In the vital statistics between 1951 and 1959 are the following indisputable comparisons:

In lieu of H.R. 1012 and other proposals, I earnestly recommend that a moratorium be declared against any further increases in benefits under the Railroad Retirement Act, at least until such time as the help given the industry and its own efforts to improve its position and stabilize railroad employment can be properly evaluated by both management and currently active employees.

I am as firmly opposed to those proposals in H.R. 1012 to further enlarge or extend the already overgenerous benefits under the Railroad Unemployment Insurance Act, adding $40 million in 1959 and by 1962 $43 million per year to the present tax assessment against the industry.

The average daily benefit rate for unemployment, paced by the growth in rates of pay and amendments in 1952 and 1954, rose from $3.55 in fiscal 1951-52 to $7.80 last year and is currently in excess of $8. This bill proposes to further increase these benefit rates from 8 to 25 percent with a general advance of 20 percent.

It also proposes, significantly, to retroactively extend benefits to employees who exhausted their rights although the opportunity to do so was rejected when the program for all other workers was adopted in the last session of the Congress. Under the present law railroad employees can, and do, draw unemployment benefits in more than 1 year, and it is possible to collect 52 weeks of benefits for a single period of unemployment. In point of fact, 164,000 of the 229,000 railroad employees who drew unemployment benefits between July and December 1958 were also beneficiaries in the fiscal year ending June 30, 1958.

The Railroad Unemployment Insurance Act needs reappraisal and not liberalization for certainly there can be no fairness nor equity in the requirements that compelled the industry, over the past decade, to pay out in unemployment benefits: $90,466,000 to employees who are discharged or suspended for just causes, or who voluntarily quit their jobs; $15,656,000 to employees participating in strikes against the industry and to other employees affected by such work stoppages; or $402 million in sickness benefits, and $31 million in maternity benefits, when the Federal-State systems, covering the vast majority of the Nation's industrial workers: Consider voluntary separations, discharges for misconduct and labor disputes as major reasons for the disqualification of claimants for unemployment insurance benefits; and only four States provide sickness benefits and in two of these the costs are paid for entirely by employees. Maternity benefits are available in only one State.

The Railroad Retirement and Social Security Acts provide immediate annuities to retiring workers entitled thereto, but it is permissible, under the Railroad Unemployment Insurance Act for a railroad worker to defer the effective date of his retirement, and, in the interim, draw unemployment or sickness benefits. These practices are costing the railroad industry around $12 million per year. Furthermore, benefits are never reduced or canceled in cases of fraud under the Railroad Unemployment Insurance Act as they frequently are under the Federal-State system.

I sincerely believe that the removal of these inequities from the Railroad Unemployment Insurance Act will deprive no one of just benefits, and will definitely be in the interest of the industry, its employees, and the public welfare.

Hon. OREN HARRIS,

EXECUTIVE OFFICE OF THE PRESIDENT,

BUREAU OF THE BUDGET, Washintgon, D.C., February 21, 1959.

Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, House Office Building, Washington, D.C.

MY DEAR MR. CHAIRMAN: This is in reply to your request for the views of the Bureau of the Budget with respect to H.R. 1012, a bill "To amend the Railroad Retirement Act of 1937, the Railroad Retirement Tax Act, and the Railroad Unemployment Insurance Act, so as to provide increases in benefits, and for other purposes."

This bill would liberalize and increase the retirement, survivor, and unemployment and sickness benefits, and provide for extended unemployment benefits. It would increase railroad retirement taxes and ultimately increase the employer contributions to the railroad unemployment insurance account. Also, the bill would increase the wage base from $350 to $400 a month (from $4,200 to $4,800 annually). This latter increase is in line with the 1958 amendments to the Federal old-age survivors' and disability insurance system and was recommended by the President in his 1960 budget message.

In the retirement system, the benefit rates would be raised by 10 percent and other substantial liberalizations would be made at a total level premium cost of 2.63 percent of payroll according to the Board's estimate.

