raised benefit rates immediately while providing for future tax increases. This resulted in the rapid elimination of the $488 million debt. By June 30, 1957, the debt had been liquidated and a balance of $121 million established in favor of the railroad retirement account. This amount, which with interest totaled $124.4 million, was transferred to the railroad retirement account in June 1958. By the latter date, after allowing for some $35 million in interest payments to the social security system, there was a net gain of about $90 million in favor of the railroad retirement system. The recent actuarial cost estimates prepared by the Board gave full weight to this past favorable experience under the financial interchange. Future progress.-A large part of the past experience under the financial interchange is due to the rather low social security tax rates which have been and are still in effect. However, social security tax rates are scheduled to increase from the present (1958) 4% percent to a maximum of 9 percent in 1969. Each time the social security tax rate goes up, the gain from the financial interchange will be reduced accordingly. It is anticipated that after the social security tax rate reaches its maximum, the amount of taxes due the OASDI trust funds will eventually be larger than the amount of benefit reimbursements due from that fund to the railroad retirement account. This would mean transfers of money from the account to the social security trust funds. However, before that happens, the railroad retirement account will have received enough money in gains to overcome the effect of the future losses. When the expected future progress of the financial-interchange transactions is viewed as a whole, the effect, according to recent estimates, is equivalent to the transfer each year from the social security trust fund to the railroad retirement account of about $64 million. Effect of dual benefits.-Except for spouses' benefits, the Railroad Retirement Act makes no provision for the reduction of benefits when the beneficiary is also entitled to a benefit from the Social Security Administration. This treatment of dual benefits has a serious adverse effect on the gains which might have been expected otherwise from the financial interchange with the social security system. This results from the fact that the railroad retirement system pays a full railroad benefit to a beneficiary, but can only recover a reduced social security benefit through the financial interchange. Two examples will illustrate this point: Example 1: Two railroad men, Mr. Smith and Mr. Brown, retired at age 65 in 1957. Their earnings since 1950 were $300 a month. Mr. Smith is not entitled to an old-age benet under the Social Security Act, while Mr. Brown is receiving one amounting to $50 a month. For Mr. Smith, the Board will receive under the financial interchange a benefit credit after 1958 in the amount of $105 a month. However, for Mr. Brown, the credit will be only $55, since the gross amount of $105 will be reduced by the $50 he is receiving from the social security system. Example 2: The widow of a railroad man is receiving from the Board a benefit of $55 a month computed under the regular basic amount formula. The social security formula would have produced a gross benefit of $70, but the widow is also receiving an old-age benefit from social security in the amount of $60 so that the social security minimum guarantee does not apply. Under the Social Security Act, this widow would receive a widow's benefit of only $10 a month, the difference between the unreduced widow's benefit of $70 and the old-age benefit of $60. Consequently, under the financial interchange, the Board will receive $10 a month for this widow, while paying her $55 a month. Had this widow not been receiving an old-age benefit from social security, the Board would pay her $70 a month, but the entire $70 would, in effect, be recovered under the financial interchange. The CHAIRMAN. I note the presence of two of our colleagues. We will be glad to hear the gentleman from Kentucky, the Honorable Frank A. Stubblefield. STATEMENT OF HON. FRANK A. STUBBLEFIELD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF KENTUCKY Mr. STUBBLEFIELD. Having served for 7 years as a member of the Railroad Commission of the Commonwealth of Kentucky, I have a deep interest and, I believe, a real appreciation of the problems of retired and unemployed railroad employees, as well as the economic problems facing our railroads. I would like to express to the committee my support of the proposed increase in the pensions for retired railroad workers as contained in H.R. 1012. I believe it is a matter of simple justice, gentlemen, that pensions be adjusted to at least partially reflect the change in the purchasing power of the dollar that has occurred largely as a result of World War II, the Korean conflict, and the present cold war condition. As to the unemployment aspects of the proposed bill, I have some reservations as to the extent of the unemployment benefits provided in H.R. 1012, but I do believe some increases in the unemployment compensation provisions of existing law are both needed and justified. The CHAIRMAN. Thank you very much, Mr. Stubblefield. We appreciate your testimony. Mr. STUBBLEFIELD. Thank you, Mr. Chairman. The CHAIRMAN. The next witness is our colleague from Maryland, the Honorable John R. Foley. STATEMENT OF HON. JOHN R. FOLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MARYLAND Mr. FOLEY. Mr. Chairman and members of the committee, it is a privilege for me to appear before you in support of H.R. 1012, a bill to amend the Railroad Retirement Act of 1937, the Railroad Retirement Tax Act, and the Railroad Unemployment Insurance Act so as to provide increases in benefits and for other purposes. The provisions of your bill, Mr. Chairman, will provide for elemental social justice. I wholeheartedly support the purposes that you have set out to achieve by the provisions of your bill. To this end, I introduced a companion bill, H.R. 3469, which contains the identical provisions in H.R. 1012. In the Sixth District of Maryland, which I have the honor to represent, the railroad industry has been, for over a century, a dominant economic and social force. The towns of Brunswick, Cumberland, and Hagerstown grew up along with the development of the railroad industry in