EXECUTIVE OFFICE OF THE PRESIDENT, Hon. CHARLES A. WOLVERTON, BUREAU OF THE BUDGET, Washington 25, D. C., March 22, 1954. Chairman, Committee on Interstate and Foreign Commerce, Washington 25, D. C. MY DEAR MR. CHAIRMAN: This is in reply to your letter of February 16, 1954, wherein you request a report on H. R. 7840, to amend the Railroad Retirement Act, the Railroad Retirement Tax Act, and the Railroad Unemployment Insurance Act. It is also in answer to your request relative to H. R. 7869, 7951, 7956, 7973, and 7979, bills identical to H. R. 7840. The proposal would revise the railroad retirement program in several important respects. It would increase the maximum wages subject to payroll taxes and creditable toward benefits from $300 to $350 a month. It would reduce the eligibility age for widows and dependent parents from 65 to 60 years of age. Eligibility for disability benefits would be put on a month-by-month basis and the allowable earnings raised to $100. Compensation after age 65 would not be counted toward benefits if it had the effect of reducing such benefits. Surviving spouses entitled to benefits in their own right would be permitted to receive such benefits, and their survivorship benefits as well, without any offset requirements. In cases where a dependent child is disabled, his benefit rights would continue after his 18th birthday both in respect to the offspring and the widow. Several other relatively minor revisions, which would be brought about by the proposed bill, include elimination of the school attendance provision for children's benefits and exemption of service as a union delegate from covered employment. The Railroad Retirement Board has made a cost analysis of the proposal and indicates that it would not add to the present deficiency of the program. Raising the tax base would increase revenues by an estimated $56 million a year and the automatic increase in benefits resulting from a parallel increase in creditable wages would be $31 million a year. Other changes would add another $23 million a year to annual costs. The net effect would be a slight reduction in the financial deficiency under which the program is now operating. In respect to the railroad unemployment insurance program, the bill would raise the tax base to $350 a month with a parallel increase in maximum benefits from $7.50 to $8. This provision is recommended. The unemployment benefits would be further liberalized by a provision that in no instance could they be less than 50 percent of the claimant's last daily rate of pay. We believe this provision requires careful examination. The change in the method of computing unemployment benefits from an annual-wage base to a "last daily rate of pay" would favor particularly the casual employees of the railroad industry. The casual worker is already favored in that the present railroad unemployment insurance program does not contain any limitation on the duration of benefits to keep it in accordance with the claimant's prior service in the industry. In consequence, it is possible now for a person who works 5 or 6 weeks or earns a minimum of $300 in the railroad industry to get benefits for as much as 26 weeks of unemployment and 26 weeks of sickness-far more in the aggregate than the total wages earned in the railroad industry. The proposed bill would have the effect of increasing substantially the benefits going to such claimants. Inasmuch as the cost of unemployment insurance is borne by the carriers, we believe the Congress will wish to consider whether these provisions of the bill create an inequity by increasing the burden of the carriers with respect to individuals whose connection with the industry is of short duration. If it is intended to depart from the annual basis of determining benefits, such a step might be accompanied by a standard requiring more substantial connection with the railroad industry as a precondition of receiving benefits. Such standards exist in the great majority of State unemployment insurance programs. The proposed increase in the covered wage base to $350 a month would correspond to the President's proposal for revision of old-age and survivors insur ance. In view of these Presidential recommendations, the proposal for a higher wage base and resulting automatic increases in benefits under the railroad system would appear appropriate. Its enactment is recommended. Because of the complex interrelationship between social security and railroad retirement, however, it is important that enactment of a wage-base increase in the railroad retirement program not become effective in advance of the increase in old-age and survivors insurance. The case regarding the other increases in benefits, amounting to $23 million a year, is one which the Congress will wish to consider in connection with (1) the existing financial situation of the railroad retirement system, and (2) the potential effect of railroad retirement increases on the general old-age and survivors insurance program, and on relationships between the two systems. In respect to the first point, the fact that the system is presently underfinanced by approximately 0.9 percent of payroll raises a question as to whether a substantial part of the increased revenues should be allocated to decreasing the deficiency. As indicated above about 60 percent of the increased revenues resulting from the higher wage base in the retirement program would be required to finance the automatic increase in benefits. Most of the remaining 40 percent, under the bill, would be devoted to the other liberalizations. In regard to the second point, the reduction of the eligibility age for widows may well lead to pressures for a similar measure in the old-age and survivors insurance program. Inasmuch as the railroad retirement program is a socialinsurance system, as well as a staff pension plan, it may serve to some extent as a precedent for OASI. As a matter of principle, the social-insurance features of the railroad retirement program should be kept in consonance with the