The railroad retirement system is at present confronted with an actuarial deficiency of 4.18 percent of payroll. Both your committee and the administration recognize that this serious deficiency must be remedied if the system is to be maintained on a sound reserve basis. Under this bill the additional revenues which would be provided for the railroad retirement system through increases in the tax rate and a higher wage base would offset the increase in benefit outlays and would reduce the actuarial deficit to a 0.60 percent of payroll according to actuaries of the Railroad Retirement Board. On the basis of their estimates, this would go far toward making the railroad retirement system self-financed.

The estimated reduction in the actuarial deficiency from 4.18 percent to 0.60 percent, however, is based upon many assumptions including several which could turn out to be optimistic. First, the Board's actuaries estimate that as a result of the financial interchange with the old-age survivors' insurance trust fund, the railroad retirement system cost will be reduced by 1.12 percent of payroll. The actuaries of the Social Security Administration believe that this estimate is high and that probably no net reductions will accrue to the railroad retirement system. Second, the estimate assumes a level annual taxable wage base of $5.6 billion. Actual payrolls have been below this level. In 1957, they were $4.6 billion and in 1958, $4.1 billion. Therefore, there is reasonable doubt that the $5.6 billion wage base will be realized. We believe that these are points on which the committee might wish to develop further information.

Aside from the above comments concerning financing of the system, two of the bill's retirement provisions pose problems:

(1) Under the existing law an individual cannot receive disability benefits for any month in which he is paid more than $100 in earnings. Under the bill this would be modified so that the disability benefit would be denied for any month in which earnings exceed $100 only if his annual earnings exceed $1,200. This proposed annual earnings criterion would seriously weaken the existing test for determining whether disability continues to exist. Under the proposed bill an individual could earn $300 a month for 4 months (which raises a serious question as to his continued disability) and still draw his monthly disability benefits for the entire year. Under existing law his benefits would be withheld for these 4 months. While this annual criterion is found in the old-age and survivors' insurance program, it is not applicable to the disability benefits part of that program. Moreover, inasmuch as the railroad program provides benefits under considerably less stringent conditions in occupational disability cases, it would appear most undesirable to weaken the disability test by liberalizing the earnings provisions.

(2) The existing law provides that annuities be based upon either the railroad formula or the old-age and survivors' insurance formula, whichever yields the higher amount. This particularly affects survivor cases, two-thirds of which now draw benefits under the old-age and survivors' insurance formula. These bills would provide a 10 percent increase in annuities determined under the

old-age and survivors' insurance formula as well as a 10 percent increase in annuities determined under the railroad formula. As the use of the old-age and survivors' insurance formula is designed to assure that railroad benefits will not be lower than social security benefits, it is questionable that the benefit resulting from the OASI formula (which were recently increased by 7 percent) should be increased when applied to railroad cases.

Also, proposed amendments to the Railroad Unemployment Insurance Act raise important questions:

(1) The duration of unemployment benefits would be extended from the present 26 weeks to 39 weeks for employees with 10 to 15 years of service and to 52 weeks for employees having 15 years or more service. The present maximum daily limit on unemployment benefits would be increased from $8.50 to $10.20 with corresponding increases in the relationship to gross pay from 60 percent to 70 percent.

The President has urged the States to improve the duration and amounts of benefits paid under the States unemployment compensation programs. His 1959 Economic Report states "benefits should be raised so that the majority of covered workers will be eligible for payments equal to at least half of their regular earnings; and the maximum duration of benefits should be lengthened to 26 weeks for any person who qualified for any benefits and who remains unemployed that long." The existing provisions of the Railroad Unemployment Insurance Act meet the above criterion. The proposed increases should receive the most careful scrutiny, since they involve broad questions of social policy. In addition to the fundamental question of relationship to the basic unemployment insurance system which needs thorough consideration, the proposed extended weekly benefits could impair incentive to move into other lines of work. This would seem to be an undesirable consequence in view of the fluctuating railroad employment situation. Similar impairment might result from the proposed benefits inasmuch as the level of compensation could, in many cases, be substantially in excess of 70 percent when related to take home pay. These proposed liberalizations on unemployment insurance are estimated by the Railroad Retirement Board to account for a significant part of the increased cost and the required increased employer contributions rate. It also appears likely, that the maximum tax rate of 3% percent specified in this bill, will fall short of covering the cost of these benefits.

