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We have some railroad stocks that today are outstanding in our commercial world. To name a few, the Pennsylvania Railroad that has paid cumulative dividends for 103 years.
We have the Norfolk & Western that has paid dividends over 30 years.
We have the Chesapeake & Ohio Railroad, the Union Pacific, and the Santa Fe, and many others, that have paid large dividends for the past decade.
It would seem from this observation that some of our reserve could be invested in those systems. It would tend to interest employees to a greater degree to know that their railroad retirement fund was invested in railroad stock and would give them a keener interest in the operation of the roads as they would feel interested in their own enterprise.
If the survey of this committee finds that our retirement taxes cannot meet the obligation of the legislation we desire, then our employees would not mind an increase to 7 percent on a base salary of $350 per month, which would enrich the account another $75 million, perhaps more, on the present taxable payroll, but in recommending this increase they want the legislation they seek and not fringe benefits such as H. R. 4353 provides.
I might say in this respect that we have a sharp disagreement with even some of our officers regarding the tax base to even 7 percent of taxable payroll. Some of the boys felt that they were associated with us only because we tried to keep the railroad tax at a moderate figure and that we try to keep taxes down and not increase them.
Hence they were very opposed to this feature. It is only as a last resort that I am offering it as a recommendation.
We are all facing the same destiny. One day we will have to give an account of our stewardship as we will be stewards no longer. It is no thrill climbing the ladder of time. My life's sun is gradually setting in the west. I plead with you this day to observe our recommendations. We all are doing God's work in trying to help our fellow man who individually is unable to help himself.
Now, there are a few observations that I made in connection with some remarks that have been made to the committee that I would like to mention at this particular time. We have a large number of employees today on the railroad that are what they call joint employees under the Railroad Retirement Act. I have secured figures from the Western Union Telegraph Co. to the effect that some five thousand joint employees with the Western Union and the railroads are joint employees in which the salary paid by the Western Union is subject to the social-security tax and the salary paid by the railroads is subject to the railroad-retirement tax.
We have another similar situation in Cincinnati involving Procter & Gamble Co. where that organization pays the railroad employees for a third of the amount and the Big Four pays a third of the amount and the B. &0. pays a third of the amount.
In other words, there are 2 railroads and 1 private concern in this country contributing to the employee's salary.
When it is paid by the industry like the Procter & Gamble Co., they deduct the social-security taxes from their pay.
Since the 5-day week came in we have had an awful lot of active railroad workers who are trying to supplement their pay and they get jobs
with building and loan associations as bank guards and in various capacities and some even go out selling real estate where they can earn maybe as a commission on 1 deal $2,000.
Now in reporting those $2,000 to the Government they pay the selfemployment tax on the $2,000. Those men are already reinsured by the railroad retirement who pays the tax on those employees to the Social Security.
Why does not the Retirement Board, if they need additional money, go after this duplication of the tax? There is no law in the country today that provides that employee has to pay two sets of taxes on his earnings. He would either have to pay one or the other, but he would have to pay two taxes if he works for a railroad and works for an industry.
But he gets two benefits, but the idea is that Railroad Retirement is paying taxes on that man's social security back to 1937, whereas he is paying taxes on the money he is earning today and earning social security in his own right.
When he retires the Retirement Board will get not a cent from Social Security towards his benefits.
I think that is a very important feature and I think it is a feature there that will get considerable money for the Railroad Retirement account if they will go into that particular phase of our railroad retirement.
Now, you heard Mr. Oliver this morning talk on unemployment insurance. In fact, he seemed to know all the answers in connection with it. We were interested from a practical standpoint, too, in the layoffs at Altoona, Pa., and on December 14, the big layoff that was in the West Albany shops of New York Central at West Albany, N. Y.
We also knew at that time that many of these men, if it could be done, could go out and work in Auburn, Wash. at what they call the Beverly shops of the Milwaukee, where they were looking for machinists and mechanics in their shops and couldn't get them. .
But the thing in connection with railroad retirement is that many of these men in the shops had anywhere from 20 to 40 years of service.
They carried no seniority rights to go into other divisions or any other shop.
While I am not authorized to speak for the railroads I certainly think we are justified in taking that feature into consideration, that the railroads are not to blame for the lack of these older employees not being hired in some other shops of other railroads because the thing that is working against those employees today is your seniority rules which are made over the bargaining table by these brotherhood leaders and they have refused to change those rules so that a man could leave a shop at Albany and go out to a shop at Auburn, Wash., and get his seniority. He would have to start there as a new man.
There are few that want to pull up their stakes, if they have their families in one particular place for a number of years, to go to another place on such a flimsy deal as that, that he would start as a new man in his new line of work.
Mr. Mack. Does that conclude your statement, Mr. Stack?
Mr. STACK. Mr. Chairman, I would like also to clarify another thing in connection with this bill, H. R. 4353. It proposes that the railroadretirement taxes will be raised up in accordance with the social-security increases in 1970 and 1975. .: Mr. Mack. That was in your statement, was it not?
Mr. STACK. Our railroad tax tends to increase it to $4,800.
