I would be prepared to meet it if it arises. There is one other item I would like to mention. I know it is a matter of some delicacy and I won't go into it in any detail. There has come to my attention a press release from the Ways and Means Committee, to which was attached a resolution asserting the jurisdiction of the Ways and Means Committee over any revenue matters connected with this bill. I recognize that the matter of the division of work between committees of the Congress is a matter of internal organization of Congress and the way you transact your business, and I think there are very definite limits on the extent to which I can with propriety discuss it, and I will observe those limits. I merely want to remind you of the past history of the handling of these matters. Undoubtedly a bill dealing solely with the railroad retirement taxing act would be referred to the Ways and Means Committee as the original Carriers Taxing Act in 1937 was. However, I understand it to be the general rule that where bills do not conform precisely to the division of work between committees, as frequently occurs, it is the policy to refer the bill to the committee dealing with the subject matter which is predominantly dealt with by the bill. I assume it was on that basis that the Speaker referred this bill to this committee, as has been done with all amendments to the Railroad Retirement Taxing Act since 1937, because they have all been included in bills dealing also with the Railroad Retirement Act. That was true with respect to 1946 amendments, which increased tax rate from the original graduated scale to the present graduated scale. It was true also of the bill which raised the taxable base from $300 to $350. Mr. HALE. Did the Ways and Means Committee have anything to do with any of those bills? Did they pass on them? Mr. SCHOENE. No, they didn't pass on any of those bills. I would also direct your attention to the fact that in 1937 when the Carriers Taxing Act bill itself was referred to the Ways and Means Committee, the Railroad Retirement Act, which this committee considered, included at that time the present section 12 which exempted the annuities from taxation. As late as last year section 12 was again revised slightly by this committee to make clear that the enactment of the Internal Revenue Code of 1954 had not changed the effectiveness of section 12 of the bill. So, as I say, I recognize limits to the propriety with which I can discuss the division of work among committees. I do want to remind you that all the precedents for dealing with a bill which deals primarily with the Railroad Retirement Act but also has some revenue measures in it is for this committee to handle. That is all I have, Mr. Chairman. Mr. DOLLINGER. Any questions? Mr. HALE. The thing about the Treasury letter which concerns me is that I don't myself see how if you open this door for the railroad employees you can keep it closed as a practical matter for socialsecurity employees. Can you explain what we ought to say to the social-security employees when they come along and say "me, too"? Mr. SCHOENE. I have touched upon that. I think you can properly say, "We will listen to any case that you have to present for doing it, but in considering the railroad retirement system we gave consideration to the unique character of that system which combines within itself not only the basic social-security system but an industrial pension system, and that the industrial pension systems applicable in other industries now afford opportunities for much greater tax savings than those which are committed to this system by this bill.” If employees under other systems can make a justifiable case for similar consideration or different consideration, I think they should be treated in accordance with the equities that they present. My point, Mr. Hale, is that it does not follow willy-nilly from the fact that this bill is enacted that you are going to have to do the same thing under social security. Mr. HALE. I must say I am very much attracted to the idea that any kind of tax should be deductible from one's gross income. I would like it very much if the income tax that I pay this year were deductible from my gross income for this year, but the Treausry wouldn't approve of that. Mr. SCHOENE. I am afraid not. Mr. HALE. I was also much interested in what you said about union dues. I was surprised to learn from you that those are deductible from income, if I understood you correctly. Mr. SCHOENE. That is true also of bar association dues, Mr. Hale. They are nondiscriminatory in that respect. Mr. HALE. I can readily see a difference between a retirement system which is compulsory, like this and social security and a retirement system which is optional. Mr. SCHOENE. Yes, I think there is certainly that difference. Mr. HALE. The optional system is not a tax at all. It is a voluntary payment. Mr. SCHOENE. Certainly when it is compulsory, as in this instance, it is an expense of holding your job. It is a condition, it is a payment have to make before you can earn your income. you Mr. HALE. I think that is all, Mr. Chairman. Mr. DOLLINGER. Mr. Rogers? Mr. ROGERS. No questions. Mr. DOLLINGER. Thank you, Mr. Schoene, for your presentation. Mr. SCHOENE. I appreciate the opportunity to appear, Mr. Chair man. Mr. DOLLINGER. The hearings are concluded and the subcommittee will stand adjourned subject to the call of the Chair. (The following material was received for the record :) CONGRESS OF THE UNITED STATES, Hon. J. PERCY PRIEST, HOUSE OF REPRESENTATIVES, Washington, D. C., February 8, 1956. Chairman, House Committee on Interstate and Foreign Commerce, Washington, D. C. DEAR MR. CHAIRMAN: I am enclosing a letter sent me by one of my constituents which outlines his views on amendments to the railroad-retirement program. You probably know that Mr. Perkins has been a