Mr. BEAMER. I am wondering if you have any figures or facts or information, to give us which will give comparative benefits of the two systems-I mean at the present time-and the projection of the new bill, and the projection into the future of social security. Mr. FINNEY. I have never seen any projected benefits insofar as social security is concerned. I can tell you what the maximum benefits would be in the future. The maximum benefits in the future for a social-security worker under the present law would be $108.50. The maximum in the future that railroad employees can receive is not capable of being calculated precisely, because the railroad worker's benefit is based on his years of service. I have a sheet here prepared by the Director of Research of the Railroad Retirement Board in which he figures the maximum benefit in the future under the Railroad Retirement Act to be $260.30. I do not know exactly how he calculated that. It would be, I would say, a sum based on probably 30 years of service-perhaps more than 30. In any event, I would not think that $260 would be the maximum. We may have a railroad worker who works 40 years, or one who works as long as 50 years in service, and of course in the future he will be credited with all of that service. At the present time, the maximum social-security benefit is $108.50 and the maximum for the railroad worker is $184.30, but you understand, however, that the railroad maximum goes up each year, while the social-security maximum stays as it is forever. Mr. BEAMER. That is all, Mr. Chairman. The CHAIRMAN. Mr. Dingell? Mr. DINGELL. No questions, Mr. Chairman. Mr. CARRIGG. No questions. The CHAIRMAN. Mr. Loser? Mr. LOSER. Mr. Finney, I take it that you are familiar with what has been referred to here as a companion bill that is now pending before the Ways and Means Committee which provides that the contributions of the railroad workers shall be allowed as a deduction in income taxes. Mr. FINNEY. I think you mean, do you not, Mr. Loser, excluded from income taxes, rather than a deduction? Mr. LOSER. Well, in either event. Mr. FINNEY. I think they are taken right out of the top. Mr. LOSER. Taken right off at the top? Mr. FINNEY. Yes, sir. Mr. LOSER. Could you tell us-I believe you stated that the average railroad worker's salary is $434.75 a month. Mr. FINNEY. Yes, sir; that is the average. Mr. LOSER. Could you tell us what would be the benefit to the railroad worker by way of deduction from income taxes, that the passage of that bill would permit? Mr. FINNEY. Mr. Loser, I have not figured that out precisely myself. I heard Mr. Schoene say the other day-either Mr. Schoene or Mr. Oliver-in testifying before this committee, that the savings would be approximately the same as the additional taxes that this retirement bill before this committee would impose on that same worker. I have not figured it out precisely. Mr. LOSER. That is that the additional taxes imposed under this pending bill, and the savings in income taxes or deduction allowances would be approximately the same? Mr. FINNEY. The same. mony. That is the way I understood his testi Mr. LOSER. And what is the increase for the railroad workers under this bill? Mr. FINNEY. On the average salary? Mr. LOSER. Yes. Mr. FINNEY. Well, he would pay-he now pays $21.88. That is the maximum, because that is on a $350 basis, and 614 percent on $350 is $21.88. And under H. R. 4353 he would pay 72 percent on $400, which would be $30. He would pay about $8 a month more $8 and something a month more in retirement taxes. Mr. LOSER. So the saving under the bill now pending before the Ways and Means Committee, if passed, would be in the neighborhood of $8.50 a month? Mr. FINNEY. As I understood Mr. Schoene; yes, sir. Mr. LOSER. Thank you, Mr. Chairman. Mr. WOLVERTON. Will the gentleman yield? Mr. LOSER. Yes, sir. Mr. WOLVERTON. In order to discuss one further question in line with the question that you have already inquired into: In your prepared statement, Mr. Finney, you have said: All in all the bill would require the railroads, in order to support both systems, to pay additional total taxes of more than $262 million a year. Mr. FINNEY. Yes, sir. Mr. WOLVERTON. Does that take into consideration any tax deductions? Mr. FINNEY. Not at all, Mr. Wolverton. That is just the outlay under the provisions of this bill. Mr. WOLVERTON. And generally speaking, what would be the deductions that they would get, a correct figure that the railroad would have to pay? Mr. FINNEY. You are assuming, of course, that the income tax remains the same in the future as it is now? Mr. WOLVERTON. Yes, sir; we would have to assume that. Mr. FINNEY. $262 million. My understanding is that on average the railroads