support. So notwithstanding the fact that the bill that bears my name is one that I am very proud of, I am pleased in these circumstances to say that I will give my wholehearted support to the bill which I introduced yesterday which represents the agreement between the brotherhoods and the railroads.

I have every confidence that the plan agreed upon is in the public interest and certainly not harmful in any sense, in my opinion. I see that Mr. O'Hara would like to say something.

STATEMENT OF HON. JOSPEH P. O'HARA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA AND A MEMBER OF THE COMMITTEE

Mr. O'HARA. On April 29 I introduced H. R. 6397. The problem which has been outlined by the chairman and other Members of Congress who have spoken has had my consideration for some time. I have some witnesses who are here, at least one, and I would like for him to have an opportunity to give some testimony with reference to this bill so that the committee may consider it, and I cast no reflection upon H. R. 6766.

The CHAIRMAN. What is the gentleman's name?

Mr. O'HARA. Mr. Stack.

The CHAIRMAN. I see Mr. Stack's name on the list of witnesses. The first witness this morning will be Mr. Carter Fort, representing the Association of American Railroads.

STATEMENT OF CARTER FORT, VICE PRESIDENT AND GENERAL COUNSEL, ASSOCIATION OF AMERICAN RAILROADS

Mr. FORT. Mr. Chairman and gentlemen of the committee, it is always a pleasure for me to appear before this committee. For the record perhaps I should say that my name is Carter Fort, and that I appear here for the Association of American Railroads of which I am vice president and general counsel.

That association, as you know, is a voluntary organization of railroads which includes in its membership companies operating 95 percent of the class I mileage of the country and having about 95 percent of the total class I railroad revenues.

The Chesapeake & Ohio lines are not included in the railroads for which we speak in legislative matters.

I shall take only a few minutes of your time today.

Representatives of the Association of American Railroads and representatives of the Railway Labor Executives Association have agreed upon amendments of the Railroad Retirement Act and the Railroad Unemployment Insurance Act, and have agreed jointly to sponsor a bill proposing such amendments.

Such a bill was introduced in the House yesterday by your chairman and was numbered H. R. 6766. An identical bill, S. 2782, was introduced in the Senate yesterday by Senators Taft and Ives.

I shall call your attention briefly to the changes which H. R. 6766 would make in the present law.

First, however, I should say that the agreement reached by the American Association of Railroads and the Association of Railway Labor Executives was, like most agreements, a result of give and take.

Both sides believe that the amendments to the Railroad Retirement Act and the Railroad Unemployment Insurance Act, which are proposed in H. R. 6766, when those amendments are taken together, represent an improvement in the present law. Some of the provisions of the bill we would not favor unless they were coupled with other provisions of the bill, and this is true also, I believe, of the Railway Labor Executives Association.

In other words, we support the provisions of the bill, as a unit-as a whole—and we would not support the bill if it were modified in such a way as to omit certain important provisions.

Coming now to the changes which the bill would bring about in the existing statutes: In the first place, the bill would so amend the Railroad Retirement Act as to increase all retirement annuities and pensions by 20 percent, and would further amend that act so as to restore so-called death benefits such as were provided originally in the act of 1937 and eliminated by the amendments of 1946.

The provisions dealing with death benefits are designed to make it certain that an employee or his survivors will receive in benefits not less than the employee has paid in pay-roll taxes, with an allowance for interest. No doubt this feature will be discussed by Mr. Schoene speaking for the Railway Labor Executives Association, who will, as I understand, follow me.

In the second place, the bill would amend the Railroad Unemployment Insurance Act in such a manner as to substitute for the present flat 3-percent pay-roll tax, paid by the railroads, a graduated scale of taxes, ranging from one-half of 1 percent to 3 percent, depending upon the amount of railroad unemployment insurance account as of September 30 of each year.

If you will look at page 5 of H. R. 6766 you will see the graduated scale tax which is proposed.

You will observe that at any time the unemployment insurance account falls below $250,000,000, the tax will be 3 percent-the same as now-but as the amount of reserve account rises the tax rate decreases until it becomes one-half of 1 percent as the minimum, when the account is $450,000,000 or more.