I want something put on the record here to know whether the railroad men under this increased social security are going to be taxed. on the basis of the social-security tax which is based on 42 hundred, or whether they are going to be taxed on the basis of 48 hundred that the railroad-retirement tax now provides.
Mr. Chairman, following my remarks, I have a statement here by our public relations and research director, Mr. Walt Sands, under date of March 12, that I would like to have made a part of the permanent record also. It deals with the discrepancy between railroadretirement benefits and social-security benefits and taxes.
Mr. Mack. I am just wondering if that would not appropriately go into our files, too.
Mr. STACK. I think that is very important to the committee. I think that is something that the entire committee should dwell on.
Mr. Mack. Of course, the entire committee has access to the files. We do not want to make the record too voluminous.
However, we have been accepting statements of in dividuals who desire to file statements with the committee. We will have this included in the record.
This is all you want included now?
Mr. STACK. I really would like to bring the attention of the committee to the statement of Mr. Robert J. Myers, the chief actuary of Social Security, which is in the record. It does provide under certain conditions that railroad-retirement taxes under this present plan will go to 20 percent of payroll. It is carried on page 3 of his remarks.
Mr. MACK. The Chair will accept this and have this included as a part of the record.
(The material referred to is as follows:)
STATEMENT OF WALT SANDS, PUBLIC RELATIONS-RESEARCH DIRECTOR OF THE
NATIONAL RAILROAD PENSION FORUM, INC., CHICAGO, ILL. Mr. Chairman, and members of the committee, my name is Walt Sands. I reside at 7548 Coles Avenue, Chicago, Ill. I am public relations and research direction of the National Railroad Pension Forum, Inc., a nonprofit organization of railroad employees with membership on 321 American railroads and affiliated rialroad bureaus, chartered under the State laws of Illinois. I am also editor of Rail Pension News, published by the forum.
I have worked over 30 years for the railroads. For the past 29 years, I have been employed as freight inspector for the Eastern Weighing and Inspection Bureau, in Chicago. My duties at various railroads keep me in steady contact with white collar workers, switchmen, engineers, conductors, shop mechanics, yardmen, and others. The vast majority of us want to know why we should now pay almost three times more retirement taxes than our neighbor pays for social security, and we want to know why we do not receive at least twice as much more in benefits.
This vast discrepancy between the two systems is directly responsible for the tons of mails, telegrams, and petitions from all 48 States, to you distinguished Members of Congress, during the past 11 years.
To help you gentlemen correct this vast discrepancy immediately, and provide your secretaries with more time to answer mail on other subjects, I hereby submit a plan for your kind consideration, which, in my opinion, may help to provide the necessary funds to pay for the cost.
FORUM PROGRAM Full retirement at age 60 after 30 years of service, or after 35 years of service regardless of age, with annuities based on our 5 years of highest earnings.
Elimination of the “last-employer” clause, which now prohibits a retired rail employee from receiving his railroad retirement annuity, if he "continues” in
any and all employment (other than railroad employment) in which he was engaged, prior to the time he retired from the railroads.
Elimination of the spouse “dual-benefit” restriction which now reduces socialsecurity benefits from railroad-retirement benefits.
10 percent increase in all pensions and retirement annuities.
And other changes in the existing railroad-retirement law, which will be explained by our president, Mr. Thomas G. Stack, during the current Senate and House hearings.
Incidentally, the vast majority of the Nation's rail employees are not in sympathy with H. R. 4353, sponsored by the rail union leaders. Instead, and your mail will prove this to be true, they want legislative enactment of House and Senate bills supported by the National Railroad Pension Forum, to wit: H. R. 3974, H. R. 880, H, R. 3755, H. R. 4312, H. R. 3545, H. R. 4676, H. R. 4677, H. R. 3855, H. R. 4523, H. R. 3756, H. R. 3421, H. R. 1008, H. R. 3420, and S. 945.
The vast majority of the Nation's rail employees want these bills enacted. Mr. Thomas G. Stack's testimony in support thereof, should be considered most thoughtfully by you distinguished Members of Congress, as representative of the wishes of the Nation's rail employees, rather than the usual cut and dried ideas of the rail labor leaders and/or the Railroad Retirement Board.
Congress has a financial problem to solve. Regardless of any and all proposals to increase railroad-retirement benefits. With rising inflation and decreasing railroad payrolls, due to automation and dieselization, this dilemma keeps getting worse. The folowing solution is sumitted as an immediate and/or eventual answer to proper financing of the railroad-retirement fund in perpetuity.
FULL SOCIAL-SECURITY COVERAGE FOR ALL RAIL WORKERS IN ADDITION TO FULL RAIL
The present deficit in the railroad-retirement fund amounts, on a level-cost basis, to $169.4 million. When the 1955 amendments to the Railroad Retirement Act were enacted, a deficit occured amounting to $86.4 million. When the 10-percent increase in all benefits was enacted on July 1, 1956, an additional deficit occurred, amounting to $83 million. Thus, the former deficit of $86.4 million added to the $83 million deficit totals $169.4 million. This is a serious situation that must be corrected immediately.
