Certification

[(e)] (d) The Secretary shall from time to time certify to the Secretary of the Treasury for payment to each State the sums payable to such State under this section. The Secretary of the Treasury, prior to audit or settlement by the General Accounting Office, shall make payment to the State in accordance with such certification, by transfers from the extended unemployment compensation account to the account of such State in the unemployment trust fund.

DEFINITIONS

SEC. [205] 206. For purposes of this title

(1) The term "compensation" means cash benefits payable to individuals with respect to their unemployment.

(2) The term "regular compensation" means compensation payable to an individual under any State unemployment compensation law (including compensation payable pursuant to title XV of the Social Security Act), other than extended compensation and additional compensation.

(3) The term "extended compensation" means compensation (including additional compensation and compensation payable pursuant to title XV of the Social Security Act) payable for weeks of unemployment beginning in an extended benefit period to an individual under those provisions of the State law which satisfy the requirements of this title with respect to the payment of extended compensation.

(4) The term "additional compensation" means compensation payable to exhaustees by reason of conditions of high unemployment or by reason of other special factors.

(5) the term "benefit year" means the benefit year as defined in the applicable State law.

(6) The term "base period" means the base period as determined under applicable State law for the benefit year.

(7) The term "Secretary" means the Secretary of Labor of the United States.

(8) The term "State" includes the District of Columbia and the Commonwealth of Puerto Rico.

(9) The term "State agency" means the agency of the State which administers its State law.

(10) The term "State law" means the unemployment compensation law of the State, approved by the Secretary under section 3304 of the Internal Revenue Code of 1954.

(11) The term "week" means a week as defined in the applicable State law.

EXTENDED UNEMPLOYMENT COMPENSATION ACCOUNT

Amendments.-SEC. [206] 207. (a) Title IX of the Social Security Act is amended by striking out section 905 and inserting in lieu thereof the following new section:

"EXTENDED UNEMPLOYMENT COMPENSATION

ACCOUNT

"ESTABLISHMENT OF ACCOUNT

"SEC. 905. (a) There is hereby established in the Unemployment Trust Fund an extended unemployment compensation account. For the purposes provided for in section 904(e), such account shall be maintained as a separate book account.

"Transfers to Account

"(b) (1) The Secretary of the Treasury shall transfer (as of the close of January [1968] 1967 and each month thereafter), from the employment security administration account to the extended unemployment compensation account established by subsection (a), an amount determined by him to be equal to [16% per centum] threeelevenths (except for 1968) of the amount by which

"(A) transfers to the employment security administration account pursuant to section 901(b)(2) during such month, exceed "(B) payments during such month from the employment security administration account pursuant to section 901(b) (3) and (d). The amount of transfer determined by the Secretary for each month of 1968 shall be equal to one-sixth of the amount by which transfers under paragraph (A) exceed payments under paragraph (B).

If for any such month the payments referred to in subparagraph (B) exceed the transfers referred to in subparagraph (A), proper adjustments shall be made in the amounts subsequently transferred."

Explanation. The proposed changes are designed to adjust the distribution of net FUTA revenue between administrative costs and long-duration benefit costs in accordance with the changes in the tax rate and taxable wage base.

For the taxable year 1967, the Federal tax rate and the distribution of the revenue will be the same as provided in H.R. 15119 for that year and succeeding years. That is, the Federal tax rate will be 3.3 percent, and the net rate will be 0.6 percent; of this amount, 0.1 percent, or one-sixth of collections during calendar year 1968, is earmarked for financing the programs of benefits for long-duration unemployment. The other five-sixths of the net receipts are available for Federal and State administrative expenses of the employment security program.

For the taxable years beginning with 1968, however, the increase in the taxable wage base permits a decrease in the Federal tax rate to 3.25 percent and a decrease in the amount earmarked for administration to 0.4 percent. Thus, beginning with January 1969, threeelevenths of the net Federal collections is to be transferred to the extended benefit account, and the ceiling on administrative grants to the States is to be computed on the basis of eight-elevenths of net receipts.

