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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 tax load on the railroad industry, and its workers, is nearly three times as much (1212 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, as the bills show, it is proposed 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, to provide 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 but little 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 train loads; and (2) in 1956 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 in interest earnings, to be 4.07 percent of creditable payroll. The average under the various State laws, in 1955, was 1.18 percent.
(b) 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 far 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.
I sincerely recommend that no favorable action be accorded these bills.
The Bureau of the Budget has advised that there is no objection to the submission of this report to the committee. By direction of the Board :
MARY B. LINKINS, Secretary of the Board.
RAILROAD RETIREMENT BOARD,
Chicago, Ill., March 8, 1957. Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce,
House Office Building, Washington, D. C. DEAR MR. HARRIS : This is a report on the bills H. R. 4530 and H. R. 4620 which were introduced in the House of Representatives by Mr. Van Zandt and Mr. Tollefson, respectively, and which were referred to your committee for consideration.
As these bills are identical in terms with the bills H. R. 4353 and H. R. 4354, we respectfully request that you consider our report on those bills as a report also on the bills H. R. 4530 and H. R. 4620. By direction of the Board :
MARY B. LINKINS, Secretary of the Board.
RAILROAD RETIREMENT BOARD,
Chicago, Ill., March 19, 1957. Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce,
House Office Building, Washington, D. C. DEAR MR. HARRIS: This is a report on the bill H. R. 4676 which was introduced in the House of Representatives on February 11, 1957, by Mr. Byrd, and which was referred to your committee for consideration.
This bill is identical in terms with the bill H. R. 880, introduced by Mr. Poff on January 3, 1957; the bill H. R. 3755, introduced by Mr. Cunningham on January 28, 1957; the bill H. R. 3974, introduced by Mr. Dorn on January 29, 1957; and the bill H. R. 4312, introduced by Mr. Vursell on February 4, 1957. Accordingly, we respectfully request that you consider our report on those bills as a report also on the bill H. R. 4676.
For the reasons given in the report on those bills, the Board recommends that no favorable consideration be given to the bill H, R. 4676. Sincerely yours,
HOWARD W. HABERMEYER, Chairman.
RAILROAD RETIREMENT BOARD,
Chicago, Ill., March 7, 1957. Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce,
House Office Building, Washington, D. C. DEAR MR. HARRIS : This is a report on the bill H. R. 4760 which was introduced in the House of Representatives on February 14, 1957, by Mr. Cole, and which was referred to your committee for consideration.
The bill would amend that provision of section 5 (1) (7) (iii) of the Railroad Retirement Act of 1937, as amended, under which a person has a “completely insured" status under the act, for purposes of benefits to his survivors upon his death, if a retirement annuity (based on 10 or more years of service) or a pension began to accrue to him before 1948. This provision is in the nature of an exception to the requirement that the decedent have a "current connection" with the railroad industry at the time of his death, as well as certain service qualifications.
The bill would broaden the exception by also giving the “completely insured" status to (and thus "blanketing in") any person to whom such a retirement annuity began to accrue during 1948, if the application was filed before 1948.
No reason why this proposed extension should be enacted is known to the Railroad Retirement Board. Moreover, extensions of this kind, which can be with respect only to situations in which very little or no creditable (and taxable) service after 1936 was rendered, inevitably invite suggestions for further extensions of the same nature. Accordingly, although the bill would not impose an appreciable burden on the railroad retirement account, the Board recommends that no favorable consideration be given to it.
Inasmuch as hearings on bills to amend the Railroad Retirement Act have been set for March 14 and 15, 1957, this report is submitted without prior clearance wtih the Bureau of the Budget. A copy of the report is being forwarded to the Bureau of the Budget today and you will be informed of the views of that Bureau as soon as they are received. Sincerely yours,
HOWARD W. HABERMEYER, Chairman.
EXECUTIVE OFFICE OF THE PRESIDENT,
BUREAU OF THE BUDGET,
Washington, D. C., March 16, 1957. Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce,
House Office Building, Washington, D.. MY DEAR MR. CHAIRMAN: This is in reply to your letter of February 16, 1957, requesting the views of the Bureau of the Budget on H. R. 4760, a bill to amend the Railroad Retirement Act of 1937 to provide that a deceased employee shall be “completely insured" if at his death he was entitled to an annuity which began to accrue during 1948 on the basis of an application filed before 1948.
