Mr. VAN ZANDT. H. R. 3115 provides full annuity at age 60 or after 30 years of service and H. R. 3116 provides a full annuity at age 60 or after 35 years of service.

The difference is 30 years of service in one bill and 35 years in the other.

The CHAIRMAN. Does either one of them provide for a reduced annuity?

Mr. VAN ZANDT. No.

The CHAIRMAN. At any given age of retirement?

Mr. VAN ZANDT. I do not think that either of these bills interfere with the provisions of existing law with respect to disability.

The CHAIRMAN. I am sure that is true, but the Civil Service Retirement Act, which I am sure this proposal is based on, provides, I believe, that at a certain age beginning at age 55, if I remember correctly, that an employee may retire by taking a reduced annuity. Mr. VAN ZANDT. That is correct.

The CHAIRMAN. You do not apply that same principle here?

Mr. VAN ZANDT. No; both of these bills provide full annuity at age 60, after 30 or 35 years of service.

The CHAIRMAN. That is all, Mr. Chairman.

Mr. MACK. Mr. Avery.

Mr. AVERY. Thank you, Mr. Chairman.

Mr. Van Zandt, I followed the questions that have been directed to you rather carefully. I am not sure I got your recommended priority on these various problems.

Was it your position that we should give attention to the amortization of the present_deficiency first before we should consider any liberalization of the Retirement Act?

Mr. VAN ZANDT. I think Congress is obligated as custodian of the retirement fund to give consideration to the deficiency, because when the President signed the bill he called upon Congress, as well as the spokesmen for railway labor organizations, to tackle the deficiency of $169 million when the 85th Congress convened.

In other words, he called upon Congress to liquidate the deficiency before it proceeded to further liberalize the existing law.

I understand the so-called Harris-Wolverton bill provides a source of income through an increase in payroll taxes.

It provides that the additional payroll tax contained in the bill would be tax exempt for income-tax purposes and the source of income I am told will not only permit the liquidation of the $169 million deficit, but it will cover the cost of the Harris-Wolverton bill.

Mr. AVERY. I appreciate the gentleman's realistic approach to that problem. I am in hearty agreement with him.

I have just one more question and this I should know, but I do not. The payroll deductions for retirement in the Railroad Retirement Act are what, about 50 percent less than social security?

Mr. VAN ZANDT. The deductions under the Railroad Retirement Act are 614 percent at the present time. That makes a total of 1211⁄2 percent, half of it being paid by the employee and the other half by railroad management.

Under social security I think the payroll tax is about 21⁄2 percent at the present time as far as the employee is concerned.

But it should be kept in mind that this tax is increasing constantly and that as the benefits are liberalized under social security the employer and the employee are called upon to make a greater contribution to cover the cost of the increased benefits.

If you compare social-security benefits with those paid by the Railroad Retirement Board, you will find that the latter pays more in the way of benefits than does social security.

I have made part of the record this morning a copy of the comparison of the benefits paid by the two retirement systems. This comparison was recently provided Members of Congress by the Railroad Retirement Board.

Mr. AVERY. I appreciate that. I will be very much interested in seeing that.

Thank you, Mr. Chairman.

Mr. MACK. Mr. Alger.

Mr. ALGER. No questions, Mr. Chairman.

Mr. MACK. Mr. Van Zandt, I just have one further question and that is along the same line.

I have been very much interested over the years, in bills similar to your proposals, H. R. 3115 and H. R. 3116. I would like to liberalize benefits but we have had the constant problem of financing. I frankly have never thought about Government contribution.

I just wonder what in your opinion would be the justification for that.

Mr. VAN ZANDT. I think you have to consider first, the cost of living, and, second, that every dollar earned by an employee of the railroads of this country up to, I think, $350 a month, is subject to a payroll deduction from that dollar of 614 cents.

So every time we increase payroll taxes as far as the employee is concerned, we are taking more money away from him.

