and are the product of their very careful consideration on all issues involved. The bill would provide a modest increase in annuities and pensions under the Railroad Retirement Act, would include other needed liberalizations, and would increase the tax base and tax rates by amounts sufficient not only to cover the added cost of this legislation but also to eliminate the estimated present deficit in the railroad retirement system. According to the Board's chief actuary, the cost of the benefits under the railroad retirement system is now 15.70 percent of taxable payroll. Since the total tax revenues on employers and employees is now only 121⁄2 percent of payroll (64 percent on each side) there is now an estimated deficit, in the long run, of 3.20 percent of taxable payroll, or about $170 million a year. Under the bill, however, even after the enactment of the proposed liberalizations of the railroad retirement system, the deficit would be eliminated for all practical purposes since the estimate is that any deficiency would be no more than some 0.37 percent of taxable payroll. Under the level-cost basis of evaluation the railroad retirement system can reasonably be regarded as financially sound so long as the estimated deficit is not in excess of 1 percent. Accordingly, the possibility of this small deficit should not, in my opinion, be an obstacle to the enactment of the very essential liberalizations of the railroad retirement system. A like conclusion is completely justified with regard to the obviously desirable improvements proposed for the railroad unemployment insurance system, and the provisions for obtaining the needed funds. At the present time the benefits under the act are financed on a sliding-scale basis with the contribution rate (payable only by employers) beginning with one-half percent of taxable payroll (up to $350 a month per employee) if the balance in the railroad unemployment insurance account is found to be $450 million or more, and increasing by steps to 3 percent if the balance in the account is less than $250 million. The bill would change the sliding-scale table by providing a rate of 2 percent of taxable payroll (up to $400 a month per employee) if the balance in the account is found to be $450 million, or more, and increasing such rate, by steps, to 4 percent if the balance in the account is less than $300 million. While the Board's cost estimates indicate that a maximum rate of 4.22 percent, instead of 4 percent, would be required in order to eliminate all possibility of a deficit in the unemployment insurance account, the difference, being only 0.22 of 1 percent, should not, in my opinion, prevent the enactment of the proposed liberalizations because I am convinced that their effect would be, even apart from other economic considerations, to stabilize employment and, therefore, actually to reduce the cost of the unemployment insurance system. I, therefore, urge the enactment of the legislation. STATEMENT OF MR. HEALY I am firmly opposed to the enactment of the bill covered by this report. The continual pressure for more and more benefits under the railroad retirement and railroad unemployment insurance systems, with its resulting burden on the railroad industry to some extent indicated in the preceding analysis, is wholly unjustified and can lead only to disaster. The analysis shows, for retirement purposes, an immediate increase in retirement taxes of $200 million annually one-half of which would be paid by the railroads. The analysis does not show, however, that the ultimately scheduled tax increases, one in 1970 and another in 1975, would add a total extra burden in that later year of $172 million, again one-half to be borne by the railroads. In other words, the railroads' additional retirement taxes under this bill would amount to $186 million a year. Furthermore, the proposed railroad unemployment tax amendments would increase railroad payments by some $100 million next year, over and above the present annual levy. Of course, the analysis makes it plain that even this large additional unemployment tax paid by the railroads, who are the only contributors to the unemployment-insurance system, will be inadequate to finance the benefits provided under this legislation. To recapitulate, the immediate additional tax burden for the railroads would amount to about $200 million a year and in 1975 the added amount would be nearly $257 million annually. The benefits now provided by these two social-insurance systems are generally far above those allowed under similar systems operated by the Federal and State governments for other industries. For instance, no old-age benefit paid under the social security system will ever be, under the law now in effect, more than the recently provided maximum of $108.50 a month, whereas the similar benefit under the railroad retirement system may now come to over $184 a month, and ultimately, as more years of service and compensation may be credited, can go much higher. And such benefits under the Social Security Act are paid for at a total cost to employers and employees, at present, of 42 percent of payroll (that is, on a tax base of earnings up to $4,200 a year), whereas the current tax load on the railroad industry, and its workers, is nearly three times as much (121⁄2 percent on employee earnings up to $350 a month). The social-security tax is, of course, scheduled by law to be increased at some future time, and the railroad retirement tax is not, but, as the bill shows, it is proposed to provide an immediate increase in the railroad retirement rate to 15 percent (and on a $400 a month tax base rather than $350) and, after 1969, to provide an added tax liability equal to the rise in taxes above 51⁄2 percent under the Social Security Act. The ultimate tax rate for railroad retirement will be 18 percent. There are limits to liberalization, and I think that that point has been reached long since in the railroad social-insurance systems. To go further would inflict serious and completely unnecessary injury to a special, and very important, segment of the Nation's economy. Also, as compared with other industries, the railroads have a special problem which must be taken into account in considering the proposals to widen further the gap between the benefits paid under the railroad system and those paid under other Federal and State social-security systems. The railroad retirement system had obtained, through taxing the railroads and their employees for its own special purposes, 29.1 percent more revenues last year than 10 years ago. In