faithful correspondent on this subject for some years now, and he would like his views to be made a part of the record. I will appreciate any assistance you can render in accomplishing this. Respectfully yours, DANTE B. FASCELL, MIAMI, FLORIDA, February 6, 1956. Subject: Elimination of 1924-31 period in computing annuities under the Railway Pension Act. Hon. DANTE B. FASCELL, House of Representatives, Washington, D. C. DEAR CONGRESSMAN: In reply to yours of January 27, and in further connection with mine of January 16, I am more interested in the elimination of the 1924-31 period in computing annuities than any of the other proposed amendments. This is the most important of all the proposed amendments. The 1924-31 period is the very leanest in the history of railroading. Elimination of this period would do more to equalize annuities than anything else. The use of this period is a discrimination against all those who retire prior to 1967. unfairness is particularly apparent when we consider that when the pension bureau took over company pensions in 1937 they paid full annuities to thousands who had never paid a dime into the bureau. The It is my idea to first eliminate the use of the 1924-31 period, compute pensions on the monthly average since the pension bill became effective then consider such percentages as the bureau is able to carry. Under the present bill, the individual's last 30 years of service are considered in the computation. All months necessary to make a total of 360 months, prior to 1937, are computed on the basis of earnings during the 1924-31 period regardless of what the individual's earnings were during the period from 1931 to 1937. To give you an idea how these annuities are computed and what increase would be obtained by the elimination of the 1924-31 period and computation on the basis of the monthly average since the present bill went into effect, I will use the formula and compute mine both ways. I am still working. I have not yet received my BA6 card for 1955. Therefore, I will compute the annuity as if I had retired January 1, 1955. My BA6 card for 1954 shows earnings for 213 months $58,476.57, a monthly average of $274.40. The Railway Pension Bureau credits me with a monthly average of $146.20 during the 1924-31 period. Months (period used for computing average earnings in connection with retirement) 360 Less months (period worked since 1937). 213 Leaves months prior to 1937, on which the 1924-31 average of $146.20 monthly will be applied__. 147 147X$146.20-$21,491.40; $21,491.40 plus $58,476.57 gives a total of $79,967.97, to be divided by 360, to show the average monthly earnings past 30 years, for computation of actual pension. Applying the formula on the monthly average of $222.02, we have: First $50X0.0276_. Next $100X0.0207_-. Remainder $72X0.0138- Total__ $1.38 2. 07 .9936 4. 4436 30X$4.4436=$133.30, the monthly pension under the present method. Application of the formula to monthly average earnings of $274 would make the pension $154.80, an increase of about 16 percent. If the pension were computed on the basis of average earnings for the last 5 years, the monthly annuity would be $165, an increase of approximately 24 percent. I have followed bills introduced into Congress for the past several years. Maybe some would burden the Railway Pension Bureau beyond their capacity. Certainly it is reasonable and justifiable to request the elimination of the 1924-31 period in computing annuities. Thanking you for past favors, I am, Respectfully yours, CECIL R. PERKINS. P. S.-I hope any amendment passed by Congress can be made retroactive to January 1956. AMERICAN FARM BUREAU FEDERATION, Re H. R. 9065 and similar bills to amend the Railroad Retirement Act Hon. OREN HARRIS, Chairman, Subcommittee on Transportation and Communications, House Office Building, Washington, D. C. DEAR MR. HARRIS: This letter is to set forth the views of the American Farm Bureau Federation with respect to the above indicated legislation. It will be appreciated if you will include this letter in the record of the hearing. It will be recognized that farmers have a major interest in this legislation. Increased railroad payments to retirement funds are inevitably reflected in increased railroad rates. In Ex Parte 196 the railroads petitioned for a 7 percent general rate increase and justified their request in part by the fact that payments by railroads to the railroad retirement fund had increased $50 million annually. Farmers are major purchasers of railroad sevice, both diectly and indirectly, on farm products shipped to market and on farm production supplies they purchase. A substantial portion of any increase in railroad payments into the railroad retirement fund would be paid by farmers. Section 5 of H. R. 9065, providing that payments by railroad workers to the railroad retirement program would not be classified as taxable income, should be referred to the House Ways and Means Committee. It has, of course, long been the practice of the House that all matters relating to taxation are handled by the House Ways and Means Committee. We believe this rule is sound and should be followed in all instances to avoid patchwork development of tax law and to insure adequate consideration of the impact of tax legislation upon the general fiscal situation. In the present case there is a significant further reason for referral of section 5 to the House Ways and Means Committee. If legislation is to be enacted to exclude payments by railroad workers to the railroad retirement program from taxable income, it is important that the same principle be applied to all retirement programs, both public and private, if discrimination between different groups of our population is to be avoided. Any program for expansion of present railroad retirement benefits should be actuarily sound. Data has been submitted to the committee