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I happen to have a personal knowledge of how the representatives of standard labor organization wrestled with this problem.
I woud like to assure you gentlemen, if I can, that this bill represents the best judgment of all of the standard railroad labor organizations, and it represents a judgment arrived at, after long, repeated, and careful consideration, of the problem as a whole.
Later, the representatives of the employees will explain the details of the bill and I will not unnecessarily go into that, because they will be thoroughly discussed by persons better qualified to do that than
I prepared an additional statement which I would like to enter into the record, without reading, if that can be done. This statement deals with the necessity of doing something about the present deficit in our financial setup and here I want to say that I subscribe 100 percent to the statements that were made by the chairman and by Mr. O'Hara about the seriousness of trifling with the soundness of our fund.
I think, as Mr. Habermeyer has said, earlier, that the first job here is to meet the commitment made to do something in this Congress.
These bills, H. R. 4353 and 4354 do that.
My statement quotes from a statement made by the President of the United States when he signed S. 3616 last year. It also quotes from letters written by Mr. George Leighty, who is chairman of the Railway Labor Executives Association, to Senator Kennedy, and an excerpt from a letter from Mr. Anderson, who is Mr. Leighty's assistant, both dealing with this problem arising out of the enactment of S. 3616
I think that attests the sincerity, determination, and responsibility of the representatives of employees to do what they promised last year that they would do, namely, come up with a bill which would meet the costs of the 1956 bill, and in addition to that provide necessary revenue for the additional benefits provided in this bill.
I would like to enter this statement in the record without reading, if that is permissible.
The CHAIRMAN. Yes, it may be included in the record, Mr. Harper. (Statement referred to is as follows:)
HORACE W. HARPER, MEMBER OF THE RAILROAD RETIREMENT BOARD
My name is Horace W. Harper, I am the labor member of the Board whose statutory duty it is to provide representation on the Board satisfactory to the largest number of railroad employees. I appear here today in support of H. R. 4353 and H. R. 4354. My reasons for supporting the bills are contained in the Beard's report to your committee. Additionally, I make these statements :
S. 3616, a temporary measure for the purpose of providing an interim modest increase in benefits was enacted by the Congress and signed by the President August 7, 1956. These additional benefits increased the total cost of benefits under the railroad retirement system to 15.70 percent of taxable payroll, while leaving the total tax revenue at 12.50 percent of taxable payroll. Consequently, there is now an estimated deficit of 3.20 percent of taxable payroll. This estimated deficit is a matter of considerable concern to the Congress and the President, as well as to the railroads and railroad employees. Each and all of those named are in agreement that financial soundness of the railroad retirement system is a sine qua non, and that it is imperative that appropriate legislation be enacted at this session of Congress to assure adequate financing of the railroad retirement system. In connection therewith the following is quoted from a statement made by the President August 7, 1956.
“I have today signed S. 3616, "To amend the Railroad Retirement Act of 1937 to provide increases in benefits, and for other purposes.' * * *
* * *
"I take this action for two reasons: First, it will help thousands of retired railroad employees and their wives to meet their day-to-day living expenses. Secondly, the Senate Labor and Public Welfare Committee has indicated tis unanimous determination to act promptly in the next session of the Congress on a measure which will finance the cost of these benefit increases. Representatives of railroad labor organizations also have given firm assurances that they will propose at the opening of the next Congress a program to assure adequate financing of the railroad retirement system. It is imperative that satisfactory legislation for this purpose be proposed and enacted. * * *
For some time it has been a matter of concern to the executive branch of the Government that the combined payroll tax rate of 1212 percent is not sufficient fully to finance the estimated future liabilities of the railroad retirement program.
“It is estimated that the benefit increases provided in S. 3616 will cost $83 million a year at a level premium basis, raising the deficiency to $169 million a year. At present tax rates and existing payroll levels, this obviously will aggravate the dangers referred to in the evaluation report. Corrective action is imperative. It should be taken promptly in the next session of the Congress.”
The Senate Committee on Labor and Public Welfare recognizes, as does the President, the necessity for adequate financing of the railroad retirement system. In that connection the following is quoted from the report made by that committee to accompany S. 3616.
“The committee is unanimous in its determination to act promptly at the next session of the Congress on a measure which will finance these increased benefits, regardless of any action which may or may not be taken by other committees of the Congress on related provisions for tax relief. In this connection, the committee has been assured by the Railway Labor Executives' Association that preparations are now being made to present to the Congress early next year a plan of financing the railroad retirement system in such a way as to cover adequately the cost of the benefits provided in the committee bill."