Since layoffs are increasing due to dieselization and automation, less rail employees will be paying into the railroad-retirement fund in spite of the fact that each and every rail employee will have benefits coming to him later, under the present system of financing which must be changed, if the railroad-retirement fund is to survive. Eventually, there will be less than 1 million rail employees on the Nation's railroad payrolls.
During the past year 50,000 rail employees have been laid off. Because most had maximum earnings, each employee paid $21.88 per month taxes (the railroads paid a similar amount) or a total of $43.76 per month, or $525.12 per year. What does this means? Exactly and definitely, the fact that 50,000 times $525.12 equals $26,256,000.
In brief, this means more than $26 million will not be received by the railroad-retirement fund, and as time goes on, with more and more dieselization and automation, there will be less and less taxes paid into the railroad-retirement fund. It is simply impossible to increase benfits if less and less employees are contributing into the kitty.
The “only" answer is to include rail workers under social security, with basic benefits under that system, and to give them supplemental benefits under the railroad-retirement system.
Congress has been fooled 100 percent by the actuaries of the Railroad Retirement Board who do not want Congress to believe that such a plan is possible. Why? To protect their very own jobs, to maintain the Railroad Retirement Board as a permanent bureaucracy. It is now time to look at the facts. Times change and wise men change with them, is an old proverb. It is time for a change. The present system of financing the railroad-retirement fund is impractical, and in the long run, impossible. If this were not true, why does a deficit of $169.4 million now exist?
Because the social-security system covers most of the Nation's workers, absorption by that system is the only answer. More people are in that system than those in the railroad-retirement system, and therefore the cost per person is less.
For example, 1 industrial worker now pays a tax rate of 214 percent on the first $350 earnings into the social-security fund. Maximum cost per month, $7.88.
One rail employee pays a tax rate of 674 percent on the first $350 per month earnings into the railroad-retirement fund. Maximum cost per month, $21.88.
One rail employee now pays almost 3 times more taxes, or as much as the combined tax paid by 3 industrial workers.
Three industrial workers and their families, therefore, may receive socialsecurity benefits in return for the same amount of taxes paid by 1 rail employee.
The present maximum under social security is $108.50 per month for a retired industrial worker.
The present maximum under railroad retirement is $183 per month. However, since rail workers pay almost 3 times more taxes, the present railroad-retirement maximum should be 3 times $108.50 (social-security maximum), or $325.50 per month.
Why should 3 industrial workers each receive $108.50 per month, or a total of $325.50 per month, in return for the same amount of retirement taxes paid by 1 rail worker?
Under both systems, the United States Treasury collects the taxes and pays the benefits. In ratio to taxes collected and benefits paid, those under social security get more for their money.
Under the financial interchange with the social-security system, rail workers have been misled to believe that, as a result of the 1951 amendments, we rail workers are "reinsured” under the social-security system retroactive to January 1, 1937. In other words, the theory is that the railroad-retirement system pays to the OASI trust fund taxes on railroad payrolls at the social-security tax rates and, in return, is reimbursed by that fund for the additional benefits the socialsecurity system would pay with respect to railroad employment had such employment been included in social-security coverage.
For example, if a rail worker had a retirement annuity due him, in the amount of $160 per month, the social-security fund would pay $108.50 and the railroadretirement fund would pay him the difference, or $51.50. In brief, the socialsecurity fund would pay two-thirds of the annuity as compared to one-third being paid by the railroad-retirement fund.
Why should a rail worker pay three times more taxes than his neighbor pays into social security, which pays two-thirds of railroad-retirement benefits?
Survivor benefits under both systems are practically identical as to benefit amounts, requirements, etc. Therefore, all survivor benefits should be given gratis to the Nation's rail workers, under the so-called financial interchange with the social-security system, without any financial charge to the railroad-retirement system of financing.
It is interesting to note the following table on page 125 of the Railroad Retirement Board annual report with the sixth actuarial valuation as of December 20, 1955 (printed 1956):
TABLE A-6.—Breakdown of costs of benefits payable under the Railroad Retirement Act exclusive of the effect of the financial interchange (valuation as of Dec. 31, 1953)
payroll Retirement benefits, total.-Survivor benefits, total----
------- 12. 59
--- 3. 82 Residual payments.
---- .44 Total cost
------- 16. 85 The above table indicates that the cost of railroad-retirement benefits “exclusive" of the financial interchange with the social-security system, would cost rail employees and employers a total of 16.85 percent of payroll.
Assuming this to be true and Congress always accepts Railroad Retirement Board figures and reports as being accurate-let's do a little mathematical figuring.
Since the social-security fund now pays two-thirds of all railroad-retirement benefits, the above 12.59 percent of payroll should equal 8.39 percent of payroll (two-thirds of 12.59) and 3.82 percent of payroll chargeable to survivor benefits should be eliminated. The .44 percent of payroll chargeable to residual pa nents should be maintained in addition to the administration charge of .14 percent of payroll.
In brief, 8.39 plus .44, plus .14 equals 8.97 percent of payroll, as compared to the present 12.50 percent of payroll, or a savings of 3.53 percent of payroll.
Three and fifty-three one-hundredths percent of payroll is equivalent to approximately $175 million, on the basis of 1 percent of payroll being equivalent to $50