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According to the latest estimates that have been made, benefits under the present provisions of the Railroad Unemployment Insurance Act will average about $151 million over a period of years, $98 million for unemployment and $53 million for sickness, including maternity. The estimate of taxable payrolls, including a full allowance for recent wage agreements, is $5.3 billion. Including administrative expenses, the total cost of the program is estimated at 2.9 percent of the taxable payroll.

For the proposals contained in the bills it appears reasonable, and in accordance with a desire for sound finnacing, to assume for the future an increase of about two-thirds in the cost of unemployment benefits and an increase of one-third in the cost of sickness benefits. This results in an average annual benefit cost for the future, if the bills should be enacted, of $234 million, of which $163 million would be for unemployment and $71 million for sickness. At the same time, the $400 limit on creditable earnings would, it is estimated, increase the taxable payroll to $534 billion. Including an allowance of .20 percent of payroll for administration and deducting 0.05 percent for interest on the balance in the account, the total cost of the program would then be about 414 percent of payroll. Costs for the present law and with the bills are summarized in the following table:

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These cost figures are, of course, only an approximation based on what appear to be reasonable interpretations of available data, and on forecasts of the future of the railroad industry. With somewhat different assumptions, which may be just as reasonable, a variation of as much as one-fourth percent of payroll in either direction might be obtained. The figures can thus be interpreted as indicating that the cost of the benefit program under the Railroad Unemployment Insurance Act, if the bills are enacted, will be somewhere between 4 and 442 percent of payroll. Financing The bills provide the following schedule of contribution rates:

The contribution

rate (percent) for If the balance on Sept. 30 in the railroad unemployment

the next calendar insurance account is

year shall be$450 million or more. $400 million, but less than $450 million.$350 million, but less than $400 million. $300 million, but less than $350 million---

Less than $300 million-----The balance in the account on January 31, 1957, was $303 million, and under the present law the balance on September 30, 1957, may be under $300 million. If the bills are enacted, benefit increases including retroactive payment of benefits for extended benefit periods starting after December 31, 1956, will become payable before there is any increase in income from the increase in taxable payroll. If that occurs, the September 30 balance would be under $300 million and the maximum rate of 4 percent would become effective in January 1958.

. It also appears, in view of the cost estimates, that the maximum rate of 4 percent provided by the bills may prove inadequate to finance the benefits. Furthermore, for a program with a benefit load averaging $234 million annually, it seems that the balance at which the maximum contribution rate becomes effective

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EFFECT ON COSTS There is no adequate statistical basis for estimates of the exact cost of changes as far reaching as would be made by this bill. The cost would be greatly influenced by such unpredictable things as the frequency and extent of cyclical fluctuations in railroad traffic, international conflicts, and technological developments in railroad and other forms of transportation. Under favorable conditions, the provision for extended benefit periods could be extremely costly. For example, a sudden drop in employment to a lower level might cause a heavy drain on the railroad unemployment insurance account if new jobs for the displaced employees could not be found in other industries. On the other hand, it is conceivable that if railroad employment can be stabilized and the downward trend in the total number employed by the railroads is halted, the cost of this provision would be lower than estimated.

Under the assumptions that have been made in computing the probable effect of the bill, it has been estimated that, for the 1955–56 benefit year, it would have added 50 percent to the amount of unemployment benefits and 26 percent to the amount of sickness benefits. Estimates of the effect of the different provisions of the bill are shown separately in the following table :

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Total adjusted benefits for year 1--

$55, 100,000 Savings due to $500 qualifying earnings --

1,800,000 Increases for qualified beneficiaries: 1. Benefit rate schedule (including effect of $400 a month maximum creditable earnings).

4,600,000 2. 60 percent benefit rate proviso.---.

5, 700,000 3. Extended benefit periods and early beginning of benefit years.----

12,500,000 4. Elimination of waiting periods for unemployment... 4,300,000 5. Removal of sec. 4 (a-2) (iv)..

2,000,000 Net increase ---

27,300,000

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1 Actual data adjusted to what they would have been if the present maximum of $350 a month had been in effect for the entire base year instead of only its second half.

Future costs

Over the next few years, the cost of the changes proposed in the bills would be larger, relatively, than the cost for 1955–56. The more important reasons for this are as follows:

1. The estimated increase is larger for unemployment than for sickness, and over a period of years the unemployment benefits form a much larger part of the total than in 1955–56.

2. The cost of the extended benefit periods and of early beginning of benefit years would probably be larger than the estimate for 1955–56 indicates. The 1955–56 year was one of low unemployment with nonrailroad jobs available for most cutoff railroadmen. An estimate for 1954-55 showed an increase of nearly one-third from this provision compared with the increase of less than a quarter estimated for 1955–56.

