 percent will be levied regardless of whether it is needed or not. As the committee well knows, the tax rate, the actual effective rate, is fixed on a sliding scale, depending upon the reserves in the railroad unemployment insurance account. When the reserves were high for many years, the effective rate was only one-half of 1 percent, even though the maximum rate was 3 percent.

We feel that the railroads themselves have a great deal of control over how much the effective rate actually is. It was brought out in the hearings before the House Committee on Interstate and Foreign Commerce the other day that even though railroad employment is at the lowest level in history—I should not say in history, but I should say in this century-nevertheless, there are substantial numbers of new entrants in the railroad industry every year. They run in the neighborhood of an excess of 100,000 entrants, though as of now we have over 200,000 on the unemployment benefit roles.

We have been seeking to induce the railroads to utilize people who are displaced who are thoroughly experienced, who are not decrepit, but who are in the prime of life, and who lose out in one place and

could be, by diligent effort, reemployed at other points where their skills may be needed.

Some improvement in that respect has occurred through the replacement efforts of the Railroad Retirement Board. However, we feel that if the railroads really work on it to try to reduce the unemployment load by making use of these experienced employees, relaxing their hiring age requirements, for example, so as not to bar people of 40 and 45 years of age for being too old to be taken on as new employees, that they can do much to reduce the load on unemployment insurance.

They can do much to reduce it by stabilizing employment and not cutting back the forces every time there is a temporary decline in volume of business.

The maintenance employees can be fully utilized, even during periods of business slumps.

It is our feeling that the cost or the maximum of 4 percent of payroll is a desirable incentive to the railroads to reduce their costs. We feel it can be done and we demonstrated that in more detail in the hearings with respect to S. 1313. I understand that is incorporated in the record.

Senator MORSE. By reference, that is correct.

Mr. SCHOENE. That concludes my discussion of the provisions of the bill and the justifications for them. However, I want now briefly to turn to a subject which I think will loom rather large in the evidence that the management may present to the committee, and that is the ability of the railroads to absorb the financial impact of the increase in cost that would result from the enactment of the bill.

In that connection, I want again to remind you that the tax schedule, so far as the retirement tax is concerned, was revised in this committee last year, so as to have its impact more gradually than the bill as originally introduced last year.

It was my understanding that that was in specific recognition of the fact that the railroad industry, along with other industries, was suffering from the general business recession, and it was the desire of the committee to afford an opportunity for the industry to make some recovery from that condition before the full cost took its incidence.

We believe that the railroads last year, not only before this committee but before this so-called Smathers subcommittee, the Committee on Interstate Commerce, and through widespread publicity, created an exaggerated picture of the alleged financial distress of last year. We do not dispute that they suffered from the general business recession, but we think it was overstated.

We presented to this committee and to the Smathers subcommittee some rather detailed evidence last year indicating the extent of that exaggeration. I do not want to repeat or recapitulate that, but I do want to call your attention to one item. I think the impression has been created very widely that the railroad industry has either been static or a contracting industry, both as to its freight transportation and its passenger transportation.

While it is true that there has been a decline in absolute terms of passenger traffic, there is still a substantial volume of passenger traf

fic being hauled. But so far as freight traffic is concerned there has been a substantial increase in the ton-miles of revenue freight that the railroads have hauled. I have looked over the figures back to 1921, going through all the glorious periods of the twenties when there was no truck competition to speak of, and I find that in no year prior to 1941 did the railroads ever haul as much as 450 billion revenue ton-miles. But from 1942 through 1957 they hauled over 600 billion revenue ton-miles in every year except 1946, 1949, 1950, and 1954. That gives you some idea of the relative capacity and volume of the railroad industry's performance in the postwar period as compared to the prewar period.

In 1957, the year of the incidence of the recession, they still hauled 618 billion ton-miles of revenue freight as compared with always under 450 billion prior to 1941.

A few financial indicators: One of the greatest apostles of doom before the Congress was the president of the Pennsylvania Railroad. To listen to his presentation one would assume that they were on the verge of bankruptcy. However, it was not long after his appearance before the committees of Congress that he announced to the stockholders that the railroad had arranged some years earlier for a $50 million emergency credit, which it can draw upon for emergency purposes, which it had not found necessary to draw upon and it did not expect it necessary to draw upon that year. It did not draw on it but instead declared a small dividend. Before the year was out they had earned a dividend that they paid.

