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The Railroad Retirement Tax Act provides for a pay-
Social security benefits are financed by a payroll tax
1956. 1957-59. 1960-64. 1965-69. 1970-74. 1975 and later
LUMP-SUM DEATH BENEFITS
Payable if no survivor eligible for immediate monthly benefits Payable upon death of insured employee, whether or not monthly
employee with 10 years' service and completely, or partially, benefits are payable.
Average benefit awarded.
Payable to survivors ofter no further benefits of any other type are
payable under RRA or SSA. May be elected by widow under
Average benefit awarded.
1 Present minimum railroad retirement annuity is based on 10 years of service and a
mum monthly compensation creditable was $300; beginning July 1954, it was increased
Subject to adjustment under the social security minimum provision.
FINANCING RAILROAD RETIREMENT BENEFITS AND SOCIAL SECURITY BENEFITS
Source: Office of Director of Research, U. S. Railroad Retirement Board, March 4, 1957.
The CHAIRMAN. Mr. O'Hara has a statement. Mr. O'HARA. Mr. Chairman, if you will yield to me. The CHAIRMAN. Mr. O'Hara. Mr. O'HARA. I want to say that I fully concur in the statement which has just been made by our chairman.
I know the sincerity which he and the other members of the committee have in the problem of our railroad employees and our retired railroad employees.
Let me say that over the years each of us on the committee has had a keen sympathetic desire and interest in the problems which we have constantly had before us.
In addition to the witnesses that appear before us in the committee, each of us in our respective communities, among our friends, these railroad employees and retired railroad employees, and we know the conditions under which they live, particularly those in the retirement system, and the problems with which they are confronted. As I have commented before, the Congress is more or less and this committee is more or less trustees of the fund and the legislation that affects the fund.
Money is paid in by the employees and the employers in the fund constantly, and it has been my effort, and I know the effort of this committee, to deal with the problem of the soundness of this fund so that we do not reach a point of an unsound fund.
Mr. Chairman, I am personally grateful for the additional information which the chairman and the staff of the committee have before us in contemplation of this problem, and the comparisons for example with social-security benefits.
Thank you, Mr. Chairman.
The CHAIRMAN. I have here a report from the Treasury Department on H. R. 4353 and other bills which will go into the record. (The above report appears in the record as follows:)
Washington, D. C., March 13, 1957. Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce,
House Office Building, Washington, D. C. MY DEAR MR. CHAIRMAN : This is in reference to your request for the Treasury Department's views on H. R. 4353 and the other bills pending before your committee to amend the Railroad Retirement Act of 1937 to provide increases in benefits and for other purposes.
This Department is primarily concerned with section 5 of the three bills, H. R. 583, H. R. 850 and H. R. 2164, which would exclude employees' contributions to the railroad retirement program from taxable income and for purposes of incometax withholding. Such exclusions are not permitted under present law. After the increase in the rate of contributions provided under the more recent version of the bills under consideration, the exclusion would amount to 712 percent of the covered employee's wages.
Although the proposed legislation would increase both employer and employee contributions from 644 to 712 percent of covered wages and would increase the maximum annual earnings on which tax is imposed from $4,200 to $4,800 to pay for increases in benefits, the combined income and retirement taxés paid by many covered workers would actually be reduced. Their take-home pay after taxes, in other words, would be increased because the higher retirement contributions would be more than offset by the reduction in income taxes resulting from the exclusion of retirement contributions. Calculated at the 20-percent income-tax rate (and disregarding its effect on the amount of the standard deduction) this would occur in all cases where annual covered wages amount to less than $4,375. In the case of a worker with $4,200 of annual earnings, for example, a $52.50 increase in retirement contributions would be more than offset by a $63 reduction in income tax. Thus, the effect of the provision to exclude retirement contributions from taxable income is to shift to the Federal Government and, thus, to other taxpayers, the bulk of the employee's share of the cost of the proposed increase in benefits. In view of the heavy tax burdens which the American people as a whole are being asked to bear at this time, the Treasury Department sees no basis for singling out any one group for more favorable tax treatment than is available to employees generally.