Amendment.-"(2) Whenever the Secretary of the Treasury determines pursuant to section 901 (f) that there is an excess in the employment security administration account as of the close of any fiscal year beginning after June 30, 1967, there shall be transferred (as of the

beginning of the succeeding fiscal year) to the extended unemployment compensation account the total amount of such excess or so much thereof as is required to increase the amount in the extended unemployment compensation account to whichever of the following is the greater:

"(A) [$500,000,000 $1,000,000,000 or

year

"(B) the amount (determined by the Secretary of Labor and certified by him to the Secretary of the Treasury) equal to [twotenths] four-tenths of 1 per centum of the total wages subject (determined without any limitation on amount) to contributions under all State unemployment compensation laws for the calendar ending during the fiscal year for which the excess is determined." Explanation. This proposed change increases the ceiling on the extended unemployment compensation account by doubling the requirements in H.R. 15119. The provision for higher ceiling is necessary in view of the provision for full Federal financing of extended benefits during extended benefit periods and shared Federal financing of regular State benefits for weeks 27 through 39.

"Transfers to State Accounts

"(c) Amounts in the extended unemployment compensation fund shall be available for transfer to the accounts of the States in the unemployment trust fund as provided by section [204(e)] 205 of the Federal-State Extended Unemployment Compensation Act of 1966.

"Transfers to Federal Unemployment Account

"(d) If the balance in the extended unemployment compensation account as of the close of any fiscal year exceeds the greater of the amounts referred to in subparagraphs (A) and (B) of subsection (b)(2), the Secretary of the Treasury shall transfer (as of the close of such fiscal year) from such account to the Federal unemployment account an amount equal to such excess. In applying section 902(b), any amount transferred pursuant to this subsection as of the close of any fiscal year shall be treated as an amount in the Federal unemployment account as of the close of such fiscal year.

"Advances to Extended Unemployment Compensation Account

"(e) There are hereby authorized to be appropriated to the extended unemployment compensation account, as repayable advances (without interest), such sums as may be necessary to provide for the transfers referred to in subsection (c)."

(b) (1) Section 901(f) (3) of the Social Security Act is amended by striking out "to the Federal unemployment account" and inserting in lieu thereof "to the extended unemployment compensation account, to the Federal unemployment account, or both,".

(2) Section 902(a) of such Act is amended by striking out "the total amount of such excess" and inserting in lieu thereof "the portion of such excess remaining after the application of section 905 (b) (2)".

(3) The second sentence of section 1203 of such Act is amended to read as follows: "Whenever, after the application of section 901(f) (3) with respect to the excess in the employment security administration account as of the close of any fiscal year, there remains any portion

of such excess, so much of such remainder as does not exceed the balances of advances made pursuant to section 905(e) or this section shall be transferred to the general fund of the Treasury and shall be credited against, and shall operate to reduce, first the balance of advances under section 905(e) and then the balance of advances under this section."

APPROVAL OF STATE LAWS

SEC. [207] 208. Section 3304 (a) of the Internal Revenue Code of 1954 is amended by inserting after paragraph (10) (added by section 121(a) of this Act) the following new paragraph:

"(11) extended compensation shall be payable as provided by the Federal-State Extended Unemployment Compensation Act of 1966; and".

EFFECTIVE DATES

SEC. [208] 209. (a) In applying section 203, no extended benefit period may begin with a week beginning before January 1, 1969. (b) Sections 204 and 205 shall apply with respect to weeks of unemployment beginning after December 31, 1968.

(c) The amendment made by section [207] 208 shall apply to the taxable year 1969 and taxable years thereafter.