this period it had increased its administrative expenses by 34 percent; it had raised the average annuity by 60 percent; and it had increased the number of beneficiaries by 129 percent, and total benefit payments by as much as 216 percent. In fact, the amount of money the railroads had left in 1956 to pay dividends to stockholders (many of them employees) and for capital expenditures (to keep pace with the advances in technology) totaled only some $870 million, a sum but little more than the Railroad Retirement Board will pay out this year in total benefit payments and administrative costs under both acts. Further illustrating the railroads' problems are the indisputable facts that (1) the 1956 revenue-freight loadings decreased 6,660,219 cars from the total in 1947, or a loss of over 100,000 trainloads; and (2) in 1956 the number of passengers transported had dropped to no more than 431,988,922 as against 703,279,582 in 1947. While this downward trend of the railroad transportation system may not continue-and I do not concede in any way that the future of the railroad industry is dismal-I am altogether against assuming heavy additional obligations and burdens. My objections to the proposed unjustified liberalizations apply both to the railroad retirement system and to the railroad unemployment insurance system. From the year 1947 to the year 1956, the average daily unemployment benefit rate increased by some 102 percent. Aside from these things: (a) Our research staff, sincere and thoroughly capable people, have shown the net cost of the railroad unemployment insurance system, with the proposals under this bill included, excluding administrative costs and in interest earnings, to be 4.07 percent of creditable payroll. The average under the various State laws, in 1955, was 1.18 percent. (b) There already is a concerted effort throughout the land on the part of railroad management and the Railroad Retirement Board to relieve the unemployment situation through preferential recall of furloughees; placement of claimants in nonrailroad as well as railroad work; through occupational changes; screening of new entrants and in various other ways; and (c) The serious problems, peculiar to the industry and of equal concern to its employees, which have arisen in the last decade, suggest that a complete reappraisal of the act would be timely and more appropriate. The cost of the unemployment-insurance proposals provided in this legislation, which go far beyond what other industries must meet, when added to the burdens otherwise imposed by employee action, such as wage rises and payment of fringe benefits, would increase the railroads' operating expenses by as much as $12 billion since January 1, 1955. And all this at a time when railroad management is exerting every effort and straining to combat unregulated and uncontrolled competition, to recapture traffic losses, to maintain and improve the railroads' ability to serve the Nation in any need, to encourage investment in the industry (despite an average return over the past 10 years of only 3.74 percent), and to safeguard, to the maximum possible extent, the welfare and security of the employees. I sincerely recommend that no favorable action be accorded these bills. The Bureau of the Budget has advised that there is no objection to the submission of this report to the committee. By direction of the Board: MARY B. LINKINS, Secretary of the Board. Mr. HABERMEYER. Mr. Chairman, we also submitted reports on S. 360 and S. 945. On S. 360, the date of the report was March 7, 1957. Senator MORSE. At this point in the record there will be printed in full a report on S. 360 from the Chairman of the Railroad Retirement Board addressed to the chairman of the Senate Committee on Labor and Public Welfare dated March 7, 1957. (The report on S. 360 follows:) UNITED STATES OF AMERICA, RAILROAD RETIREMENT Board, Hon. LISTER HILL, Chairman, Committee on Labor and Public Welfare, Washington, D. C. DEAR SENATOR HILL: This is a report on the bill S. 360, which was introduced in the Senate by Mr. Barrett on January 7, 1957, and referred to your committee for consideration. The bill would amend the Railroad Retirement Act of 1937 by increasing from $100 to $200 the maximum amount of earnings that a person receiving a disability annuity under the act, either on the basis of his being permanently disabled for any regular employment or permanently disabled for work in his regular railroad occupation, could receive in any month without loss of his annuity for that month. While the cost of the bill would be no more than about $2 million a year (0.04 percent of payroll), and no additional revenue is provided to meet this additional cost, there is also the pertinent question whether earnings up to $200 a month in addition to the monthly annuity would continue to serve the purpose of a practical test of disability if the maximum were raised as proposed in this bill. For both reasons, therefore, the Board is opposed to the enactment of this bill. The Bureau of the Budget has advised that there is no objection to the submission of this report to the committee. Sincerely yours, HOWARD W. HABERMEYER, Chairman. Senator MORSE. Also, a report on S. 945 from the Chairman of the Railroad Retirement Board addressed to the chairman of the Senate Committee on Labor and Public Welfare dated March 8, 1957. (The report on S. 945 follows:) UNITED STATES OF AMERICA, Hon. LISTER HILL, Chairman, Committee on Labor and Public Welfare, United States Senate, Washington, D. C. DEAR SENATOR HILL: This is a report on the bill S. 945, which was introduced in the Senate by Mr. Langer (for himself and Mr. Martin of Iowa) on January 29, 1957, and which was referred to your committee for consideration. The bill would amend the Railroad Retirement Act of 1937, as amended, in the following manner: 1. Full annuities would be payable after 35 years of service regardless of age or at age 60 after the completion of 30 years of service. 2. In determining the average monthly compensation for service before 1937, the present computation based on the 1924-31 period would be replaced by a com putation based on 5 calendar years (consecutive or otherwise) of highest earnings before 1937. We assume that this is the change intended by section 3 of the bill, the wording of which is not clear. 3. The limit on creditable monthly compensation would be raised retroactively to $350. Under present law, the limit is $300 a month per employee on all service before July 1954, with a limit of $350 a month thereafter. 