The present flat 3-percent tax has proved to be grossly excessive. For the year ending June 30, 1948, that tax will produce about $145,000,000 and interest on the account will produce more than $15,000,000 more, making total income of about $160,000,000, which. will be about $100,000,000 more than the $60,000,000 necessary to pay all benefits under the act, including both unemployment and sickness.

This flat 3-percent pay roll tax has been so excessive from the very beginning that, in a period of less than 9 years, it has resulted in the accumulation of an unemployment surplus reserve account of more than $900,000,000, and the account continues to grow with every tax collected. The fund is now so large that it has lost all relationship with any conceivable need.

The bill follows a very conservative course with respect to unemployment insurance taxes. The graduated tax rate it provides would, in effect, give the railroads a certain amount of credit as to future taxes for the excessive taxes paid in the past until such time as the reserve account should be reduced to a reasonable level and then would measure the taxes by the actual needs and requirements developed

by experience. Thus, the graduated scale would provide at all times a wide margin of safety, since the tax rate would automatically go up if necessary to protect or provide an ample reserve account.

The bill, in providing a method of adjusting the unemployment tax of railroads to actual needs does only what has been done with respect to corresponding taxes which are paid by employers in other industries, including the competitors of the railroads, under the State unemployment insurance systems established as the result of the general Social Security Act.

There are 51 such so-called State systems, including those applicable in Alaska, Hawaii, and the District of Columbia. In 50 of the 51 State systems the taxes are based on a merit or experience rating. These systems apply the principle of varying the tax for the support of the unemployment insurance system in accord with what experience demonstrates to be adequate for the purpose intended. There is, therefore, nothing novel about the proposal that a graduated rate of tax be payable by employers under the railroad unemployment insurance system. Such a proposal is in accord with the general principle which has received practically universal acceptance.

All the State systems were set up as the result of the general Social Security Act passed by the Congress, and one of those systems, that for the District of Columbia, was established in its entirety by Federal legislation.

In the District of Columbia the minimum tax rate is one-tenth of 1 percent, disregarding the three-tenths of 1 percent tax payment to the Federal Government for administrative expenses.

In 24 of the State systems the minimum rate, not including the three-tenths of 1 percent payable to the Federal Government, is one-half percent or less, and in 44 State systems the minimum is 1 percent or less.

The failure in the past to provide for the railroads a self-adjusting tax rate, reflecting actual experience and actual requirements, such as has been provided for all other industries, is, of course, for the excessive taxes upon the railroads in the past and the accumulation of the present swollen railroad unemployment insurance account. Before closing, perhaps I should add a few words concerning the background which led to the agreement reached between the Association of American Railroads and the Association of Railway Labor Executives.

During this Congress a great many bills have been introduced which would amend the Railroad Retirement Act or the Railroad Unemployment Insurance Act, or both. Some 20 or more of bills of this character are now pending before your committee, I believe. These bills run through a wide range. Some of them would work an outright repeal of the so-called Crosser Act, and in that way reduce or eliminate certain benefits which the men are now receiving; others would increase pensions and retirement annuities in a manner which would threaten the safety of the retirement system; others would increase the so-called survivors' annuities and others would increase unemployment and sickness benefits; others would do away with sickness benefits and change the unemployment insurance taxes. Without more, it may be said that one or another of the pending bills would make almost every conceivable change in the railroad retirement system and the railroad unemployment insurance system.

Under these conditions, representatives of the A. A. R. and representatives of the Railway Labor Executives' Association began a series of conversations in an effort to work out a program of amendments which, taken as a whole, would prove acceptable to both. I am glad to say that those conversations proved successful and that an agreement was reached. As I stated at the outset, that agreement did not reflect the views of either side, in their entirety. It reflected a compromise reached by the parties in a sincere effort to compose their differences.

From what I have said it is clear that what the parties have agreed upon is a measure which increases the pensions and retirement annuities of the employees under the Railroad Retirement Act and, at the same time, provides for a graduated scale of taxes for the railroads under the Railroad Unemployment Insurance Act. The two features are bound together in the agreement. No agreement could have been reached otherwise.

Mr. Chairman, I thank you for your attention.

Mr. O'HARA. Mr. Fort, I assume in these conferences consideration has been given to H. R. 6766 as to whether the proposed legislation is actuarially sound; is that correct?

Mr. FORT. Oh, yes, sir.

