Mr. MACHROWICZ. That is exactly what we are doing, but you are evidently critical of our action.

Mr. KRAUSS. I don't know that you are doing that.

Mr. MACHROWICZ. Do you not understand the law to give the State the privilege of the option of providing rate reductions?

Mr. KRAUSS. I do, but I understand also that they have imposed upon the States very stringent provisions as to how they will compute their benefits and duration and that that will have an effect upon the payments which are going to be made out of the reserve fund, which in turn will affect the tax rate and which will eventually tend to make a standard tax rate throughout the country.

Mr. MACHROWICZ. I understand your being critical of the other provisions of this bill, but I thought you would welcome with great joy a particular provision which removes standards. I do not understand why you are not consistent and why you do not welcome that provision.

Mr. KRAUSS. I think I have explained my position there.

Mr. MACHROWICZ. I do not suppose you agree with the fact that there should be a relation between unemployment compensation benefits and wages, do you?

Mr. KRAUSS. I think there should be a relationship between unemployment compensation and wages.

Mr. MACHROWICz. I am very happy to have that because I think that is a sensible answer to the question.

I would like to tell you then that as far as Missouri is concerned, the relation of maximum weekly benefits to weekly wages in 1939 was 61 percent, and in 1958 it dropped to 41 percent. If you believe that there should be a relation to wages, how do you account for the fact that that percentage has dropped by 20 percent in Missouri?

Mr. KRAUSS. As I pointed out in my statement, the increase in the benefit in Missouri has increased faster than has the cost of living by a substantial amount.

The difference between 1939 take-home pay and 1958 take-home pay makes a considerable difference, too, in making just a strict comparison between wages and an unemployment compensation rate. The increases which have taken place in the State of Missouri and which are taking place at the present time will make the Missouri standard, as I say in my statement, 53 percent of take-home pay. Mr. MACHROWICZ. I thought you said consideration in determining these inquiries should be not with relation to cost of living, but rather to wages.

Mr. KRAUSS. I didn't say that. I said there should be a relationship. I didn't say the relationship should be a strict relationship such as you are trying to infer, Mr. Congressman.

Mr. MACHROWICZ. That is all.

The CHAIRMAN. Are there any further questions?

Mr. ALGER. Mr. Chairman.

The CHAIRMAN. Mr. Alger.

Mr. ALGER. Mr. Krauss, In support of your position, in view of the recent exchange and colloquy between you and the gentleman

from Michigan, if one were to just take this bill and read the first few changes:

In order to strengthen the economy and provide for the general welfare of the Nation

and so forth, he would see it gives carte blanche to Uncle Sam to do just about as he likes.

I might like to turn this around and recall the 10th amendment, the powers not delegated to the United States by this Constitution are reserved to the States respectively or to the people. If the States already have that choice, which they have without the Federal standards, why must we give them Federal standards to say to the States, "You have the choice." You already have the choice.

We know the existing system we have and I do not see any reason for giving them the choice in printed form when we already have that choice.

I submit your statement stands as submitted.

I want to ask one other thing on this experience rating.

Many of our witnesses, correctly or incorrectly, and I and others believe that the experience rating in effect in the States now will very definitely be challenged by this new bill which gives the option, as it

were.

Our committee counsel prepared a very, very interesting study which I realize the members have read, but I would like to quote from page 17:

Section 4 amends the present Federal statute dealing with experience rating credits to provide that the State, in lieu of the system of experience rating, may provide a uniform credit to all employers in the State.

That is permissive. That reminds me of the Public Works Committee when we said to the States that if you have a State law that permits accepting reimbursement for utility relocation, you can have Federal money. That kind of permissiveness immediately follows with new State law that conforms with Federal law in order to get Federal money. It is like coercion. I don't think that is just like the proposition here. You give a permissive extension of law to the State and the State must conform to please Uncle Sam. It seems to me there is some question, and I would like to study this further, whether the experience ratings at the State level, which actually are an incentive to the employer to provide stable employment, the very thing we want most of all, will go out the window in this bill. And I believe part of our problem now lies in resolving that dilemma, whether the experience ratings will or will not be thrown out by these Federal standards.

I want to thank you for your statement.

Mr. KRAUSS. I certainly agree with you, Mr. Alger, and that was one of the reasons why in 1957 we attempted to create this incentive financing for those employers who already are having more drawn from their accounts than they are paying in in taxes, and we set up this new system of forgiving them beginning January 1, 1959, in order to encourage them to stabilize their employment and maintain a lower rate. If they do not, they are even going up to a higher tax rate of 4.5, but that has been our concept of the law, and the purpose of experience rating was to encourage the stabilization of employment.

It is much better to create jobs and have people working than to create any amount of benefits for being unemployed.

Mr. ALGER. You would not agree with the first page statement of the bill that several States are failing to carry out the purposes and objectives of employment stabilization and security against unemploy

ment?

Mr. KRAUSS. I would not agree with that; no, sir.