general social-security program insofar as it is practicable and equitable to do so. Although we recognize that there may be special problems of survivorship in the railroad industry, we cannot endorse this provision. In according eligibility to disabled dependents beyond 18 years of age, the bill creates a new class of beneficiaries which is not provided for in the old-age and survivors insurance system. The principle, however, is equitable and provided for in tax law. It would seem desirable to provide specifically that the offspring be, in fact, economically dependent. The provision making it possible for surviving spouses to receive two benefits may be questioned on the grounds that (a) the spouse's benefit is a social benefit based on the added financial need of annuitants with dependent wives and (b) that it has no relation to individual contributions. We believe this argument has validity and would suggest that it be considered by the committee. Favorable action on this provision should not be considered a precedent for similar liberalization of social-security laws. The other provisions of the bill are without objection. In summary, the increase in the taxable wage base and the concomitant automatic increase in benefits would be consistent with the President's recommendations respecting the old-age and survivors insurance program. Their enactment is recommended to become effective at such time as the amendments to the Social Security Act become effective. The increase in maximum unemployment benefits is also recommended at such time as the wage base is raised. With respect to the other changes in the railroad retirement program, the Bureau, although agreeing that most of these are socially desirable, believes that the Congress will wish to consider carefully whether they should be enacted at this time. Sincerely yours, Jos. M. DODGE, Director. The CHAIRMAN. I will first call for the appearance before the committee of the Members of Congress who have introduced bills and who are present and desire to be heard. I note that Mr. Van Zandt, of Pennsylvania, our colleague, who has introduced one of these bills is present. Mr. Van Zandt. STATEMENT OF HON. JAMES E. VAN ZANDT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA Mr. VAN ZANDT. Mr. Chairman, my name is James E. Van Zandt, representing the 20th District of Pennsylvania. It is needless for me to mention again that my congressional district in Pennsylvania has a large railroad population and for that reason I have first hand knowledge of the sentiments of active and retired railroaders with respect to liberalizing the Railroad Retirement Act. There are in my congressional district various groups of retired and active railroaders who have a thorough knowledge of the Railroad Retirement Act and definite ideas as to how it should be amended to bring about the liberalization of certain provisions of the existing law. Before I discuss the proposed amendments favored by my constituents and which were introduced by me at their request, let me point out that railroad employees in the 20th Congressional District of Pennsylvania are mindful of the fact that the Railroad Retirement Fund must be maintained in a solvent condition. For that reason we respectfully request this committee to consider the amendments introduced by me and approve them if it is felt that they are justified and will not impair the solvency of the retirement fund. The following bills were introduced by me early in the 83d Congress and are now pending before this committee: 1. H. R. 1736 was introduced on January 14, 1953, and provides that railroad employees may retire on a full annuity at age 60, or after serving 30 years, and that such annuity for any month shall not be less than one-half of the individual's average monthly compensation for the 5 years of highest earnings. 2. H. R. 1737 was introduced on January 14, 1953, and provides for a 25-percent increase in the annuities and pensions payable to railroad employees and their survivors. 3. H. R. 1738 which was introduced on January 14, 1953, provides full annuities at compensation of half salary or wages based on the 5 highest years of earnings for individuals who have completed 35 years of service or who have attained the age of 60. 4. H. R. 3104 was introduced on February 16, 1953, and provides that the age requirement for a widow's insurance annuity be reduced from age 65 to age 60. There are other bills pending before this committee introduced by Members of Congress which provide for smaller increases in benefits and for liberalizing other provisions of the Railroad Retirement Act. Many of my constituents are interested in these bills and respectfully request that they also receive your serious attention. Mr. Chairman, H. R. 7840 which you introduced on February 12 and which is jointly sponsored by all standard railroad organizations embodies some changes in the Railroad Retirement Act but does not include some amendments desired by my constituents. While I am in accord with the provisions of H. R. 7840 and intend to support it, I feel that it should be amended to include some if not all of the amendments represented by my bills. My understanding of the provisions of H. R. 7840 is that it provides for the much desired reduction in the eligibility age of widows from 65 to 60. Another provision revises the existing law regarding the disability work clause which now provides that a disabled person is deemed to have recovered if he earns more than $75 monthly in each of 6 consecutive months. Under the provisions of H. R. 7840, the annuity would not be payable in any month where the amount earned was more than $100. There is also a provision in H. R. 7840 which would permit disabled children and widowed mothers to have their benefits continued after the child reaches age 18. Under existing law, benefits terminate for the widowed mother and disabled child when the latter reaches 18 years of age. Another provision of H. R. 7840 increases from $300 to $350 the maximum compensation that is