(2) The bill would virtually eliminate any waiting period for unemployment benefits. An individual would be entitled to benefits even though he was out of work for only 1 day. Experience has shown that there are significant reasons for a waiting period. It is not necessary to compensate every small case of wage loss which is often attendant upon normal and smooth adjustments between labor demand and supply. Few eligible workers lack sufficient funds to tide them over for a few days of unemployment. In addition, the waiting period minimizes administrative costs involved in processing and paying very small claims, and serves to conserve the fund so that it can be used for benefit payments for more significant unemployment risks.

(3) Unemployment compensation benefits are designed to offset current loss of income due to unemployment, not to reimburse for prior losses. This principle is violated by the proposed temporary extended benefits, which would provide benefits in the future to an individual who had days of unemployment between June 19, 1958, and April 1, 1959. The principle is again violated by provisions of the bill which would make all proposed benefit increases retroactive to June 30, 1958.

The above provisions, in our opinion, should receive the most careful scrutiny because they involve serious questions of social policy and possible precedents for other programs. The additional costs of these benefits should also be considered in relation to the pressing problem of assuring a sound financial base for existing benefits.

Altogether, the proposed benefit liberalizations, when added to the needed steps which these bills take toward elimination of the present serious financial deficiency in the railroad retirement system would entail a substantial increase in railroad retirement and railroad unemployment taxes. The immediate effect of these bills would be to raise the railroad retirement rate to 131⁄2 percent and the unemployment rate to 32 percent, or a combined total of 17 percent of covered payroll-64 percent on workers and 104 percent on the carriers. By 1969, the railroad retirement tax rate would rise to 18 percent, thus leading to a combined total of 211⁄2 percent of covered payroll-9 percent on employees and 122 percent on the employers. These rates would compare with the present rail

road tax rate of 121⁄2 percent and unemployment rate of 3 percent, a combined total of 15% percent-64 percent on workers and 94 percent on the carriers. The desirability and feasibility of the proposed substantial liberalization in benefits for railroad workers in this industry at these payroll tax rates must, of course, be judged in terms of the industry's long term prospects and its competitive position with other forms of transportation. The sharp tax increase necessary to pay for the liberalizations over the next decade, would present a grave problem for the railroad industry-an industry which is already receiving emergency financial aid from the Government under legislation enacted in the 85th Congress.

The impact on the employees would also be substantial and has led to legislation being introduced to obtain exemptions of employees' contributions from Federal income tax provisions. In the 1960 budget message, the President opposed changing the status of such contributions for Federal income tax purposes.

In summary, enactment of legislation to place the railroad retirement system on a sound and fully self-financing basis and to increase the level of wages covered under the system was recommended by this administration. While H.R. 1012 would make a useful contribution in this direction, it incorporates substantive provisions affecting both railroad retirement and railroad unemployment benefits which we believe are questionable. The proposed liberalizations would also create a financial problem in the railroad unemployment program. Accordingly, the Bureau of the Budget would strongly recommend against enactment of H.R. 1012 in its present form.

Sincerely yours,

PHILLIP S. HUGHES,

Assistant Director for Legislative Reference.

U.S. DEPARTMENT OF LABOR,

Hon. OREN HARRIS,

OFFICE OF THE SECRETARY,

Washington, D.C., February 9, 1959.

Chairman, Committee on Interstate and Foreign Commerce, U.S. House of Representatives, Washington, D.C.

DEAR CONGRESSMAN HARRIS: This is in further reply to your request for comments on proposals to amend the Railroad Retirement Act and the Railroad Unemployment Insurance Act. Since H.R. 1012 and H.R. 1013, identical bills, appear to be the most comprehensive of the proposals on this subject pending before your committee and to embody many of the provisions contained in the other bills, we will relate our comments to these bills.

The proposed increase in the wage base from $4,200 to $4,800 for tax and benefit computation purposes under the Railroad Retirement Act would carry out a recommendation made by the President in his 1959 budget message. This increase which would bring the wage base of the railroad retirement program in conformity with that of the old-age and survivors' insurance program under the Social Security Act, is fully supported by equitable considerations.