western Maryland. Therefore, large segments of the population in these communities are railroad men. Your bill will see to it that the men who have devoted their lives to the railroad industry and are now retired will be able to fight the battle of inflation in a more realistic way by the increases proposed by your bill. On the other end of the age spectrum, the younger men who have not built up great seniority and are the first to be laid off when economic adjustment is necessary, will be able to soften for awhile the harsh results of the loss of their jobs by means of the adjustments in unemployment benefits. These provisions for increased retirement benefits and increased unemployment benefits will compensate basically for the eroding effects of inflation. Thus, they are fundamentally provisions for social and economic justice. The Railroad Retirement Board has informed me that in the State of Maryland there are about 7,300 retired railroad workers receiving benefits. There are 4,300 persons receiving survivor benefits under the act. Approximately 2,400 persons are receiving unemployment benefits and 800 are receiving sickness benefits. The greatest percentage of the foregoing persons reside in the Sixth District of Maryland. Whenever I have traveled in recent weeks throughout the district, I have met retired and unemployed railroad workers. Without exception, each has requested that I give strong support to H.R. 1012. This I am proud to do. Our dynamic economy periodically, by its very nature, causes economic dislocation, not only in particular geographical areas but generally in a particular industry. The railroad industry is going through a period of readjustment at this time. The social cost of this adjustment should not and cannot be borne altogether by those persons who have devoted their lives to the service of the railroad industry. Ineluded in this group also are the young people who have committed themselves to a career of railroad service. They are willing to bear their share of the cost. Your bill, Mr. Chairman, recognizes this fact. It is hoped that this committee will report H.R. 1012 for early consideration and passage by the House of Representatives. The CHAIRMAN. Thank you very much, Mr. Foley. We appreciate your appearance. Mr. FOLEY. Thank you, Mr. Chairman. The CHAIRMAN. This concludes the hearings on railroad retirement bills that are before the committee at this time. The Chair will keep the record open for a period of 5 days in which additional information may be supplied. And to my colleagues and to those who are to supply information, I would like to advise you that at the end of 5 days it will go to the printer; so we respectfully request that the information be supplied. I have a statement by Mr. J. H. Kasselman, of 5405 Plover Avenue, St. Louis, Mo., directed to me as chairman of this committee, and other Members of the Congress, which will be included in the record as requested. Mr. Lester J. Dorr, executive secretary, the National Industrial Traffic League, has requested permission to file a brief statement for the record, and he may have permission to do so. I have a letter from the Chamber of Commerce of the United States signed by Clarence R. Miles; a statement of the American Retail Federation; a letter from Matt Triggs, assistant legislative director of the American Farm Bureau Federation; and a letter from Mr. C. B. Carter, secretary of the Railroad Pension Conference, transmitting a statement for that organization. These statements will be included in the record at this point. (The statement referred to are as follows:) ST. LOUIS, Mo., February 10, 1959. Hon. WAYNE MORSE, Chairman, Labor Subcommittee. Hon. OREN HARRIS, Chairman, House Interstate Committee. DEAR SIRS AND MADAM: In Labor, dated January 17, 1959, an article appeared concerning the introduction of House bill, H.R. 1012, by Hon. Oren Harris, which was the same bill passed by the Senate in 1958, to improve the Railroad Retirement Act, also Hon. Wayne Morse introduced Senate bill, S. 226, which was the same as was passed by the Senate in 1958, this bill was signed by 24 other Senators, the article also states that from January 1, 1959, through December 31, 1961, the tax would be 64 percent and raising the maximum from $350 to $400. In the next 3 years it would be 74 percent. The way is left open for further tax adjustments in 1965, and thereafter. On Monday, February 9, 1959, I received the labor paper stating that hearings have started in the full House committee on H.R. 1012, and that opponents would be heard on February 16, 1959, the article also stated that Hon. Wayne Morse would conduct hearings on S. 226 on February 16, 1959. Fortunately I do receive the labor paper, for which I have subscribed primarily for the purpose of obtaining advance information of such hearings, however, such short notice, is almost impossible to cope with, I actually believe that such information is delayed for the best purpose known to the labor leaders, who do not want the rank-and-file members to know of the hearings until it is almost too late to write our Representatives. Each of you have had letters and telegrams registering our opposition to the high cost of the Retirement Act, and be advised that we are still of the same opinion, regardless of what the labor leaders or their lawyers may testify in the hearings. It is a known fact that most of the legislation is formulated in the various committees and would appreciate this letter being made part of the hearings. I hope each of you realize we are still without a reply to our Western Union telegram to Hon. Wayne Morse, dated May 7, 1957, and January 6, 1958, reading as follows: "They transferred $1,200,000 from the grand lodge and system board funds to supplement their own pensions. Request G. M. Harrison's explanation." Your truly, J. H. KASSELMANN. STATEMENT OF HARRY O. MATHEWS ON BEHALF OF THE NATIONAL INDUSTRIAL TRAFFIC LEAGUE My name is Harry O. Mathews. I am chairman of the legislative committee of the National Industrial Traffic League, of Washington, D.C. I appear on behalf of the league in opposition to H.R. 1012 and similar proposals to alter the railroad retirement and unemployment insurance systems. The National Industrial Traffic League is a national organization of those directly and individually engaged in the shipment and receipt of commodities; its