In this same connection the following is quoted from a letter written Senaor John F. Kennedy, chairman, Subcommittee on Railroad Retirement, by Mr. G. E. Leighty, chairman, Railway Labor Executives' Association for the association and for the Brotherhood of Locomotive Engineers under date of July 20, 1956.
“We propose at the next session of the Congress to recommend to your committee and to the House committee a new program which will contain adequate financing that will take care of the proposed 10 percent interim increase as well as the improvements to be sought next year.
“You may be certain that the Railway Labor Executives' Association is vitally aware of the implications of this request and we make it only after the most deliberate and careful consideration. *** We most certainly intend that our system be financed adequately and you have the assurances of every standard railway labor organization that we shall take every necessary action to provide sufficient revenues for these benefits in the next Congress."
Then, too, Mr. C. T. Anderson, assistant to the chairman, Railway Labor Executives' Association, wrote Senator Kennedy, in part, as follows, July 20, 1956:
“* * * it is our firm determination to ask the next Congress, immediately upon its convening, to consider another railroad retirement program which will contain adequate financing for this interim increase which we are now recommending.
"The Railway Labor Executives' Association has an unbroken record of financial responsibility in its requests to the Congress involving railroad retirement matters. We believe that we have demonstrated a record of good faith in our insistence over the years that this system be adequately financed. We hope that the Congress will have confidence in our judgment when we say that we do not believe that this interim increase will endanger the system and will accept our assurances that we shall cooperate in financing these benefits in the next Congress.”
The standard railway labor organizations do not take lightly their firm assurance that they would propose at the opening of this Congress a program to assure adequate financing of the railroad retirement system. They have quite seriously gone about the preparation and presentation of appropriate legislation to achieve that end. The bills under discussion are the product of their very careful consideration and, in my judgment, fully achieve the end sought.
The CHAIRMAN. You think that this legislation which you support is in the public interest?
Mr. HARPER. I certainly do, sir.
The CHAIRMAN. That takes into consideration not only those who are benefited, but also the public who may be affected by it.
Mr. HARPER. Quite definitely so.
It would be hard to estimate, in my judgment, how many people have been kept out of poorhouses, how many people have not had to call upon Government relief agencies because of the benefits which are provided in our Railroad Retirement Act. I think, particularly in that respect, that it is in the public interest.
The CHAIRMAN. You did not say anything about another major provision of the legislation, and that is the unemployment insurance feature of it.
Mr. HARPER. I am in favor of that portion of the bill just as I am in favor of the portions dealing with the railroad retirement system.
We are suffering from technological changes on the railroads. We are suffering a continuous loss of employees on the railroads due to dieselization and mechanical machines of one sort or another. We have come to a place where we are having men 50 to 55 years of age, in their prime of life I would say, because I am a lot older than that, cut off. Those men 50 to 55 have many years of good usefulness left in them. But when they get cut off of employment on the railroads their experience on the railroads, generally speaking, is not of a kind that would help them in securing employment in other industries.
Then, too, because of their age, many companies as a matter of fact, I believe a large majority of employers—hesitate to employ people at age 50 and above. Consequently, the industry owes to those people something for their contribution to the industry, for their long services. I think they are entitled to the additional unemployment benefits provided by this bill in lieu of severance pay, which many employers recognize.
I think that it is a duty and an obligation that we owe to these old people. And not old people necessarily, but these older people, to provide them with a greater measure of unemployment security, to give them a greater length of time in which to adjust themselves to employment outside of the railroad industry and to make other adjustments.
I think the cost is reasonable. The estimated cost of the unemployment provision is estimated to be about 4 percent.
Twelve or fifteen years ago when the Unemployment Insurance Act was enacted, the tax rate on the carriers was fixed at 3 percent. So that the estimated cost here, as related to the increased benefitsthat is, a 4-percent payroll cost as against the present 3—is not exorbitant, it is not unreasonable and it is not beyond the ability of the carriers to pay.
I am not an expert in that field and in many other fields, but I think that a showing will be made of the ability or inability of the railroads to meet the cost of these new unemployment insurance provisions.
The CHAIRMAN. Do you have an annual report that has been filed?
Mr. HARPER. Our annual report is at the printer's, and it will be available very shortly.
I am informed that printed copies of our annual report were delivered to our office here today, and we will make them available to you sometime during the day,
The CHAIRMAN. Could we have them by this afternoon?
The CHAIRMAN. Did anyone want to ask a question of Mr. Harper before we hear from Mr. Healy?
Mr. O'HARA. Yes, sir. The CHAIRMAN. Mr. O'Hara. Mr. O'HARA. Mr. Harper, permit me to personally say I am always glad to see you here. You always speak candidly as to how you think, and I appreciate your candor.