The railroads as a whole, according to the announcement of Mr. Loomis, the president of the Association of American Railroads, ended in the year 1958 with net income of $590 million. That is not a stupendous figure but it compares favorably with its historic figures. I have compared the net income for all the years in a 38-year period from 1921 through 1958 and it appears that in only 17 of those 38 years did the railroads earn in excess of $590 million in net income. Senator CASE. Are those figures after or before taxes? Mr. SCHOENE. Those are after taxes. That is net income. Senator CASE. After income taxes?

Mr. SCHOENE. Yes, sir.

Senator CLARK. Is this just first-class railroads or all railroads?
Mr. SCHOENE. That is class 1 railroads.

That 38-year period includes the entire period of the twenties which was supposed to be the heyday of the railroad industry. It includes the war years when the railroads were overloaded with traffic. It includes all the postwar years during which by and large the railroads had reached a new level of prosperity.

But whatever we may feel as to what the actual condition of the railroads was last year, I think it should be noted that the substantial recovery that apparently the committee had hoped for has in fact been realized. That is shown by comparing the experience of the railroads during the first 8 months of last year with the experience during the latter months of the year. I have not been able to get December figures yet but I have made some comparisons between the performance of the railroads, their relative performance in the first

8 months of 1958, with the next 3 months, September, October, and November. As I say, I cannot give you December because that has not yet become available.

During the first 8 months of 1958 the net railway operating incomethis differs from the net income figure that I used before and the fixed charges have not been taken out of this figure that I used before, but operating expenses and taxes have been.

Senator CLARK. Operating expenses and local taxes but not Federal taxes; is that right?

Mr. SCHOENE. I think that is right. I think Federal income taxes have not been taken out of the figures that I am using here.

I have been informed that on these figures the Federal taxes have been taken out.

Senator CLARK. As Senator Morse says, they could not have been paid. What did you do, accrue them?

Mr. SCHOENE. That is the way it is done for purposes of arriving at the figures. Net railway operating income is sometimes stated after Federal taxes and sometimes before Federal taxes.

Senator CLARK. This is not just a cash statement, this has some accruals in it; it must have.

Mr. SCHOENE. Yes; that is right.

In the first 8 months of 1958 the net railway operating income was 36 percent below the corresponding months of 1957, and 42 percent below the corresponding months of 1956, and 46 percent below that of 1955 for the first 8 months.

During the next 3 months, September, October, and November, compared to the corresponding months of 1955, 1956, and 1957, we find that it was only 9 percent below 1955, only 6 percent below 1956, and 16 percent above 1957.

Senator CLARK. Can you give us roughly a comparison between the total revenues for the first 8 months and the total revenues for the next 3 months? What I am interested in seeing is whether the 3 more favorable months are months of high traffic, average traffic, or low traffic.

Mr. SCHOENE. Yes. You want that in terms of gross revenue?
Senator CLARK. Yes.

Mr. SCHOENE. I do not have that here but I will supply it.
Senator MORSE. Supply it for the record.

Mr. SCHOENE. The 1955 and 1956 railway net operating income was above a billion dollars. The postwar average has been almost a billion. It is $938 million. These 3 to 4 months of 1958 is projected to an annual-rate-yielded net railway income in excess of a billion dollars.

Senator CLARK. Would that be adjusted seasonally? In other words some months are better than others.

Mr. SCHOENE. That is correct.

In extending or projecting a 3 months' period to an annual period projection is subject to that reservation. I have attempted to eliminate any seasonal distortion in the other figures that I gave by comparing 8 months with the corresponding 8 months in previous years, and 3 months with the corresponding 3 months in previous years.

Senator CLARK. You know, and I do not, so tell me. Are September, October, November, good months in the railroad business, bad months, or average months?

Mr. SCHOENE. You flatter me when you say I know and you do not because I cannot give you an offhand answer on that. I will have to do some checking.

Senator CLARK. The third quarter I suppose is historically either a good quarter, a bad quarter or an average quarter. Perhaps you could let us know.

Mr. SCHOENE. I will be glad to supply that.

(The document referred to follows:)