membership also includes chambers of commerce, boards of trade, and similar commercial organizations whose members likewise have a substantial and continuing interest in traffic and transportation matters. The league represents and expresses the interest of those who actually ship and receive freight, the payers of transportation charges; it has no carrier membership. Membership is drawn from all parts of the United States and includes practically every line of industrial and commercial activity. The league membership is gravely concerned with the proposals for increased benefits as set forth in H.R. 1012 and similar bills, which are overgenerous and yet do nothing to correct glaring inequities in the present system. At the annual meeting of the entire membership in November 1958, the league instructed my committee to state the league's position, these bills being substantially the same as H.R. 4353 in its final form in the 85th Congress. League members use all forms of transportation and the work of the league is dedicated to sound principles of transportation practice and regulation. As users of railroad services, league members are most directly concerned with the quality of service and the prices charged. It is common knowledge that general increases in freight rates are sought of and granted by the Interstate Commerce Commission following any general wage increase or other spiraling costs. In the postwar period such increases have had serious adverse effects and without any improvement in the quality of service. Your committee is well aware of the serious financial plight of the railroads generally, whose traffic has failed to keep pace with the growth of the country, and who have trouble obtaining capital to make necessary improvements. The enactment of the Transportation Act of 1958 was a measure to alleviate the situation. A continuing concern for the deteriorating financial position was manifested in Senate Resolution 303 (85th Cong.) which expired on January 31, 1959, and which has been introduced in the 86th Congress as Senate Resolution 29. This league is in no sense hostile to the real interests of railway employees, or others, but the league believes it would be folly to single out the 1 million employees in that sick industry to require payment to them of benefits that exceed by ever-increasing amounts the benefits provided under social security for the public generally. Even with the recent 7-percent increase in social security benefits, the comparable benefits under existing railroad legislation are much higher. The proposed bills would further widen the spread by granting a 10-percent increase in railroad retirement benefits and generally 20 percent in unemployment. It is clear from the statements of others that railroad unemployment insurance contains many provisions that are not fair either to the industry or to its employees. Wisdom demands an unbiased study. Amendments are needed to prevent the continuing requirement of paying out millions in cases of employee misconduct. We are informed that the present system, which uses the calendar year for a base year and the fiscal year for a benefit year, results in such extreme cases as a woman employed for 8 months who thereafter received $1,950 in maternity benefits for two children born a year apart. The league is informed that the railroads have made a proposal embodied in S. 987, which would increase railroad retirement benefits about 5 percent and which also contains sound amendments to the present unemployment and sickness benefit system. Considering the present condition of the railroads, the inflationary effect of increased employee benefits, and the fact that present benefits are much higher than those already provided in the increased social security system, the league urges that this is no time to make any increases. Yet if your committee believes that some increase must be recommended, then we most earnestly urge that the proposal in S. 987 represents a wise maximum. In any event, we respectfully urge that no change in the law should be made without equitable amendments as proposed in S. 987. Hon. OREN HARRIS, CHAMBER OF COMMERCE OF THE UNITED STATES, Chairman, Interstate and Foreign Commerce Committee, DEAR MR. HARRIS: The Chamber of Commerce of the United States wishes to comment on H R. 1012 and similar bills now before the Interstate and Foreign Commerce Committee. Proposed revision of railroad retirement legislation was given careful consideration by our committee on economic security late in January. The discussion was, of course, related to the policies adopted by our members. As a result of this discussion, the committee submitted to our board of directors on January 30, the following two proposals which received the unanimous endorsement of the board: 1. The taxes on employee and employer for railroad retirement have reached a level (64 percent on each) that should be raised no further, but 2. If Congress increases benefits, the costs should be met either by cost savings elsewhere or by increasing railroad retirement tax revenues, to restore financial soundness to the program. The national chamber has long supported social security as a national program providing a basic floor of protection in old age. Because of similarities between it and railroad retirement, the national chamber is equally concerned with the latter program. In recent years we have observed the emergence of an actuarial deficiency in railroad retirement-a deficiency Congress has allowed to persist and grow. Naturally, the chamber is concerned that what might become a habit-a congressional habit in railroad retirement-might ultimately become established policy for social security. A persistent and growing actuarial deficiency in either program is a dangerous course to follow. Workers covered by the program will not be fully aware of the true costs of all the benefits provided. This lack of a complete understanding of the full costs may ultimately give rise to demands for benefits that are unsound, or that the workers are unwilling to pay for through higher social taxes. The inevitable result would be that, at some date, the benefits many had planned on for old-age would not be forthcoming as promised. The first responsibility of Congress in railroad retirement is to place the program once again on a completely sound actuarial basis. Since the present |