H. R. 9317
H. R. 9326
H. R. 9327
H. R. 9334

H. R. 9345

H. R. 9355

Source: U. S. Railroad Retirement Board Actuarial Division Mar. 1, 1956.

Mr. KELLY. Now, all of these bills, Mr. Chairman, with the exception of H. R. 9065, H. R. 9066, and H. R. 9068, and other identical bills, provide increases in benefits of one kind or another without providing additional revenue necessary to pay the cost of the increases.

For this reason, and other objections to the bills which are enumerated in the statement, the Board is opposed to those bills.

While many of these bills have meritorious proposals, it has been the general policy of the Board not to approve any bill which incurs additional costs, without providing sufficient revenue to offset those

costs.

In isolated instances in which the Board has departed from this policy, it has only been because the Board believed that the financial soundness of the system would not be endangered and because there were other overriding reasons for approval.

Now, with respect to H. R. 9065, H. R. 9066, and 9068 and other identical bills, which provide their own methods of financing, the members of the Board have differing views.

Each of us, as the Chairman has stated, has submitted his own individual report on these bills, and I believe you have said that you had included them in the record.

Mr. HARRIS. Yes, sir.

Mr. KELLY. If that had not been true I was going to ask to have them included at this time. But if they are already included that is not

necessary.

Mr. HARRIS. Yes. They are included in the record also.

Mr. KELLY. Now, the members of the Board

Mr. KELLY. And also then, of course, our general statement. The statement that I am making is in reference to that, I will submit it at this point.

Mr. HARRIS. Yes, we have that.

Mr. KELLY. I just wanted to be sure that they are all included.

I might say in conclusion, then, so far as my statement is concerned, that all three members of the Board and members of our staff who are familiar with all of the technical problems involved in these various bills will be glad to answer any questions that any member of the committee may have about any of these bills at this time.

Mr. HARRIS. Well, now, first let me ask you if you, as chairman of the Board, approve H. R. 9065 and similar bills?

Mr. KELLY. With the exception of section 5. Section 5 I make no comment on, because it does not affect our fund. It may be objectionable to other departments of the Government, but so far as our Board is concerned, it does not affect the Railroad Retirement Fund in any way, and for that reason I make no statement on it.

Mr. HARRIS. I understand you to mean by that that you are not opposing it?

Mr. KELLY. I am not opposing it. I am not approving it. It is a matter for other agencies of the Government.

Mr. HARRIS. Well, it is an mportant section of the bill, as you can understand.

Now, suppose section 5 were to be deleted, what would be your position or the position of the Board on the bill?

Mr. KELLY. I would be for it in its entirety, if section 5 were deleted. I am not opposing section 5 for the reason it does not affect the Board

Section 5 provides for

itself. It does not affect our funds, you see.

a remission of income taxes.

Mr. HARRIS. I see. Are there any questions?

Mr. O'HARA. Mr. Chairman.

Mr. HARRIS. Mr. O'Hara.

Mr. O'HARA, I understand, Colonel Kelly, that you do approve H. R. 9065 and companion bills, or similar bills, with the exception that you make no comments with reference to section 5.

Mr. KELLY. That is correct, Mr. O'Hara.

Mr. O'HARA. And that you feel that the income provided for, the taxes provided for, in H. R. 9065 is sufficient. In other words, that it will be self-supporting insofar as the tax situation is concerned? Mr. KELLY. Practically so, Mr. O'Hara. It will be self-supporting. In my formal statement I stated that it would furnish nearly all of the necessary revenue to provide for the increased benefits.

Mr. DOLLIVER. What page is that on?

Mr. KELLY. That is on page 5 of my separate report on the bill. That is February 28, 1956.

Mr. O'HARA. Well, have we arrived at a time when a piece of legislation is concerned, when the millennium is here?

Mr. KELLY. Well, I would not want to express any opinion on the arrival of the millennium as yet, Mr. O'Hara.

Mr. O'HARA. Thank you.

Mr. HARRIS. Mr. Dolliver.

Mr. DOLLIVER. I want to make inquiry with respect to section 5. Have your statisticians made any analysis as to the effect of that exemption upon the tax income?

Mr. KELLY. Yes.

Mr. DOLLIVER. How much of that 1 percent increase would be canceled out by these tax exemptions?

Mr. KELLY. I am no authority on that. I think that our technical staff may have made an analysis to that effect. I am not sure.

Mr. DOLLIVER. Maybe there is somebody else in the room prepared to answer that question.

Mr. KELLY. I think that Mr. Matscheck might answer that.

STATEMENT OF WALTER MATSCHECK, DIRECTOR OF RESEARCH, RAILROAD RETIREMENT BOARD

Mr. MATSCHECK. Mr. Chairman

Mr. HARRIS. Will you identify yourself for the record?

Mr. MATSCHECK. Walter Matscheck, Director of Research, Railroad Retirement Board.

That question, Mr. Dolliver, is a very difficult one to answer, because the amount of tax remissions are dependent not only on the earnings that the railroad man gets from the railroad but his total earnings. It also depends on a number of exemptions he has, because of the size of his family.