The income tax exclusion of railroad employees' retirement contributions would have far-reaching implications for the income-tax system. These contributions are a form of savings for retirement and for other contingencies. If the savings of railroad employees were excluded from taxable income, other groups could reasonably be expected to demand the comparable exclusion of their savings for retirement, including contributions to the OASI program, private pension plans and annuities.
Present law already gives considerable benefits to people covered by the railroad retirement system by completely excluding all railroad retirement benefits from taxable income. Unlike private pension plans and annuities, and proposals for the special treatment of the private retirement plans of the self-employed, present law excludes not only the part of the railroad retirement benefits representing the employee's contributions but also the part representing the employer's contributions and accumulated interest. If the employee's contributions were also excluded, as proposed, the income they represent would not be taxed at any time. This would clearly discriminate against other taxpayers including selfemployed people who are not eligible for any of the tax advantages received by employees under employer-financed pension plans and who save for retirement out of income that has been subjected to income tax.
The exclusion of contributions to retirement plans from taxable income would result in very substantial revenue losses. At current earnings levels and the proposed contribution rates, the exclusion of railroad retirement contributions alone would involve an annual revenue loss of about $75 million. If present employees' contributions to the social-security fund and to Federal, State, and local employees' retirement plans were also excluded, the annual cost woud be increased by an additional $1 billion. The revenue cost of granting all individuals an exclusion of 71/2 percent of income up to $4,800, provided this percentage of income were saved for retirement, could involve an aggregate yearly revenue loss of about $3 billion.
In view of these compelling considerations, the Treasury Department is strongly opposed to the exclusion of employee contributions from gross income for purposes of the employee's income tax and its withholding at the source.
The Director, Bureau of the Budget, has advised the Treasury Department that there is no objection to the presentation of this report. Sincerely yours,
DAN THROOP SMITH,
Deputy to the Secretary. Mr. AVERY. Mr. Chairman. The CHAIRMAN. Mr. Avery.
Mr. Avery. You may recall my questions the other day referring to this comparison that has been prepared by the staff. I see this table has only made comparison with social security.
Is it your intention that the staff should go a little further than that on a comparison of the railroad retirement program, or is social security going to be taken as the only comparison?
The CHAIRMAN. Well, thus far we did not have a further comparison. We did get a great deal of assistance from that.
Mr. Avery. I was thinking more in terms of substantial corporations. It seems to me that it would be more valuable to have a comparison with other retirement progams than it would to have a com
parison with the social security. I am not at all familiar with retire: ment programs.
The CHAIRMAN. It would be very difficult for our staff to seek out the various pension plans of corporations and try to analyze them and
compare them, because there are so many different kinds. I imagine, however, that during the course of these hearings, we might develop some of that information.
Mr. Schreiber is here and will be available, and I am sure he has given a lot of study to the various types of retirement plans, not only in Government but in business too. We will try to develop as much of it as we can.
One of our colleagues who could not be here on Monday is present with us this morning and would like to have a few minutes. Of course our colleagues in the House always come first.
Mr. Perkins has shown his interest in the problems of the railroad employees over many years. He comes from the great State of Kentucky where he has a lot of active and retired railroad employees.
Mr. Perkins, we are glad to have you here and to hear you at this time.
STATEMENT OF HON. CARL D. PERKINS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF KENTUCKY Mr. PERKINS. Mr. Chairman and members of the committee, I appreciate very much your courtesy in permitting me to appear before you in support of my bill, H. R. 4817. This proposal to amend the Railroad Retirement and Unemployment Insurance Act is identical to the bills introduced by the distinguished chairman of your committee, Mr. Harris of Arkansas, and my friend from New Jersey, the ranking minority member, Mr. Wolverton.
I am proud to associate myself with these respected leaders of your committee in their efforts to improve the railroad retirement and unemployment insurance systems. I doubt if there is anyone in Congress who has worked harder and accomplished more for the railroad employees than have Mr. Harris and Mr. Wolverton. I know that the measure which they have introduced and which I am supporting has received their most exhaustive study.