paid in taxes over the past 2 or 3 years somewhere in the neighborhood of about 31 percent, Mr. Monroe tells me. Mr. WOLVERTON. Of course, that same answer would apply to the statement that you made in the closing paragraph of your statement? Mr. FINNEY. Oh, yes, sir. Mr. WOLVERTON. A deduction of one-third Mr. FINNEY. A deduction of about one-third. Mr. WOLVERTON. Yes, sir. Mr. FINNEY. Assuming that the income-tax structure remains the same, all that I am saying is that this bill will cost us some quarter of a billion dollars. Mr. WOLVERTON. Of course, if the taxes go down, it will be less against the railroads. Mr. FINNEY. If the tax rates go down, it will be less? Mr. WOLVERTON. Yes. The CHAIRMAN. Mr. Avery? Mr. AVERY. Mr. Finney, you made some reference to the retirement system of your competitors. Do they, to your knowledge, all use the OASI as their retirement system, or do some of your competitors have a system of their own? Mr. FINNEY. To the best of my knowledge they come under the oldage and survivors insurance system. I think they all do. Mr. AVERY. Then you made some reference also to industry, the retirement plans of other industries. I made quite an effort here during these hearings to get some comparisons of the retirement of other industries that do not use the OASI. Are you familiar with any of those? Mr. FINNEY. No, sir; I am not. I assumed that all industry-let me put it this way-generally speaking, all industry other than the railroads is covered by the OASI Mr. AVERY. Generally speaking? Mr. FINNEY. Yes, sir; I know of no industry which is not covered. Mr. AVERY. All right. That is more information than I have had up to now on this subject here. I was under the distinct impression that there were some retirement systems set up in various situations, such as the coal industry, which were not based on OASI—but I am again speculating—but we will go on from there. There is a further definition that I want to ask you about. You said in your statement that the net rate of return by the class I railroads on their investment was 3.95 percent, and comparing that to industry, the earnings were 15 percent on their net assets. Now, what is the distinction between net assets and net investments? Mr. FINNEY. Mr. Monroe can answer that. Mr. MONROE. The National Bank of New York recently published figures showing the rate of return on net assets from a certain number of industries. The basis that they used was termed "net assets" or net working capital represents the capital stock plus the corporate investment. It is a different kind of calculation than Mr. Finney used. That was in order to have the comparable basis. The manufacturing industry generally earned a rate of 15 percent on net assets and the railroads earned about 5.7 percent on the capital stock or 3.95 percent on capital used in transportation service. Mr. FINNEY. That figure comes from the report of the Interstate Commerce Commission. That is the one we usually use. But in order to make a comparison I used the figure that Mr. Bevan used yesterday, that is, 15 percent for other industries and 5 percent for the railroads. That is Mr. AVERY. But you did not use that in your statement. what brought out my question. You used the term "net investment," unless I missed it, you did not use the term "net investments" with reference to the railroads, but only net investment. You say that that is about 5 percent. Mr. MONROE. 5.7 percent. Mr. FINNEY. Well, that is substantially different, that figure is 3.95 percent. If you will look at the top of page 7 of my statement, Mr. Avery, I believe you will see where I made that comparison. Mr. AVERY. You did, and I stand corrected. Now, will you tell me again-you have probably already stated it, but I did not quite understand it. Net investment does not include capital stock? Mr. MONROE. Net investment, Mr. Avery, represents the actual dollar investment in the transportation facilities used in transportation service; it represents the investment in rolling stock and rights-of-way and everything that is utilized in the transportation service. That is the figure used by the Interstate Commerce Commission to determine the rate of return for rate making purposes. Mr. AVERY. Then, there is no distinction between them? Mr. MONROE. The net comes into the picture because it is the investment less depreciation charges. Mr. AVERY. All right. I see. Thank you very much. That is all, Mr. Chairman. The CHAIRMAN. Mr. O'Brien? Mr. O'BRIEN. No questions. The CHAIRMAN. Well, Mr. Finney, I want to thank you very much for the statement you have made. I had one or two questions that I did want to ask. Mr. Finney, I assume that Mr. Monroe will probably discuss this, and I do not want to