I am speaking now of the retirement costs. What would the retirement cost amount to for the employees? What percentage of payment would they have to pay?
Mr. HARPER. Presently the tax rate is 614 percent against both the employee and the employer on a base of $350 per month.
This bill would change that from 614 percent to 712 percent, and the tax base would be increased from $350 to $400 per month.
Mr. O'HARA. I am speaking now simply of the retirements.
What would be the additional cost to the employers? Is that the same percentage? 712 ?
Mr. HARPER. As to retirement, the additional cost would be the same for the carriers.
Mr. O'HARA. What would be the total increase of payments by both the employees and the employers into the fund, the annual amount?
Mr. HARPER. It would be increased from 1212 percent on $350 as at present to 15 percent of payroll up to $400 per month.
Mr. O'HARA. Well, I was thinking in terms of figures. Do you have the amount of that?
Mr. HARPER. This is not accurate, but, in round figures, 1 percent of the taxable payroll is about $50 million. So that an increase of 21/2 percent would increase the revenue probably $125 million a year.
I am informed by Mr. Habermeyer that the increased taxes would be $205 million.
Mr. O'HARA. That would be both ?
Mr. O'HARA. That would be divided equally between employees and employers ?
Mr. HARPER. That is right.
Mr. O'HARA. With reference to the cost of the unemployment program, that would be borne solely by the employers. Is that correct?
Mr. HARPER. That is correct.
Mr. O'HARA. And what would be the additional cost to the railroads of that amount? Does it increase from 3 to 4 percent, or do you mean to increase it to 7 percent?
Mr. HARPER. No. The increase is from 3 to 4 percent.
Mr. HARPER. After the unemployment insurance tax rate was fixed at 3 percent we went into World War II, and unemployment was practically not existent on the railroads. So that 3-percent tax built up a huge backlog, in the negihborhood of a billion dollars.
In 1948, I guess it was, the railroads and the labor organizations reached an agreement on an amendment to change that 3 percent to make that a maximum and to base the lower levels
on a sliding scale so that when the amount in the fund reached a certain level it would go up one-half of 1 percent.
I thought it necessary to make that explanation because presently the tax is only 21,2 although the law provides a maximum of 3 percent.
Mr. O'HARA. This would amount to an increase then of 112 percent? Mr. HARPER. 142 percent.
Mr. O'HARA. What is the approximate cost of that unemployment increase in millions ?
Mr. HARPER. Well, I was using $50 million as 1 percent. But that does not tally with the $205 million that Mr. Habermayer mentioned.
What would be the additional cost?
Mr. O'HARA. In other words, this would cost the employers about $202 million roughly for the overall cost of the program per year?
Mr. HARPER. Yes, sir. The CHAIRMAN. Would the gentleman yield? Mr. O'HARA. Yes, certainly. The CHAIRMAN. I think we ought to have it understood here now. As I understand it, you propose to increase the railroad retirement tax on the employer and the employee by 144 percent each. That would cost a total of $210 million on a $400 a month base ?
Mr. HARPER. $205 million.
The CHAIRMAN. With the increase of the unemployment fund from the present 21/2 percent which they pay to 4 percent, would that be limited to compensation not exceeding $400 a month?
Mr. HARPER. Yes, sir.
And I think I had better explain that it is quite likely that the maximum will not be reached at least with regularity, so that the 4 percent will only be used as becomes necessary. It will become necessary immediately, I understand, about the first of this year if this bill is enacted.
But, with fluctuations in employment, it is quite possible that the cost will be something less than the maximum of 4 percent.
Mr. O'Hara. Mr. Harper, might I address a few questions along this line also. I will try to make it as short as possible.
It has been indicated here that the fund is out of balance or overdrawn, as to annual costs, about $170 million a year. Is that correct?
Mr. HARPER. Yes, sir.
Mr. O'HARA. How much, all together, has that depreciated the fund? I mean that is an annual cost, is it not?
Mr. HARPER. Yes, sir.
Mr. O'HARA. How much has the fund itself been depreciated below the safety margin? How long will it take, in other words, if this bill becomes law, H. R. 4353, to build back that deficit that has occurred? Mr. HARPER. That requires another involved answer. I am sorry. Mr. O'HARA. That is perfectly all right.
Mr. HARPER. We have a level cost system of calculating our costs and our revenues and so forth, which simply means, Mr. O'Hara, that the cost in 1957, at least theoretically, is the same as the cost in 1967 or 1977 or any other year. It levels off the cost, so that on a level basis,