The average railroad man today is complaining about the deductions that are being made to his salary before he collects it. Those deduction, in addition to the payroll tax to the Railroad Retirement fund, also include additional deductions, such as company relief, city, and Federal income tax, and other deductions, such as the community chest, etc.

Therefore, before an employee receives his pay envelope, there may be anywhere from 30 to 40 cents taken out of each dollar he has earned.

The average employee says, "On the one hand, we get an increase that has been negotiated by railway labor groups with management, but in reality, payroll deductions take a great portion of it from us." In my opinion, in the field of payroll deductions, we have about reached the saturation point.

Mr. MACK. I am inclined to agree with you on that. The taxes are just about all that the employees can stand.

But, on the other hand, the Government is only the trustee. It, therefore, looks to me as though there should be a question as to whether they should make direct appropriations. Perhaps we should call on the railroads to make up the subsidized fund or the railroad brotherhoods to make contribution to it.

Mr. VAN ZANDT. That would be one solution to the problem. It would require that railroad labor organizations would have to negoti

ate with railroad management for an additional pension such as the United States Steel Workers have worked out with the steel corporations.

I think that sooner or later social security, railroad retirement, civil service, and other pension or retirement systems will have to be subsidized by the Government of the United States unless the cost of living is held down.

I do not think that business and industry, nor their employees, can continue to shoulder the burden of increasing payroll taxes.

Mr. MACK. I am very happy to have your views on this subject. I can understand how there would be an obligation for subsidizing a social-security fund, but it seems to me it would be breaking all precedent if you had the Government subsidize the railroad retirement fund.

Mr. VAN ZANDT. The method of financing the social-security fund is identical to that of railroad retirement. The employee and the employer finance social security. In like manner, the employee and employer finance the railroad retirement system.

Mr. MACK. The social security retirement system is so closely associated with the Government it is actually a Government retirement program.

Mr. VAN ZANDT. That is true.

Mr. AVERY. Mr. Chairman, will you yield?

Mr. MACK. Yes.

Mr. AVERY. I wonder if I could ask the gentleman from Pennsylvania this question: I believe you stated a while ago the total deduction now was about 121/2 percent from the employee and employer.

Mr. VAN ZANDT. That is right.

Mr. AVERY. On that basis can you tell us, Mr. Van Zandt, what that would have to be to offset that $169 million deficit in percentage? Would that have to be 13 percent, say?

Mr. VAN ZANDT. At the present time the payroll tax is 12.5. If the deficit is to be financed and the cost of these amendments to be included, it is estimated it will require a combined payroll tax of 15.7 percent. Mr. AVERY. That includes the amendments?

Mr. VAN ZANDT. I am not sure.

Mr. AVERY. You do not have what that would have to be increased to just to offset the present $169 million?

Mr. VAN ZANDT. I have just been advised that 15.7 percent does not include the cost of these proposed amendments.

Mr. AVERY. What would it be if we included the amendments Mr. Van Zandt? You may supply that for the record.

Mr. VAN ZANDT. I see, Mr. Machek, of the Railroad Retirement Board, is present. No doubt he will follow Members of Congress on the stand, and at that time he will furnish the committee the exact figures.

Mr. AVERY. Just to finish this thing up here, Mr. Van Zandt, will you arrange to supply for the record the cost of each one of these amendments on a percentage basis?

Mr. VAN ZANDT. Do you mean each one of the amendments I have offered in the form of the bills?

Mr. AVERY. Yes, sir.

Mr. VAN ZANDT. I can do that.

Mr. MACK. Our staff has compiled the information that you are requesting.

Mr. AVERY. Very well. Then I will delete my request.

Mr. MACK. I think the statement I have here covers your question. I think we have that information, Mr. Van Zandt. It will not be necessary for you to furnish it.

Does anyone have any further questions?

Thank you, Mr. Van Zandt.

Mr. VAN ZANDT. Thank you, Mr. Chairman.

Mr. MACK. We also have our colleague from Florida here. We will be very happy to hear him at this time.

Congressman Charles Bennett has been very active in railroad-retirement legislation since he has been in Congress. We are very happy to have him here this morning.