TITLE III-FINANCING

INCREASE IN TAX RATE

Amendment.-Section 301 of the bill is amended to read as follows: "(a) Section 3301 of the Internal Revenue Code (relating to rate of tax under Federal Unemployment Tax Act) is amended

"(1) by striking out '1961' and inserting in lieu thereof '1968', "(2) by striking out '3.1 percent' in the first sentence and inserting in lieu thereof '3.25 percent', and

"(3) by striking out the last two sentences [.] and substituting therefor the following:

"In the case of wages paid during the calendar year 1967, the rate of such tax shall be 3.3 percent in lieu of 3.1 percent."" Explanation. The proposed change would provide that when the wage base for the Federal unemployment tax is increased above $3,000, the Federal tax rate will be reduced. The H.R. 15119 proposal for a Federal unemployment tax rate of 3.3 percent for taxable 1967 and thereafter would be limited to the taxable year 1967.

year

For the taxable year 1968 and subsequent years, when the amount of wages taxable is more realistically related to wage levels, a Federal unemployment tax rate of 3.25 percent will produce adequate revenue to finance both the administrative costs and the new programs of extended benefits.

On the higher new wage base, administrative costs can be financed by a 0.4 percent tax rate. The new extended benefit programsincluding the Federal sharing of one-half the cost of any regular State benefits in excess of 26 weeks and the full Federal payment of extended benefits in period of high unemployment could, it is estimated, be financed over a period of years at a tax rate of 0.15 percent on the recommended wage base.

INCREASE IN WAGE BASE

Amendment.-Section 302 of the bill is amended to read as follows: "SEC. 302. (a) Effective with respect to remuneration paid after December 31, [1968] 1967, section 3306(b)(1) of the Internal Revenue Code of 1954 is amended by striking out '$3,000' each place it appears and inserting in lieu thereof ['$3,900'] '$5,600'.

"(b) Effective with respect to remuneration paid after December 31, [1971] 1970, section 3306(b)(1) of such Code (as amended by subsection (a)) is amended by striking out ['$3,900'] '$5,600' each place it appears and inserting in lieu thereof ['$4,200'] ‘$6,600'."

Explanation. The proposal would provide a greater increase in the taxable wage base than is provided by H.R. 15119 and would advance the effective date of the changes.

The initial increase would be to $5,600, rather than to $3,900, and it would be effective with respect to remuneration paid after December 31, 1967, rather than after December 31, 1968.

The second step, to $6,600 instead of $4,200, would be effective in calendar year 1971 rather than 1972.

The increases in H.R. 15119 are not large enough, nor do they become effective soon enough. A substantial increase in the wage base for both State and Federal taxes is needed promptly to provide adequate revenue on an equitable basis.

The $3,000 limitation was added to the unemployment compensation program in 1939 for the sole purpose of making it possible to simplify employer reporting by using the same base for unemployment taxes as for OASDI. After the limit was added, 98 percent of wages in covered employment were still taxable. In the quarter century since then, wages have so increased that only about 53 percent of wages in covered employment are taxable, and the wage base for OASDI has been increased repeatedly to the present level of $6,600.

The widening gap between wages subject to contributions and total wages in covered employment has contributed to serious financial problems and to inequities in the incidence of both State and Federal taxes among covered employers.

For State purposes, a wage base realistically related to the wage levels on which benefits are based is needed if the required revenue is to be collected on an equitable basis as between employers. Increasing the taxable wage base will permit rates to reflect employer experience more completely.

Federally, an increase in the wage base to $5,600 for 3 years and to $6,600 thereafter will permit financing of both administrative costs. and more nearly adequate benefits for long-duration unemployment at a net tax rate of 0.55 percent, instead of the 0.6 percent proposed in H.R. 15119.

Moreover, even the 0.6 percent would be inadequate in a short time. Program cost increases follow the increases in wage levels more closely than would the revenue increases on the limited wage base provided in H.R. 15119. In its first year, 1969, the proposed $3,900 wage base would represent only 62 percent of total wages in covered employment, and the proportion would decrease in succeeding years.