4. The provision in the present law that service after age 65 shall not be used in the computation of the monthly average compensation if it results in a lower annuity would be eliminated. The Board would be required to recertify all annuities and pensions which could be affected by any changes specified in the bill. The effective dates of the changes proposed are not expressly stated. Aside from any other consideration the amendments proposed in the bill would create administrative difficulties which would be almost insurmountable. First, it would be necessary to secure detailed earnings records for service before 1937, in order to find the 5 years of highest earnings as adjusted for the increased monthly limit on creditable compensation. Second, new compensation reports would be required for the period January 1937-June 1954 in order to credit up to $50 a month of additional earnings which, in the overwhelming majority of cases were not previously reported. Third, the Board would be required to recertify practically all employee annuities and pensions in force on the date of the enactment of the bill. Recertification would also be required for large numbers of spouses, joint-and-survivor, and survivor insurance annunities. All this would impose enormous burdens not only upon the Board but also upon employers who would be required to search their payroll records for many years back and to submit new reports based on the additional information developed. Of course, in a large number of cases, old payroll records may no longer be available. The Board is opposed otherwise to the enactment of the bill for the following reasons: 1. The bill, if enacted, would increase the cost of the railroad retirement system by about 2.25 percent of payroll, or $120 million a year. 2. The bill makes no provision for financing the additional cost which its enactment would entail. 3. The railroad retirement system cannot absorb the added cost because a recent actuarial estimate shows that the net level cost of benefits under the act is about 15.70 percent of taxable payroll. Since the actual tax rate is only 12.50 percent, the present benefit structure already involves an actuarial deficiency of 3.20 percent of payroll which is equivalent to about $170 million a year on a level basis. 4. The effect of the enactment of the bill would be to increase the deficiency to about 5.45 percent of payroll of $290 million a year. The Board, accordingly, recommends that no favorable consideration be given to this bill. The Bureau of the Budget has advised that there is no objection to the submission of this report to the committee. Sincerely yours, Senator MORSE. You may proceed. HOWARD W. HABERMEYER, Chairman. The few words I have to say this morning deal with the bill S. 1313. As you know, we are operating now at a deficit of about 3.20 percent of level payroll. And I urge strongly that whatever action is taken in respect to any bill before you that the final result will put the system back on a financially sound basis, and the system should be kept and maintained on a financially sound basis. One of the main things that we as trustees of the fund should always protect is the right of the younger workers in the industry, so that when they are qualified for benefits there will be money in the fund to pay those benefits. I do notice that S. 1313 provides for the financing of the liberalization, and will put the system on a financially sound basis. Now, of course there are two factors to be considered: (1) the needs of the beneficiaries themselves and (2) the financial ability of the parties to pay for these liberalizations. I am sure that during the course of the hearing testimony will be developed from both sides which will enable the committee to reach a sound judgment on these points. Again I say that the thing that I most urgently request is that necessary financing is provided to put our system on a sound basis. Thank you. Senator MORSE. Mr. Chairman, in your report there is a separate formal statement by you, and it is our understanding that that is to be considered part of your formal testimony here this morning. Mr. HABERMEYER. Yes, sir. Senator MORSE. Mr. Harper, in your report to the committee there is a statement by you. I understand that that is your formal testimony this morning. And anything you would like to add to it we would be glad to hear at this time. Mr. HARPER. I have prepared an additional statement having to do with the necessity for doing something about the present deficit of 3.20. It quotes from the report of your committee when the legislation was passed last year. It quotes from the President of the United States when he signed the bill. And it quotes from two representatives of the standard railroad labor organizations. I point out in there that there is general agreement that we have a deficit of 3.20 which must be met. The financial soundness of our system certainly cannot obtain with a deficit of those proportions. I think the first consideration to be given by your committee is the necessity of doing something to liquidate the present deficit, which was brought about by the interim legislation last year. You gentlemen are more familiar with that than I, but you will recall that in your judgment last year, you decided that it was necessary to give some additional benefits to railroad workers. But due to a combination of circumstances, you didn't have time in which to give consideration to the necessary financing. And as you, Senator Morse, have pointed out earlier, you made known your intention early in this Congress to do something to take care of the additional cost incurred b ythe benefits written into the law last year. This bill that we have before us this morning is a bill which provides, first, a means and a clear method of liquidating the deficit. It provides for additional benefits, and it provides for additional revenues to meet the additional benefits proposed in the bill. It has been the policy of this Board since I have been on it and, I understand, many years before, to oppose any benefits in our retirement system or any legislation proposing additional benefits which doesn't carry along with it provisions for the necessary additional revenue to take care of the proposed benefits. The bill, 1313, is a bill of that sort. It provides for modest benefits, and provides a method of paying for them. And it puts our financial system, that is, the financial system of the Board, on a sound basis, and it represents the best judgment of the authorized representatives of the railroad employees in this country. |