STATEMENT OF HON. CHARLES E. BENNETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

Mr. BENNETT. Thank you very much, Mr. Chairman.

I would first like to express my appreciation to you and to the members of this committee for permitting me to appear here today to testify in favor of H. R. 4353, and other railroad-retirement bills.

H. R. 4353 contains many provisions liberalizing benefits, and I hope it will be possible for Congress to provide these and other benefit increases.

I am today introducing a bill-H. R. 5803-which would provide annuities to individuals who retire at age 60 after 30 years' service and at any time after 35 years' service.

It would also reduce the age at which wives could begin receiving spouses' annuities to 60, provide monthly compensation for years of service before 1937, based upon the 5 highest years whether or not before 1937, and increase annuities and pensions by 15 percent for those who did not receive the increase last year, and by 5 percent for those who did receive last year's 10-percent increase.

Finally, it would eliminate all remaining dual-benefit restrictions between social security and railroad retirement.

The committee is faced with the problem of financing such increases as it may recommend as a result of these hearings, H. R. 4353 proposes that the employee's contribution be raised from 614 to 72 percent. Perhaps it will be necessary to raise the contribution in this way.

However, I hope the committee will be able to find some way of financing this increase other than by raising the employee contribution. It has seemed to me for some time that a promising means of financing some increases would be by raising the rate of return on the railroad retirement reserve funds.

As you know, about $312 billion of these funds is now invested with the United States Treasury at 3 percent. The Secretary of the Treasury recently requested authority to raise the interest rate on Government bonds, indicating that the Treasury is no longer able to obtain money in the free market at 3 percent.

It seems to me highly unfair to force rail workers to invest their retirement funds with the Treasury at 3 percent, as the law now requires, when the going rate is somewhat over that.

The legislative counsel is now drafting a bill for me which would, I believe, provide a practical means of increasing the yield of the reserve fund. My bill would authorize investment of up to $2 billion of the reserve fund in Government guaranteed housing mortgages at the rate of 5 percent. This is only slightly less than the present 511⁄2 percent rate on FHA mortgages, but it would yield $40 million more for the fund.

This housing would be for elderly persons generally, but preference would be given to railroad annuitants in purchasing such housing.

Thus, annuitants would benefit in two ways: First, they would be able to receive higher annuities;

Second, they would be able to retire to nice homes-I hope in Florida.

Another feature of the bill which I am now drafting is a requirement that the Government pay 4 percent on the remaining $12 billion in the reserve fund, yielding an additional annual revenue of $15 million. Adding this to the $40 million additional from housing, there would result a total of $55 million more each year for financing more liberal benefits.

Before this committee recommends an increased employee contribution, as proposed in H. R. 4353, I hope it will consider alternatives which will not decrease the take-home pay of the railroad workers.

Thank you again, Mr. Chairman, for permitting me to appear to express these views.

Now, the reason why I irregularly and unusually appeared today on behalf of the two bills which are not actually pending bills yet is because I have been waiting for the technicalities of these financing provisions to be worked out.

The House legislative counsel has not been able to work them out yet. Today I am introducing a bill-H. R. 5803--which asks the additional benefits, but the financing has to come in a later bill because they have not been able to work it out yet.

Nobody would think of having $3 billion on hand at 3 percent in 1957. That is exactly what we do with regard to these funds. It is not sensible.

If any man in this room had a million dollars he would not think of investing it all at 3 percent, because you know that money can be taken from you by inflation just as sure as it can in any other way. It is not a great pleasure to receive back a dollar 10 years hence with 3 or 4 percent interest on it if the dollar is worth so much less than it was when you originally presented it.

In previous sessions of Congress I have urged even more liberal systems of raising this percentage. But this is a very mild one to which I cannot see anybody would have any great objection.

Thank you.

Mr. MACK. Thank you, Mr. Bennett. We appreciate your statement, especially the suggestions you have made with respect to raising revenue for this program.

Mr. Moulder, do you have any questions?