I am sure this bill is the best possible approach to the problems that we now face when all the facts are taken into consideration.
As every member of your committee knows, the problems of railroad retirement have always been one of the major items of congressional mail. Year in and year out we receive a constant influx of mail regarding these matters. For this reason I believe there is wider continuing interest in the railroad retirement system among those affected than in any other subject that we have to deal with.
The objective of the bill I am supporting is to improve benefits under the railroad retirement system. The 10-percent increase included in the present measure along with the 10 percent the Congress allowed last year will compensate in some small degree for the frightening increases in the cost of living which continue to beset us. I am informed that the last monthly BLS index of the Department of Labor indicates that the present cost of living is at an alltime high.
There is also a great need for the improvement in the Railroad Unemployment Insurance Act contained in the bill I am discussing. Now, gentlemen, I want to make it perfectly clear that I am not an expert in the field of railroad retirement and unemployment insurance.
I sincerely doubt that very many Members of Congress can take the time necessary to study all of the intricate technical details of this system in arriving at our decisions. It is for this reason that I rely greatly upon the wisdom and experience of your chairman and ranking minority member. They are widely known through the House as experts in this field.
I think it highly significant that the Railway Labor Executives? Association on behalf of every railroad labor organization is supporting this legislation. These railroad brotherhoods have a longestablished reputation for integrity and responsibility. They do not lightly endorse changes in this Retirement Act. It has been my experience that every time the brotherhoods have sought or recommended changes in their Retirement Act they have done so in a most careful manner. I am told by my friends in the brotherhoods that they have very carefully studied the bill we are now considering and that they are in wholehearted support of the legislation.
I would like to include in my remarks some of the reasons given by railroad pensioners themselves in their own words, as to why such legislation is needed. They are living on meager incomes at a time when living costs have reached unprecedented heights.
A letter which I recently received from a widow of Olive Hill, Ky., describes this situation better than I can do. She received no increase in her $54.60 pension in the 1956 amendments. She wrote me on January 5, 1957:
I am a widow. My husband passed away 3 years ago in June. He was a telegraphic operator of the C. & O. railroad for 34 years and in 1949, at the age of 52, suffered a cerebral hemorrhage and was never able to return to work. Then in 1954 he passed away leaving me with 6 fine children—all married but one. I sent three to college. I do own my home but taxes, insurance, fuel, and high cost of living makes it very hard on me and I am 63 years old. I try to paper for some people. It is very hard on me at the age of 63 to do that kind of work. It sure is tough going on such a small pension.
I believe that the Members of this committee, and the Congress of the United States will agree that it must be "tough going” for any widow on a pension payment of $54.60 per month. The provisions of the bill which provide a 10 percent increase for these people, mostly widows, who did not qualify for any increase under the 1956 amendments are, to my mind, one of the most compelling reasons for enacting this legislation as speedily as possible. I would
like to present another typical testimonial as to the need for this legislation-again directly from the point of view of the people who will be affected by the bill. A gentleman from Russell, Ky., describes the kind of situation this bill will help to remedy. He writes:
I am an employee of the C. & O. Railroad Co. for the past 34 years. I am employed here at Russell as a machinist, my age 65 and my wife 60 years of age. We had had quite a little sickness in our family over the past number of years, therefore we could not lay away for our security in our pension years. So with what small savings we have been able to save and in addition to the railroad retirement benefits that I would receive upon my retirement would not be sufficient for us to get along, but if Congress may change the Railroad Retirement Act law to the same as the widow for the wife at the age of 60 years, instead of at present, I feel satisfied that this change in the law would be highly appreciated by a great number of railroad employees, including myself.
The bill you are considering takes a step in the direction of meeting the type of family situation which the gentleman describes. By raising the maximum on the spouse's annuity from $54.30 to $59.73 it makes possible an increase in the total family income for a retired man and his wife.