indicating that the actuarial deficiency of the fund is currently $86 million a year and that the enactment of H. R. 9065 would increase the deficit to $102 million a year. Although some witnesses have argued in opposition to these acturial conclusions, no competent actuarial testimony to the contrary has been submitted. It would appear that early action is necessary to reestablish the fund on a sound reserve basis. H. R. 9065 does not accomplish this objective, but on the contrary would increase the annual actuarial deficit and jeopardize the interests of future beneficiaries. The opportunity of presenting the views of the American Farm Bureau Federation with respect to this matter is sincerely appreciated. Very sincerely, MATT TRIGGS, Assistant Legislative Director. INDUSTRIAL RELATIONS CONSULTANTS, Mr. OREN HARRIS, Chairman, Subcommittee on Transportation and Communications, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D. C. DEAR MR. HARRIS: Because of my long service as Chairman of the Railroad Retirement Board I am very much interested in the Railroad Retirement System. You are, I think, aware of my opinion that most of the recent changes in the Railroad Retirement Act have tended to undermine that System; if enacted, H. R. 9065 would, in my judgment, tend to hasten a process already too far advanced : (1) The proposed measure would add more to the cost of the Railroad Retirement System than would be provided in revenue. (2) The bill proposes a subsidy for some of those who pay railroad retirement taxes, the subsidy to be paid by the general Federal taxpayer (which I think unjustified). (3) The Railroad Retirement System is already attempting to provide more benefits than the available revenues will support. The most recent valuation, completed within the month, indicates that taxes should be increased by 1.63 percent immediately. This estimate, I believe, may well turn out to have been too low. (4) The Railroad Retirement System finances rest, to a substantial degree, on inequitable taxes, on a subsidy from the Federal Treasury which some future Congress may well recall, and on an anticipated huge cash transfer from the old-age and survivors insurance trust fund which I, for one, think will never occur. The Railroad Retirement System needs more revenues; and in my opinion the subsidies and inequities ought to be eliminated. There is only one way to begin the corrective process: extend the Social Security Act to railroad employment, and provide additional annuities, from separate taxes, above and beyond the social-security payments. There was good reason to think, a few years ago, that there could be some increase in annuities for long-service employees without increase in total taxes if this change in the character of the Railroad Retirement System were made. That possibility is probably no longer real; but the need for a change in the character of the System is, in my opinion, more urgent than ever. I ask that this letter and the enclosed memorandum be printed in the record as an expresson of my views. If anyone should be interested, I will be glad to appear before your committee and answer any questions which the members may wish to ask. Very truly yours, MURRAY W. LATIMER. COMMENTS ON H. R. 9065 H. R. 9065 (and some other differently numbered but identical bills) would make important changes in each of three acts: (1) The Railroad Retirement Act would be amended by changing the basic formula used to calculate the amount of employee, spouses' and survivor annuities and pensions by approximately 15 percent; the social security minimum, however, would not be affected; (2) Under the Railroad Retirement Tax Act, taxes on employers and employees would each be increased from 6 to 74 percent of compensation (and on employee representatives from 121⁄2 to 141⁄2 percent) not in excess of $350 per month; and (3) The Internal Revenue Code would be changed, by what purport to be amendments to sections 3201 and 3211 of the Railroad Retirement Tax Act, so as to exclude from income taxable under Chapter 1 of the Code (which provides for the income taxes paid by most gainfully employed Americans) the taxes paid by individuals under the Railroad Retirement Tax Act. There are other subsidiary amendments: The base for the residual payment under the Railroad Retirement Act would be increased from 7 to 8 percent of the compensation not in excess of $350 per month after June 30, 1956, and Chapter 24 of the Internal Revenue Code would be modified so as to reduce the income from which taxes are to be withheld by the amount of the taxes paid by individuals under the Railroad Retirement Tax Act. A memorandum written by Mr. A. M. Niessen, the actuary of the Railroad Retirement Board, indicates that the cost of the amendments proposed in H. R. 7988 would be 2.26 percent of taxable payrolls. H. R. 7988 is identical to H. R. 9065 except that there is no tax increase in H. R. 7988, so that the residual benefit would be calculated from the present tax bases. Since, under H. R. 9065, the base for the residual benefit would be increased with respect to compensation after June 30, 1956, from 7 to 8 percent, there would be no reduction in the cost of the residual benefit, and perhaps even a slight increase. I would therefore expect Mr. Niessen's estimate of the cost of H. R. 9065 to be perhaps 2.30 or 2.35 percent of taxable payrolls. Since the total tax increase in H. R. 9065 is 2 percent of taxable payrolls, the actuarial estimate would indicate that the benefits would exceed the revenue by 15 to 17 percent. A deficiency of revenues of the size indicated with respect to the amendments proposed in H. R. 9065 might not be serious if the Railroad Retirement System were in excellent financial condition. Unfortunately, this is not the case, the System already promises more benefits than are being provided for, and enact |