3. A substantial increase in daily benefit rates would probably be accompanied by some increase in the frequency with which benefits are claimed. For example, the sickness beneficiary rates (number of beneficiaries per 100 qualified employees) for 1954–55 and 1955–56 are higher than those for any earlier year. This increase followed the 1954 amendments.

4. Pay rates have increased since 1954, the base year for 1955–56, and further increases will occur in the next 2 years on the basis of completed negotiations. Because the effect of the benefit-rate proviso is limited only by the $10.20 maximum while the increase in taxable payroll will be limited by the $400 maximum on creditable compensation, such pay increases tend to increase benefits more than taxable payrolls. Also, rising wage rates will make less significant the savings in benefits that would result from the increase in the qualifying earnings requirement to $500.

According to the latest estimates that have been made, benefits under the present provisions of the Railroad Unemployment Insurance Act will average about $151 million over a period of years, $98 million for unemployment and $53 million for sickness, including maternity. The estimate of taxable payrolls, including a full allowance for recent wage agreements, is $5.3 billion. Including administrative expenses, the total cost of the program is estimated at 2.9 percent of the taxable payroll.

For the proposals contained in the bills it appears reasonable, and in accordance with a desire for sound finnacing, to assume for the future an increase of about two-thirds in the cost of unemployment benefits and an increase of one-third in the cost of sickness benefits. This results in an average annual benefit cost for the future, if the bills should be enacted, of $234 million, of which $163 million would be for unemployment and $71 million for sickness. At the same time, the $400 limit on creditable earnings would, it is estimated, increase the taxable payroll to $534 billion. Including an allowance of .20 percent of payroll for administration and deducting 0.05 percent for interest on the balance in the account, the total cost of the program would then be about 414 percent of payroll. Costs for the present law and with the bills are summarized in the following table:

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These cost figures are, of course, only an approximation based on what appear to be reasonable interpretations of available data, and on forecasts of the future of the railroad industry. With somewhat different assumptions, which may be just as reasonable, a variation of as much as one-fourth percent of payroll in either direction might be obtained. The figures can thus be interpreted as indicating that the cost of the benefit program under the Railroad Unemployment Insurance Act, if the bills are enacted, will be somewhere between 4 and 442 percent of payroll. Financing The bills provide the following schedule of contribution rates :

The contribution

rate (percent) for If the balance on Sept. 30 in the railroad unemployment

the next calendar insurance account is—

year shall be$450 million or more------$400 million, but less than $450 million.. $350 million, but less than $400 million.$300 million, but less than $350 million--

Less than $300 million--The balance in the account on January 31, 1957, was $303 million, and under the present law the balance on September 30, 1957, may be under $300 million. If the bills are enacted, benefit increases including retroactive payment of benefits for extended benefit periods starting after December 31, 1956, will become payable before there is any increase in income from the increase in taxable payroll. If that occurs, the September 30 balance would be under $300 million and the maximum rate of 4 percent would become effective in January 1958.

It also appears, in view of the cost estimates, that the maximum rate of 4 percent provided by the bills may prove inadequate to finance the benefits. Furthermore, for a program with a benefit load averaging $234 million annually, it seems that the balance at which the maximum contribution rate becomes effective

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may be too low in the long run. In a year like 1954–55, for example, it is estimated that benefits would total close to $300 million, and in a year like 1949–50 the total would be even larger. Taxable payrolls for such years would be substantially below the average of $534 billion, so that 2 bad years in a row might reduce the account to a dangerously low point even if, on the average, a maximum contribution rate of 4 percent should prove adequate.

STATEMENT OF MR. HABERMEYER

The bill would liberalize the benefit provisions of both the Railroad Retirement and the Railroad Uneinployment Insurance Acts, and would finance such liberalization by increasing the tax base and the tax rates under the Railroad Retirement Tax Act and by increasing the contribution base and the contribution rates under the Railroad Unemployment Insurance Act.

The effect of the bill, in its amendment of the Railroad Retirement Tax Act to increase the tax base and the rates assessed against employers and their employees, would place the present system on a sound financial basis as requested by the President of the United States in his statement on August 7, 1956, when he signed S. 3616 (Public Law 1013), and, in addition, provide the necessary financing to meet the cost of the proposed liberalization of the retirement system. The Board's actuary states that the railroad retirement system today is underfinanced on a long-run basis by about 3.20 percent of taxable payroll, or by about $170 million a year; but, if the bill were enacted, the long-run deficit in the railroad retirement system would be reduced to 0.37 percent of taxable payroll, or about $21 million a year. Since this small deficit is a projected rather than an actual deficit and is based on conditions which may or may not eventuate, I am not seriously disturbed and feel that the bill will accomplish a practical restoration of the soundness of the railroad retirement system.