unnecessarily delay the hearings, but this is the first information that we have had in the committee about the obligations of the railroad industry after taxpayments have been made. Now, I understand that the total income-tax payments of the railroad industry amount to 31 percent. Mr. FINNEY. On average; yes, sir. The CHAIRMAN. I had the impression that we had an overall tax of 52 percent on corporations. Mr. FINNEY. Well, of course, some railroads do pay the 52 percent, Mr. Harris; and others do not pay anything. I am only giving you the figure that has been given to me by Mr. Monroe as the average paid by the industry, I think, for class I railroads, rather than the entire railroad industry. Mr. HALE. Will the gentleman yield? The CHAIRMAN. Yes, I will yield. Mr. HALE. You mean that the average of 31 percent of the income goes to taxes? Mr. FINNEY. No, sir; I mean that the average income tax figure is 31 percent for all railroads. The CHAIRMAN. I think that a very important question has been raised here, and the next question that I would have would be: Are the taxes greater or smaller on the railroads serving perhaps the less populated areas of the country than they are on the larger railroads serving the highly populated areas? Mr. FINNEY. Dollarwise, Mr. Chairman, they would of course each pay the same amount in retirement taxes. Their individual circumstances, I take it, would dictate whether they were hurt more or hurt less, depending upon whether they had income on which to pay the 52 percent or whether they had no income. Some little railroads make a lot of money. Some big railroads do not make any money. You heard Mr. Bevan yesterday tell about the financial situation of the Pennsylavnia Railroad. The CHAIRMAN. And some of us were very much interested in it, too, and I do not want to take the time to go into it, but some of us have wondered if the class I railroads generally do not have a higher rate of return than the Pennsylvania has, according to the charts shown here yesterday. I do not want to take the time to go into it now. But the question that I raise here, which I would like to be informed on is this: Is it not a fact that we have individual railroads that will have a sufficient income that their taxes will be at the maximum rate of 52 percent? Mr. FINNEY. Yes, sir. The CHAIRMAN. And others will have an income such that their taxes will be nothing. Mr. FINNEY. Yes, sir. The CHAIRMAN. Then, the burden here upon the railroads that have no taxable income would be much greater than it would be on the railroads that have income sufficient to require them to pay 52 percent. Mr. FINNEY. Yes, sir; of course. The CHAIRMAN. Now, is there any way that we can get a breakdown of this to show how the various railroads throughout the country are affected by it? Mr. FINNEY. I think that perhaps we could try to get together a list of the individual railroads and determine what their income taxes were, as paid last year. The CHAIRMAN. I have not had time to look all of the way through this. Would that information be available in this annual report of the Railroad Retirement Board? Mr. FINNEY. I am almost certain that it would not. It would not be available in the report of the Interstate Commerce Commission. Mr. MONROE. The annual report of the Interstate Commerce Commission, Mr. Chairman, would show the net income of the carriers and the Federal income taxes paid. The CHAIRMAN. Of the individual roads? Mr. MONROE. Of the individual roads. But, of course, they have only usually the annual report for 1955. I am speaking of the annual report the so-called blue book-not the annual report to the Congress. They do not show that in the annual report to the Congress. Mr. FINNEY. It could be found in the individual report that the railroads make to the Interstate Commerce Commission. The CHAIRMAN. Well, I think that would be helpful information if we could get it, because I think it is important to see how it affects the railroads in the various areas. Mr. FINNEY. Mr. Monroe says that he will have his men in the Bureau undertake to see what can be developed. The CHAIRMAN. If you would do that and present it to the committee for the record, we would appreciate it. (The statement is as follows:) ASSOCIATION OF AMERICAN RAILROADS, LAW DEPARTMENT, Washington, D. C., April 1, 1957. Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D. C. DEAR MR. HARRIS: When I had the privilege of appearing before your committee on March 26 to discuss proposed amendments to the Railroad Retirement and Unemployment Insurance Acts, particularly H. R. 4353, you asked if the committee could be informed as to the relationship of Federal income taxes to the net income of the individual carriers. |