Mr. O'HARA. The retirement age would still be 65 under H. R. 6766? Mr. FORT. There is no change in the retirement age. It is 65 for

men and 60 for women, as I understand it.

Mr. HARRIS. Mr. Fort, I believe you said this would increase the . retirement annuity by 20 percent.

Mr. FORT. Yes.

Mr. HARRIS. Does it increase the unemployment benefits?

Mr. FORT. Not at all.

Mr. HARRIS. The unemployment insurance benefits that the workers would receive will remain the same as today and provided for under the so-called Crosser amendment?

Mr. FORT. That is true.

Mr. HESELTON. You said that the unemployment insurance fund was more than $900,000,000 now?

Mr. FORT. Yes.

Mr. HESELTON. Do you have an exact figure for any recent date? Mr. FORT. $934,000,000 on March 31 of this year.

Mr. LEA. Mr. Fort, tell us what the bill means in dollars, from the lowest to the highest pension benefits.

Mr. FORT. The minimum retirement annuity-I am speaking generally, with some exceptions-is $50 a month. That would be increased to $60 a month.

The highest pension now is $120 a month, and that would be increased to $144.

Mr. LEA. How does that compare with the maximum payments under the Social Security Act?

Mr. FORT. A good deal larger, Mr. Lea.

Mr. LEA. Have you the figures as to how much larger?

Mr. FORT. May I ask Mr. Parmalee to answer that question?

The CHAIRMAN. Mr. Parmalee, will you give your name and position for the record?

Mr. PARMALEE. My name is J. H. Parmalee, vice president of the Association of American Railroads and director of its bureau of railway economics.

The largest single annuity which can be received under the Social Security Act is $44 a month. In addition to that, of course, there are certain additions for the wife and one or more children. The very maximum under that act was $85 a month, and that maximum is virtually never reached because of the stringent conditions under which it can be reached.

The average single annuity under the Social Security Act is $23.50 a month, and the average over-all, including the wife and children additions, is somewhere in the neighborhood of $28 and $29 a month. That is the average.

Mr. LEA. How do these rates compare with Government retirement benefits?

Mr. PARMALEE. That I cannot answer. I am not familiar enough with that.

Mr. ROGERS. Mr. Fort, you say that there is more than $900,000,000 now to the credit of the unemployment insurance account? Mr. FORT. Yes.

Mr. ROGERS. Under this bill, will you be able to draw down any of that?

Mr. FORT. Under this bill that money would be used, so far as is necessary, to pay benefits, and the one-half percent tax would not be sufficient while the tax was 11⁄2 percent, to pay the full amount of benefits. So, gradually, that fund of $934,000,000 would be reduced. Mr. ROGERS. But it cannot be reduced lower than $450,000,000 unless you pay more than one-half of 1 percent?

Mr. FORT. When it is reduced to the point of $450,000,000, the tax would rise from one-half of 1 percent to 1 percent, and if it ever became reduced to $250,000,000-which we do not think it ever will— the tax would return to the full 3 percent.

The CHAIRMAN. The next witness will be Mr. Schoene, general counsel for the Railway Labor Executives Association.

STATEMENT OF LESTER P. SCHOENE, GENERAL COUNSEL, RAILROAD LABOR EXECUTIVES ASSOCIATION

Mr. SCHOENE. Mr. Chairman and gentlemen of the committee, my name is Lester P. Schoene. I am a member of the law firm of Schoene, Freehill & Cramer, with offices at 1625 K Street, Washington, D. C. I appear here representing the Railway Labor Executives Association, also the Brotherhood of Railroad Trainmen and the Brotherhood of Locomotive Engineers, who are not members of the Railway Labor Executives Association. I appear in support of the bills H. R. 6766 and H. R. 6768, identical bills, which were introduced yesterday by the chairman and Mr. Crosser.

As Mr. Fort has already explained, the text of this bill is the result of an agreement between the representatives of the employees through the Railway Labor Executives Association and the representatives of the railway management through the Association of American Railroads.

As Mr. Fort has also explained, the terms of the bill are the result of give and take in arriving at an agreement.

The provisions of the bill in which the employees were chiefly interested in seeing enacted into legislation are in substance the same terms that were embodied earlier in the Crosser bill, H. R. 5993.