taxable and creditable for both railroad retirement and unemployment insurance. New benefit rates are established for crediting this additional compensation under the Unemployment Insurance Act. It is provided that the daily benefit rate shall not be less than one-half the last daily rate of pay at which the employee worked in railroad employment with a maximum of $8. H. R. 7840 revises the present formula of using compensation earned after age 65 in computing the annuity. Under existing law, compensation earned after retirement is used in computing the annuity despite the fact that through lower earnings after age 65 the annuity may be reduced. Under the provisions of H. R. 7840, the service rendered after age 65 may be credited but the compensation may be disregarded if by using it the annuity would be reduced. H. R. 7840 also provides that a survivor is entitled to a survivor annuity and retirement annuity. Under existing law, a widow who has had railroad employment and in her own right is eligible for a retirement annuity is penalized if she is eligible also for a survivor's annuity by reason of her husband's employment since she cannot receive both benefits. H. R. 7840 provides that the widow is entitled to both benefits. Finally, H. R. 7840 excludes delegates of a labor organization from coverage under the Railroad Retirement Act if the delegate has no other covered employment. This present law grants coverage to delegates of a labor organization, but the sponsors of H. R. 7840 state that, since the conventions frequently include delegates from units outside the railroad industry or outside the country, the accumulation of credits is so trifling and of no substantial value in comparison with the nuisance of recording it and collecting taxes on it. Mr. Chairman, in completing my analysis of H. R. 7840, I want to repeat again that I intend to support it. I feel, however, that it falls short of the expectations of active and retired railroad employees. To begin with, there is no provision in H. R. 7840 for an across-theboard increase in benefits, despite the fact that in the opinion of many, the railroad retirement fund could stand a reasonable increase in benefits. At the moment, it appears that this Congress will increase socialsecurity benefits and while I realize that social-security benefits are somewhat below the level of benefits paid by the Railroad Retirement Board, I say in all fairness, how can we increase social-security benefits without doing likewise for the beneficiairies of the Railroad Retirement Act. It should be kept in mind that the payroll deductions are greater under the Railroad Retirement Act than they are under social-security. In addition, increases under the Railroad Retirement Act and the Social-Security Act have not kept pace with the increased cost of living. For that reason, I heartily recommend that H. R. 7840 be amended to include an across-the-board increase in monthly benefits. As previously mentioned, there are thousands of active and retired railroaders living in my district who believe that a new formula should be adopted which would permit retirement on a full annuity at age 60 or after serving 30 years, and that such annuity for any month shall not be less than one-half of the individual's average monthly compensation for the 5 years of highest earnings. This change in formula is only one of several being advocated, and I earnestly hope that this committee will give the subject earnest consideration. The provision of H. R. 7840 increasing the payroll tax base from $300 to $350 will undoubtedly attract criticism because it will mean an increase in the monthly payroll deductions. I must report, Mr. Chairman, that my constituents have steadfastly opposed any increase in the payroll tax since they continually point out that the railroad retirement fund, in their opinion, is capable of financing the cost of proposed amendments without increasing the amount of monthly payroll deductions. In conclusion, Mr. Chairman, may I emphasize that, while I am in accord with the provisions of H. R. 7840, I feel that it does not go far enough; and, for that reason, I respectfully urge that it should be amended along the lines I have suggested, if it is to meet the wishes of thousands of my constituents. Thank you. The CHAIRMAN. Do you have any questions, gentlemen? Mr. HARRIS. First, I should like to say that I, as well as other members of this committee, realize your interest in the railroad-retirement program. You have made numerous appearances before the committee and many expressions of interest on this subject in other places, including the floor of the House. And we realize the interest and welfare which you have of railroad-retired people. I appreciate the fact that you have had experience in the industry yourself, that you are familiar with the subject, and that you come from the industry. Therefore, you are familiar with the problems. I appreciate the fact that you are here before the committee today in the interest of this program. I understand that you are favorable to the provisions of this proposal with reference to the extension of benefits and that you urge this committee to increase the benefits to retired employees. Mr. VAN ZANDT. Are you speaking about the provisions of H. R. 7840? Mr. HARRIS. Yes. Mr. VAN ZANDT. It is my understanding that there are no provisions in this bill that will provide an across-the-board increase for those already retired. There however may be increases for those who retire in the future if the taxing base is broadened from $300 to $350. Mr. HARRIS. Well, there are provisions that increase, in one way or the other, benefits of certain people. Mr. VAN ZANDT. To certain people but not an across-the-board increase. Mr. HARRIS. Under the railroad-retirement program. Mr. VAN ZANDT. Yes, the increase is limited to certain people. Mr. HARRIS. And you are supporting those benefits? Mr. VAN ZANDT. Yes. Mr. HARRIS. And your complaint is that this bill does not go far enough? Mr. VAN ZANDT. That is correct. |