The bill would amend provisions of the act defining "completely insured" status for purposes of benefits to survivors. Under existing law a deceased individual had such status if at the time of his death he had a “current connection" with the railroad industry, as well as other service qualifications. However, existing law waives the “current connection” requirement with respect to individuals to whom an annuity or pension accrued before 1948. H. R. 4760 would broaden the exception by extending it to any person to whom a retirement annuity began to accrue during 1918, if the application was filed before 1948.
While this provision would provide benefits in selected specific cases, the need for this provision for a general group of beneficiaries is not known to the Bureau of the Budget.
Accordingly the Bureau of the Budget would not recommend favorable consideration of this bill. Sincerely yours,
ROBERT E. MERRIAM,
RAILROAD RETIREMENT BOARD,
Chicago, I11., March 7, 1957. Hon OREN HARRIS,
Chairman, Committee on Interstate and Foreign Commerce, .: House Office Building, Washington, D.C.
DEAR MR. HARRIS: This is a report on the bill H. R. 5022 which was introduced in the House of Representatives on February 19, 1957, by Mr. Hyde, and which was referred to your committee for consideration.
The bill would amend the Railroad Retirement Act of 1937, as amended, in the following respects :
1. Full annuities would be payable to employees with 40 years of service, regardless of age. The 40 years would be counted for eligibility, but the present provisions governing the maximum number of years of service which may be used in the computation of the annuity would remain unchanged. Under these provisions, service after 1936 is credited without any limitation, but prior service, that is service rendered before 1937, is credited only to the extent that the total of years of service does not exceed 30.
2. In determining the average monthly compensation for service before 1937, the computation would be based on either the 1924-31 or the 1940–47 period, depending on which of the two would yield a higher amount. At present, only the 1924–31 period is used.
3. The changes would become effective the first of the month following the month of enactment of the bill. The Board would be required to recertify with: out application all annuities which may be affected by any of these changes.
Aside from any other considerations, the proposed changes would create serious administrative problems. Service rendered before 1937 is verified by the Board only to a point at which the total of all service for the particular case is 30 years. Under the proposed amendment it would be necessary to request employers to search their payroll records 10 or more years further back. In many cases these records may even no longer be available. This change would therefore impose a greater burden not only upon the Board but also upon the railroads and other employers who would be asked for supplementary reports.
A great deal of extra work would also result from the necessity of checking the 1924–31 average earnings against those of the 1940–47 period which the bill would use as an alternative base period for the computation of the average earnings attributable to service rendered before 1937. In terms of volume, the second change would involve considerably more work than the former.
The combined employer-employee taxes for the support of the railroad retirement system amount to 12.50 percent of taxable payroll with a limit of $350 a month in earnings per employee. A recent actuarial estimate shows that the level cost of benefits under the act is about 15.70 percent of taxable payroll, indicating a present deficiency of 3.20 percent of payroll, or approximately $170 million a year.
We estimate that the additional cost of the amendments proposed in H. P. 5022 would come to about 0.3 percent of payroll, or $16 million a year on a level basis. This amount, when considered in addition to the present deficiency of 3.20 percent or $170 million a year, would result in a total deficiency of 3.50 percent of payroll or $186 million a year.
Aside from the administrative difficulties previously mentioned, there are a number of other reasons why the Board believes that the bill should not be enacted. The considerable additional cost resulting in an increased deficiency is, of course, the most important one, particularly since the bill makes no provision for additional revenues to meet this additional cost.
In view of the foregoing, the Board recommends that no favorable consideration be given to the bill.
Inasmuch as hearings on bills to amend the Railroad Retirement Act have been set for March 14 and 15, 1957, this report is submitted without prior clearance with the Bureau of the Budget. A copy of the report is being forwarded to the Bureau of the Budget today, and you will be informed of the views of that Bureau as soon as they are received. Sincerely yours,
HOWARD W. HABERMEYER,
UNITED STATES RAILROAD RETIREMENT BOARD,
Chicago, Ill., May 8, 1957. Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce,
House Office Building, Washington, D. C. DEAR MR. HARRIS : This is a report of the Railroad Retirement Board on the bill H. R. 6016, which was introduced on March 14, 1957, by Mr. Hale, and identical bills.