The President has also urged the Congress to place the railroad retirement system on a sound actuarial basis. As pointed out in his budget message, recent studies show that the system is incurring a substantial actuarial deficit. The most recent actuarial valuation of the railroad retirement account shows that the deficit is 4.18 percent of taxable payroll, or about $213 million a year. Officials of the Railroad Retirement Board have estimated that the enactment of these proposals would reduce this deficit to 0.6 percent of taxable payroll or about $34 million a year. Although the deficit is on an estimated basis and the actual future status of the account will likely reflect a variance, it is clear that the account would be in a more solvent position under the proposed legislation than it is at the present time. In addition, the increased benefits and other liberalizations would provide greater economic security for workers covered under the system. We are in favor of these results. If it is determined that the proposals would accomplish these results on a sound basis, we recommend that they receive the most earnest consideration in these respects.

We favor sound improvements in the railroad unemployment insurance system. From information available to us, however, it appears that the proposed improvements would create a deficit in the unemployment insurance account of $25 to $75 million by June 30, 1959, notwithstanding the proposed increase from 3

to 32 percent in the maximum tax rate on employers under the law. We suggest that the problems of financing the railroad unemployment insurance program should be solved before the account starts showing a deficit.

The Bureau of the Budget advises that they have no objection to the submission of this report.

Sincerely yours,

JAMES T. O'CONNELL, Acting Secretary of Labor.

UNITED STATES OF AMERICA RAILROAD RETIREMENT BOARD, Chicago, Ill., January 30, 1959. Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, House Office Building, Washington, D.C.

DEAR MR. HARRIS: This is a report on the bill H.R. 1055, which was introduced in the House of Representatives by Mr. Roberts on January 7, 1959, and which was referred to your committee for consideration.

The bill would amend the Railroad Retirement Act of 1937 to provide that pensions and annuities under this act would not be considered as "income" for purposes of the "income limitations" prescribed by section 422 of the Veterans' Benefits Act of 1957, under which non-service-connected disability pensions are not paid to "any unmarried veteran whose annual income exceeds $1,400, or to any married veteran or any veteran with children whose annual income exceeds $2,700."

Enactment of the bill would make the present provision of section 20 of the Railroad Retirement Act almost wholly nugatory. This section, added to the Railroad Retirement Act by Public Law 746, 83d Congress, 2d session, 1954, permits any person to waive an annuity or pension to which he is entitled under that act, with the main purpose of this provision being to enable the annuitant or pensioner, by so waiving, to come within the income limitations specified in the veterans' laws and thereby qualify for a veteran's non-service-connected disability pension. There would, of course, be no need or purpose for any such waiver if the bill H.R. 1055 is enacted.

The elimination of such waivers would cost the railroad retirement system a relatively small amount each year, but from an actuarial point of view this additional cost would be negligible.

Otherwise, enactment of the bill would not affect administration of the Railroad Retirement Act or increase the benefits payable thereunder.

Since the only effect of enactment of the bill would be the incidental one of eliminating the waivers referred to above, apart from the small cost to the system of this elimination, the Railroad Retirement Board takes no position with respect to the proposal.

Inasmuch as hearings on bills to amend the Railroad Retirement Act have been set for February 3, 1959, 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, Chairman.

VETERANS' ADMINISTRATION, Washington, D.C., February 9, 1959.

Hon. OREN HARRIS,

Chairman, Committee on Interstate and Foreign Commerce,
House of Representatives, Washington, D.C.

DEAR MR. HARRIS: Further reference is made to your request for a report on H.R. 1055, 86th Congress.

The purpose of the bill is to exclude pensions and annuities received under the Railroad Retirement Acts of 1935 or 1937 in determining annual income of veterans seeking pension from the Veterans' Administration.

A formal defect is noted. In lines 8 and 9 the bill refers to section 422 of the Veterans' Benefits Act of 1957, which was repealed by section 14(117), Public Law 85-857. Comparable provisions are now contained in 38 U.S.C. 522. Under chapter 15, title 38, United States Code, otherwise eligible veterans of World War I, World War II, or the Korean conflict may be paid a pension for