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The CHAIRMAN. Thank you, Mr. Harper.
I remember a good many years ago we had a fight on the floor of the House of Representatives on this very item when the Government was paying 3 percent, and the Appropriations Committee wanted to change the law in that respect because it was having to pay higher interest than the going rate at that time.
Mr. Dingell, I think you would be interested in this statement.
A good many years ago on the floor of the House we had a fight with the Appropriations Committee because the Government was having to pay 3 percent interest, which was higher than the going rate at that time. And the railroad retirement fund was benefiting out of the Treasury of the United States to that extent.
So I would assume what Mr. Harper has said is that the Board continuously opposes private investment—that is, private loans here and that they do it on the basis of the long-range problem. Today, perhaps, there is a higher rate of interest but tomorrow there may be a lower going rate. Mr. HARPER. That is right. The CHAIRMAN. Thank you very much. I did want to get to Mr. Healy before we adjourned for lunch. Mr. Healy, how long a statement do you have? Mr. HEALY. Mr. Chairman, I will not be longer than 10 minutes. The CHAIRMAN. Just a moment, Mr. Harper. Mr. Mack has one question.
Mr. MacK. Mr. Harper, I have the hearings from last year at which you testified. And you remember the bill last year, section 5 was more or less the controversial section. You testified to the effect that if that section were not included you would oppose the legislation.
Mr. HARPER. My views have changed. But there is no inconsistency there.
We are now faced with a 3.2 deficit, and in self-defense, if for no other good reason, I would have to support the bill now because I recognize and am willing to meet obligations to wipe out the deficit incurred by the passage of that bill last year.
So, on that basis and not on the basis of any change in my feelings as announced last year, I have to do it now. And I think it is the honorable thing to do now, to fulfill the obligation that we gave to the Congress. Mr. Mack. I appreciate that.
This section, of course, is in the new bill. It is not in this bill, but a bill has been introduced and referred to the Ways and Means Committee. This committee has no jurisdiction over that section which affects the income-tax deduction.
But do you have an opinion as to what your views would be in the event that the Ways and Means Committee should not take action? Would you still support this bill, H. R. 4354 ?
Mr. HARPER. Yes, sir, for the reasons stated.
The committee will have to adjourn now until 2 o'clock, at which time we will expect Mr. Healy to present his views.
Mr. Macli. Mr. Hyou remember You ta
And then I want to announce that we are going to hear Mr. Robert J. Myers, the chief actuary of the Social Security Administration, followed by Mr. Lester P. Schoene, who is representing the Railway Labor Executives' Association, who will fully explain the bills.
I think it is very important for the members to be here for that. The committee will recess until 2 o'clock.
(Whereupon, at 12:10 p. m., the committee was recessed, to be reconvened at 2 p. m., this same day.)
AFTERNOON SESSION The CHAIRMAN. The committee will come to order. Mr. Healy, I think we had better have your views incorporated in the record now.
STATEMENT OF HON. THOMAS M. HEALY, MEMBER, RAILROAD
RETIREMENT BOARD Mr. HEALY. Mr. Chairman, you and the members of the committee have an advanced copy of my testimony. With your permission I would like 6 or 7 minutes to sort of summarize.
The CHAIRMAN. In the meantime you would like your statement to be included in the record ? Mr. HEALY. Yes. The CHAIRMAN. It will be so included. (The statement is as follows:)
TESTIMONY OF THOMAS M. HEALY, MANAGEMENT REPRESENTATIVE, UNITED STATES
RAILROAD RETIREMENT BOARD ON H. R. 4353 AND H. R. 4354 I am Thomas M. Healy, born and reared in New Orleans, La., lived 15 years in Atlanta, Ga., and for the past 18 months, a resident of Illinois. My entire life, practically, has been in railroad service, mainly in operating functions. I appear before you today as the representative of that industry on the United States Railroad Retirement Board.
I am firmly opposed to the enactment of these bills. The continual pressure for more and more benefits under the railroad retirement and railroad unemployment insurance systems, with its resultant burden on the railroad industry, to some extent indicated in the analysis of the Board, is wholly unjustified and can lead only to disaster.
The analysis shows, for retirement purposes, an immediate increase in retirement taxes of $200 million annually, one-half of which would be paid by the railroads. It does not expose, however, that the ultimately scheduled tax increases, one in 1970 and another in 1975, would add a total extra burden in that later year of $172 million, again one-half to be borne by the railroads. In other words, the railroads' additional retirement taxes under these bills would amount to $186 million a year.
Furthermore, the proposed railroad unemployment tax amendments would increase railroad payments by some $100 million next year, over and above the present annual levy. Of course, the analysis makes it plain that even this large additional unemployment tax paid by the railroads, who are the only contributors to the unemployment-insurance system, will be inadequate to finance the benefits provided under this legislation.