The bill would substantially revise the Railroad Unemployment Insurance Act by amending it in the following respects :
1. The “benefit year" (the year during which benefits are paid based on a particular qualification period) with respect to an employee would be changed so as to be a period of 365 consecutive days beginning with the first day of the first registration period after June 30, 1957, with respect to which the employee first files a valid claim for benefits, and thereafter the period of 365 days beginning with the first day of the first registration period with respect to which he next files a valid claim for benefits after the termination of his preceding benefit year. Any claim for benefits would be deemed to be a valid claim for the purposes of the definition of the “benefit year" if the employee who files a
claim is, with respect to his base period, a "qualified” employee in accordance with the changed provisions for such status. The base year would be changed and would be the 12 completed calendar months immediately preceding the first day of the employee's benefit year.
Under present provisions of the Railroad Unemployment Insurance Act the base period is the calendar year, and the benefit period respecting such base period commences July 1 of the following calendar year. Consequently, the benefit period does not begin until 6 months after the qualifying period. Under the bill the benefit period would follow the base period immediately.
2. The qualifying conditions for unemployment and sickness benefits likewise would be substantially revised. Under present provisions an employee becomes a "qualified” employee for such benefits if his compensation for the base year is not less than $400. Under the proposal an employee would be a "qualified" employee if his compensation with respect to his base year will have been not less than the amount equal to the product of 87 and the daily wage rate in employ. ment for his last “employer" in a base year, if during his base year at least 6 calendar months have been months of service used in computing his years of service for purposes of the Railroad Retirement Act, and if at least 2 of such months of service have been in the last 6 months of such base year.
An employee who has received 130 daily unemployment benefits or exhausted his unemployment benefit rights could not thereafter become qualified for unem. ployment benefits in a new benefit year unless he has again had "substantial compensation"; that is, has earned in railroad and other covered employment an amount equal to 20 times his last daily benefit. This would require that employee to have these earnings, as well as being qualified for a new benefit year otherwise, before being eligible for benefits in a succeeding benefit year. These provisions would apply to unemployment and sickness benefits separately.
3. The waiting period respecting the first registration period for both unemployment and sickness benefits would be extended to 9 days with the result that the number of days in the first registration period for which benefits may be received would be reduced to 5 from the present 7.
4. The schedule based on total wages in the base year for the determination of benefits would be eliminated and the daily rate of benefits would be determined on the present alternative basis of the claimant's last daily pay in his base year. However, instead of the present 50 percent of gross daily pay the benefit would be 60 percent of daily pay after withholding taxes (ordinary income and railroad retirement taxes). The maximum daily benefit would remain at $8.50. Specifically the employee's daily rate of compensation after withholding taxes would be such employee's daily rate after reduction by an amount equal to the sum of
(1) the amount equal to the same percentage of such daily pay rate as shall be imposed by section 3201 of the Internal Revenue Code (providing for railroad retirement taxes), on compensation at the time of such last employment, and
(2) the amount equal to one-fifth the amount which shall be required to be withheld at the time of such last employment by section 3402 (c) (providing for withholding for income tax) of such code on a weekly pay period basis, on wages paid in a weekly paid period in an amount equal to the
product of 5 and such daily rate. By this method of calculating the amount of the tax withholding this amount would normally be equal to the actual withholding.
5. An employee would be disqualified for unemployment or sickness benefits for any day with respect to which he meets the service and age or disability requirements for full annuity or pensions or old-age benefits under the Railroad Retirement Act or the Social Security Act and could, upon applying therefor, receive them. Under present law only after applying and qualifying for such benefits would the employee be disqualified. Under the proposal the employee would also be disqualified if he could, by applying, receive a full annuity or pension, or full old-age benefits, under either or both acts even though he does not apply. The present provision for payment of such unemployment or sickness benefits as would exceed apportioned annuity or pension payments for that day would be eliminated.
The provision for disqualification of an employee for unemployment benefits for 30 days beginning with the day with respect to which he left work voluntarily and without good cause or with respect to which he failed without good cause