With reference to financing the proposed liberalization of the Railroad Unemployment Insurance Act, the bill assumes that an increase in the rate of contributions (paid exclusively by employers) to a maximum of 4 percent of taxable payroll (up to a maximum of $400 a month per employee), if the balance in the railroad unemployment insurance account should be found to be below $300 million, would be sufficient to meet the benefit payments. However, the Board's Director of Research, in his cost analysis, indicates that the level cost would be 4.22 percent of taxable payroll, stating also as follows:

"These cost figures are, of course, only an approximation based on what appear to be reasonable interpretations of available data, and on forecasts of the future of the railroad industry. With somewhat different assumptions, which may be just as reasonable, a variation of as much as one-fourth percent of payroll in either direction might be obtained. The figures can thus be interpreted as indicating that the cost of the benefit program under the Railroad Unemployment Insurance Act, if the bills are enacted, will be somewhere between 4 and 412 percent of payroll.”

Here, again, as in the case of the railroad retirement system, since the rate necessary to sustain the railroad unemployment insurance system on a sound financial basis appears to be somewhere between 4 and 41/2 percent of taxable payroll, I cannot say at this time that any deficit that might occur would be subistantial enough to endanger the soundness of the system.

The extent to which benefits should be liberalized depends, of course, on two factors: (1) The reasonable requirements of the beneficiaries in the light of present conditions, and (2) the ability of the railroad industry to absorb the additional costs entailed thereby. These are matters which undoubedly will be developed at some length before your committee, with representatives of labor and of management presenting data which will be of great assistance in your consideration of the bill.

I hope that, whatever action may be taken with respect to liberalizing benefits, the final result will place the program on an actuarially sound basis.

STATEMENT OF MR. HARPER

The provisions of the two bills before the committee were the subject of numerous conferences among representatives of the standard railway labor organizations and are the product of their very careful consideration on all issues involved. The bills would provide a modest increase in annuities and pensions under the Railroad Retirement Act, would include other needed liberalizations, and would increase the tax base and tax rates by amounts sufficient not only to cover he added cost of this legsilation but also to eliminate the estimated present deficit in the railroad retirement system. According to the Board's Chief Actuary, the cost of the benefits under the railroad retirement system is now 15.70 percent of taxable payroll. Since the total tax revenues on employers and employees is now only 1212 percent of payroll (674 percent on each side) there is now an estimated deficit, in the long run, of 3.20 percent of taxable payroll, or about $170 million a year. Under the bills, however, even after the enactment of the proposed liberalizations of the railroad retirement system, the deficit would be eliminated for all practical purposes since the estimate is that any deficiency would be no more than some 0.37 percent of taxable payroll.

Under the level-cost basis of evaluation the railroad retirement system can reasonably be regarded as financially sound so long as the estimated deficit is not in excess of 1 percent. Accordingly, the possibility of this small deficit should not, in my opinion, be an obstacle to the enactment of the very essential liberalizations of the railroad retirement system.

A like conclusion is completely justified with regard to the obviously desirable improvements proposed for the railroad unemployment insurance system, and the provisions for obtaining the needed funds. At the present time the benefits under the act are financed on a sliding scale basis with the contribution rate (payable only by employers) beginning with one-half percent of taxable payroll (up to $350 a month per employee) if the balance in the railroad unemployment insurance account is found to be $450 million or more, and increasing by steps to 3 percent if the balance in the account is less than $250 million. The bill would change the sliding-scale table by providing a rate of 2 percent of taxable payroll (up to $400 a month per employee) if the balance in the account is found to be $450 million, or more, and increasing such rate, by steps, to 4 percent if the balance in the account is less than $300 million. While the Board's cost estimates indicate that a maximum rate of 4.22 percent, instead of 4 percent, would be required in order to eliminate all possibility of a deficit in the unemployment insurance account, the difference, being only 0.22 of 1 percent, should not, in my opinion, prevent the enactment of the proposed liberalizations because I am convinced that their effect would be, even apart from other economic considerations, to stabilize employment and, therefore, actually to reduce the cost of the unemployment insurance system.

I, therefore, urge the enactment of the legislation.

STATEMENT OF MR. HEALY

I am firmly opposed to the enactment of the bills covered by this report. The continual pressure for more and more benefits under the railroad retirement and railroad unemployment insurance systems, with its resulting burden on the railroad industry to some extent indicated in the preceding analysis, 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. The analysis does not show, 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

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