To recapitulate, the immediate additional tax burden for the railroads would amount to about $200 million a year and in 1975 the added amount would be nearly $257 million annually.
The benefits now provided by these two social-insurance systems are generally far above those allowed under similar systems operated by the Federal and State governments for other industries. For instance, no old-age benefit paid under the social-security system will ever be, under the law now in effect, more than the recently provided maximum of $108.50 a month, whereas the similar benefit under the railroad retirement system may now come to over $184 a month, and, ultimately, as more years of service and compensation may be credited, can go much higher. And such benefits under the Social Security Act are paid for at a total cost to employers and employees, at present, of 412 percent of payroll (that is, on a tax base of earnings up to $4,200 a year), whereas the current taxload on the railroad industry, and its workers, is nearly three times as much (1242 percent on employee earnings up to $350 a month).
The social security tax is, of course, scheduled by law to be increased at some future time, and the railroad retirement tax is not, but, these bills propose to provide an immediate increase in the railroad retirement rate to 15 percent (and on a $400 a month tax base rather than $350) and after 1969, an added tax liability equal to the rise in taxes above 512 percent under the Social Security Act. The ultimate tax rate for railroad retirement will be 18 percent.
There are limits to liberalization, and I think that that point has been reached long since in the railroad social-insurance systems. To go further would inflict serious and completely unnecessary injury to a special, and very important, segment of the Nation's economy.
Also, as compared with other industries, the railroads have a special problem which must be taken into account in considering the proposals to widen further the gap between the benefits paid under the railroad system and those paid under other Federal and State social-security systems.
The railroad retirement system had obtained, through taxing the railroads and their employees for its own special purposes, 29.1 percent more revenues last year than 10 years ago. In this period it had increased its administrative expenses by 34 percent; it had raised the average annuity by 60 percent; and it had increased the number of beneficiaries by 129 percent, and total benefit payments by as much as 216 percent.
In fact, the amount of money the railroads had left in 1956 to pay dividends to stockholders (many of them employees) and for capital expenditures (to keep pace with the advances in technology) totaled only some $870 million, a sum no more than the Railroad Retirement Board will pay out this year in total benefit payments and administrative costs under both acts.
Further illustrating the railroads' problems are the indisputable facts that (1) the 1956 revenue-freight loadings decreased 6,660,219 cars from the total in 1947, or a loss of over 100,000 trainloads; and (2) the number of passengers transported had dropped to no more than 431,988,922 as against 703,279,582 in 1947. While this downward trend of the railroad transportation system may not continue-and I do not concede in any way that the future of the railroad industry is dismal—I am altogether against assuming heavy additional obligations and burdens.
My objections to the proposed unjustified liberalizations apply both to the railroad retirement system and to the railroad unemployment insurance system. From the year 1947 to the year 1956, the average daily unemployment benefit rate increased by some 102 percent. Aside from these things:
(a) Our research staff, sincere and thoroughly capable people, have shown the net cost of the railroad unemployment insurance system, with the proposals under these bills included, excluding administrative costs and interest earnings, to be 4.07 percent of creditable payroll. The average under the various State laws, in 1955, was 1.18 percent.
(6) There already is a concerted effort throughout the land on the part of railroad management and the Railroad Retirement Board to relieve the unemployment situation through preferential recall of furloughees; placement of claimants in nonrailroad as well as railroad work; through occupational changes ; screening of new entrants and in various other ways; and
(c) The serious problems, peculiar to the industry and of equal concern to its employees, which have arisen in the last decade, suggest that a complete reappraisal of the act would be timely and more appropriate.
The cost of the unemployment insurance proposals provided in this legislation which go beyond what other industries must meet, when added to the burdens otherwise imposed by employee action, such as wage rises and payment of fringe benefits, would increase the railroads' operating expenses by as much as $112 billion since January 1, 1955. And all this at a time when railroad management is exerting every effort and straining to combat unregulated and uncontrolled competition, to recapture traffic losses, to maintain and improve the railroads' ability to serve the Nation in any need, to encourage investment in the
industry (despite an average return over the past 10 years of only 3.74 percent) and to safeguard, to the maximum possible extent, the welfare and security of the employees. Gentlemen, I sincerely urge that no favorable action be taken on these bills.
Mr. HEALY. Mr. Chairman, I am Thomas M. Healy, born and reared in New Orleans, La., lived 15 years in Atlanta, Ga., and for the past 18 months, a resident of Illinois. My entire life, practically, has been in railroad service, mainly in operating functions. I appear before you today as the representative of that industry on the United States Railroad Retirement Board.