However, the general statement could be made that in the majority of cases-assuming that in a majority of cases the railroad man's earnings from his railroad are his total income, then in a vast majority of cases the effective amount of taxes that the man would pay, considering the 1 percent increase and the deductions from his gross income, would reduce his taxes to something under 6 percent.

Mr. DOLLIVER. Thank you very much. That is all I wanted to know.
Mr. HARRIS. Are there any further questions?

If not, we thank you very much, Colonel Kelly.
Mr. KELLY. Thank you, Mr. Chairman.

STATEMENT OF HORACE W. HARPER, MEMBER OF THE RAILROAD RETIREMENT BOARD

Mr. HARPER. Mr. Chairman and gentlemen of the committee, my name is Horace W. Harper. I am the employees' representative on the Railroad Retirement Board. I have not prepared a statement for insertion into the record.

I am for the bill. I am for its purposes and all of its details. I subscribe to and adopt as my own the pleadings which the employee representatives will make in behalf of the bill.

Mr. HARRIS. May we have a little better order. It is very difficult to understand the witness. I think this is very important.

Mr. HARPER. I do want to comment briefly upon the various phases of the bill.

The bill has three major provisions: to provide increases in benefits; to increase taxes 1 percent both upon the employer and on the employee; and to exclude from the computation of income taxes the employee's railroad retirement taxes.

As the Chairman of the Board has said to you, the three members of the Board have wholly divergent views with respect to the bill. The Chairman agrees with me, if I understood him correctly, that the benefits should be provided. He disagrees or at least has no position or takes no position with respect to the remission of income taxes.

The railroad member of the Board on the other hand seems opposed to the bill but bases his objections principally, insofar as his report shows, upon the contention and belief that it would place our financial system further out of balance.

I want to address myself briefly to that phase. I have testified here on more than one occasion about what a tragic thing it would be to bankrupt our fund, so that when retirement came for railroad workers there would be no fund there to pay off.

And, as the Chairman of the Board has said to you, the Board in its examination of every bill gives primary consideration to provision made for additional revenue to meet additional expenses.

I think this bill meets that consideration.

It is true that the additional cost is estimated to be 2.30 percent of payroll, but that figure includes an item of 0.33 for accelerated retirement rate. It is the judgment of the research department that a greater number of employees will retire for higher benefits than would retire at present benefits.

I am wholly in disagreement with the findings of our research department in that respect.

I hope nobody gains the impression that I am quarreling with our research department, because I am not; but in that connection, I want to point out that that 0.33 is not the result of some mathematical computation.

They did not arrive at that figure, 0.33 percent of taxable payroll, with a slide rule and a T square. It admittedly is not the result of a mathematical computation. It represents instead an arbitrary as

sumption that a greater number of employees will retire because of the increased benefits and that the accelerated rate of retirement will cost our fund 0.33 percent of payroll.

Now, it is interesting in that connection to consider that the proposed increased costs will fall largely upon the annuitant, the pensioner himself and his spouse, to a much lesser degree.

The table which is shown in the Chairman's report shows that it is estimated that the increase will be 1.65.

It is interesting to note that 1.65 is the estimated cost of increased benefits to pensioners. Then this 0.33, which happens to be exactly one-fifth or 20 percent of that estimated cost of 1.65, definitely and clearly implies that there will be a 20 percent increase in that cost by reason of accelerated retirement.

Gentlemen, as a railroad man, a man who has railroaded all his life, and I pretend and profess to know railroad people, to know how they think I have had 6 years' experience on the Board-I know something about the attitude of railroad people toward retirement. I know that the average age for retirement now is about 68 years. I know that railroad people attain their highest level of employment in later years.

To illustrate, a fireman goes to work on the extra board. Then he gets a night engine, a night yard engine. Then he gets on the extra board in freight service. He eventually gets to have a regular job in freight service. He goes from there to a regular job in passenger service. These ultimate things are only attained after many, many years of service, and they are only reached when men have become old. That is, relatively old. So, some man, who, after many years of service, has a job as a passenger firemen or as a passenger engineer, is loath, he is very loath, to give up his railroad job which pays him, shall I say, rather handsomely, to accept an annuity of $125 or $135 per month. That just does not add up in my book. It does not square with the records of the Board.

I am just as confident as can be that whatever acceleration in retirement is brought about by increased benefits will be so infinitesimal, that you would have to use 6 or 7 naughts to the right of the decimal point in order to bring it down to a calculable sum. I am offering that not as an expert in actuarial science; I am just talking about an arbitrary assumption that has been made, and it is admittedly an arbitrary assumption, an educated guess, if you please. Someone is going to suspect, maybe, that mine is an uneducated guess, which might be all right. But, even so, I think that that 0.33 cost is not warranted by the facts, and except for that 0.33 item, the cost would be reduced from 2.30 to 1.97, and would be well within the 2-percent increase in revenue which we will pick up by reason of the additional taxes proposed by this bill.

So instead of increasing the deficit as might appear from that assumption, if my uneducated guess is good, then instead of increasing the deficit, it will actually operate to result to reduce the deficit. I think that my reasoning is sound because I know railroad people, I know from my experience on the Board how reluctant they are to retire. We have an awful time getting these old fellows to retire at all. As I said before, when they have reached the upper levels of their employment, where they have the best in the wages, the best in hours, the best in