Around here this morning I felt like the Lone Ranger for all of my people, through unavoidable circumstances, were appearing before the Senate committee on similar legislation. I am happy that the advance guard of the supporting troops have now arrived.
Mr. Chairman, I have also been asked to inform you that my colleague, Horace W. Harper's quick request for the deletion of a term this morning was not due to fear of reprisal but to a sudden realization that he had a birthday last week. In introducing his bill before the House of Representatives, and I might say I am talking to H. R. 4353 and H. R. 4354, and again this morning, your esteemed and very able chairman made it perfectly clear that the soundness of this railroad insurance system must be faithfully preserved for the future benefits of currently active workers and his thoughts were carefully considered in reaching my decision. I am firmly opposed to the enactment of H. R. 4353 and 4354.
This continual pressure for more and more benefits under the railroad retirement and railroad unemployment insurance systems, with its resultant burden on the railroad industry, is wholly unjustified and can lead only to disaster. The analysis of the Board shows for retirement purposes an immediate increase in retirement taxes of $205 million annually, one-half of which would be paid by the railroads, the other half by currently active employees who are, willingly or nay, also carrying a large share of the present cost of benefits to those who have retired or will retire without contributing commensurately to the system.
The analysis does not expose as clearly, however, that the ultimately scheduled tax increase, one in 1970 to 17 percent and another in 1975 to 18 percent, would add a total extra burden in that later year of $172 million to be shared equally by employees and employers.
In other words, the railroad's additional retirement taxes would alone amount to $186 million a year.
Furthermore, the proposed railroad unemployment tax amendments would increase railroad payments by some $100 million next year, over and above the present annual levy. Of course the analysis makes it very plain that even this large additional assessment against the railroads, who are the sole contributors, will be inadequate to finance the benefits proposed. Thus we face an immediate additional tax burden on the railroads of about $200 million per annum. The benefits now provided by these two social insurance systems are generally far above those allowed under similar systems operated by the Federal and State Governments for other industries.
For instance, no old-age benefits paid under the social-security system will ever be, under the law now in effect, more than the recently provided maximum of $108.50 a month, whereas the similar benefit under the railroad retirement system is now over $184 per month and, ultimately, as more years of service and compensation may be credited can go much higher without any aid through further amendments.
And such benefits under the Social Security Act are paid for at a total cost to employers and employees at present of 412 percent of payroll earnings up to $4,200 per annum, while the current taxload on the railroad industry and its workers is now 3 times as much or 1212 percent on employee earnings up to $350 a month.
Now with an increase in total tax contributions estimated to produce $200 million annually it is proposed to add another general advance of 10 percent in all benefits and to liberalize the act in other areas to the tune of $162 million per year. Thus in my simple arithmetic the current deficiency would be reduced from $170 million to $132 million or $46 million more than was certified in the sixth actuarial valuation.
Of course there is the rainbow's end which indicates that on a level cost basis this $132 million deficiency would be reduced by $111 million to $21 million when contributions under the Railroad Retirement Act as proposed in this bill will again rise in 1970 and 1975 some 13 and 18 years hence. There are limits to liberalization and I think that that point has been reached long since in the railroad social-insurance system.
To go further would inflict serious and unnecessary injury to a very important segment of the Nation's economy.
The railroad retirement system had obtained, through taxing the railroads and their employees for its own special purposes 29.1 percent more revenues last year than 10 years ago. In this period it had increased its administrative expenses by 34 percent. It had raised the average annuity by 60 percent. It had increased the number of beneficiaries by 129 percent, and total benefit payments by as much as 216 percent.
Now, Mr. Chairman, and gentlemen, the security of the railroad's social-insurance system is dependent entirely upon the welfare of the railroads. Yet, in striking contrast, the railroads handled last year about 10 percent less freight than in 1947 and, in fact, the amount of money that the railroads had left in 1956 to pay dividends to stockholders, many of them employees, and for capital expenditures to keep pace with the advances in technology and replenish the freight car supply among other things, totaled only $874 million, a sum just slightly more than the Railroad Retirement Board will pay out this year in total benefit payments and administrative costs under both
Now we hear a lot about the technological advances on the railroads and their effect. Further illustrating the railroad's problems are the indisputable facts that the 1956 revenue freight loadings decreased approximately 7 million cars from the total in 1947 or a loss equivalent to over 100,000 trainloads. And the number of passengers carried dropped to 431 million compared to 703 million in 1947 or another loss equivalent to some 270,000 average trainloads.
You heard my colleague, Mr. Harper, describe to you the steps a man must move through to become an engineer.
Take the situation concerning merchandise carloadings which have dropped practically 50 percent in the last 10 years. To handle merchandise or LCL freight requires a receiving clerk, a trucker, a stower,