The CHAIRMAN. Mr. Machrowicz.

Mr. MACHROWICZ. I think there is obviously a misunderstanding of the existing law on the part of someone.

Let me ask you, since you have had experience with this law, is it your understanding that under the existing law a State has a free choice in providing for uniform rate reductions as well as individual experience rate reductions and payroll tax rates?

Mr. KRAUSS. Under existing law, if a State reserve fund reaches a certain level, then the standard tax rate will be put into effect.

Mr. MACHROWICZ. However, you agree, do you not-I believe the gentleman from Texas probably does not understand that-that this provision in our bill gives the States further option; does it not?

Mr. KRAUSS. I think they have sufficient opportunity under the present setup in order to make whatever variations they desire to make. Mr. MACHROWICZ. Does this not give them further rights which they have not had in the past?

Mr. KRAUSS. Gives them further rights?

Mr. MACHROWICZ. Yes.

Mr. KRAUSS. It probably does.

Mr. MACHROWICZ. Probably does? It does; does it not?

Mr. KRAUSS. Let's say that it does.

Mr. MACHROWICZ. It does remove that standard?

Mr. KRAUSS. It removes that standard.

Mr. MACHROWICZ. That it what I thought should be made clear. That is all.

The CHAIRMAN. Are there any further questions of Mr. Krauss? If not, Mr. Krauss, we thank you again, sir, for coming to the committee.

That concludes the calendar for today and without objection, the committee adjourns until 10 a.m., in the morning.

STATEMENT OF ROWLAND JONES, JR., PRESIDENT, AMERICAN RETAIL FEDERATION

My name is Rowland Jones, Jr. I am the president of the American Retail Federation, with offices at 1145 19th Street NW., Washington, D.C.

The American Retail Federation is a federation of 30 national retail associations and 38 statewide associations of retailers, representing through their combined membership more than 800,000 retail establishments. Attached to this statement is a list of the associations on whose behalf this is submitted.

This committee has three major proposals before it for consideration at present. They are:

1. The imposition of Federal minimum benefits standards upon State unemployment insurance laws.

2. The extension of the coverage of the Federal Unemployment Tax Act to employers of one or more, and thus, in effect, requiring the State laws to extend their coverage to the same extent.

3. A provision permitting States to finance their unemployment insurance programs with a flat rate tax of less than 2.7 percent of taxable payroll, in addition to the varying rates now permitted through the application of experience rating.

The members of the American Retail Federation see no need for any of these proposals.

Unemployment insurance was designed as an insurance program, based on insurance principles, chiefly to take care of the worker, normally fully employed, who loses his job through no fault of his own. To a lesser extent, it was also designed to assist the worker who voluntarily left his employment, or who was discharged for cause.

The

Unemployment insurance was initiated as a Federal-State program. Federal Government, in the Social Security Act of 1935, paved the way for the States to enact State unemployment insurance laws, by imposing a Federal payroll tax, with an offset credit for amounts paid by the taxpayer under an approved State law. Broad standards for such approval were written into the Federal law. Aside from these, the Social Security Act gave the States full discretion in determining the eligibility conditions, weekly benefit amounts, duration of payments and disqualifications. This was as it should have been. There are wide variances in employment conditions, living costs, and working conditions in the difference areas of the country. The States were, and still are, the best judges of their own social and economic conditions, and can always make the necessary adaptations to meet their respective situations.

The imposition of Federal benefit standards upon State laws would be a radical and undesirable departure from the present system. It would inevitably lead to a completely federalized system, with uniform benefits, uniform taxation, and uniform eligibility requirements, thus leaving the States nothing but the ministerial function of conforming.

Advocates of Federal benefit standards base their case on State inaction. They claim that the States have failed in their responsibilities to provide adequate benefits, and that only through Federal action can adequate benefits be assured. Their conception of adequate benefits, it is interesting to note, calls for a scale of benefits, both in amount and duration, far in excess of those now paid under the most liberal State law. In more blunt words, it is their contention that every State has failed to take proper action in this field.

No such contentions can be proved in this subject. With a very few exceptions, the State record is a good one. It is regretable that the simple fact that the states are doing a good job cannot be credited or understood by advocates of Federal standards. But an examination of the States' record over the past 20 years testifies eloquently to a good job well done.

Coverage has been broadened steadily. Twenty years ago, less than half of total civilian employment was covered by unemployment insurance. Today, it is more than two-thirds, and if only nonagricultural wage and salary workers are considered, coverage reaches 80 percent of total employment.

Waiting time has been cut down steadily. Twenty years ago, most States required a waiting period of 2, 3, or even 4 weeks before benefits could be paid. Today, no State requires a waiting period of more than 1 week, and a number of States have no waiting period whatsoever.

The duration of benefits has been increased steadily. Twenty years ago, about 80 percent of workers were in States with maximum duration of 16 weeks or less. Today, nearly 80 percent of the workers are in States where 26 weeks, or more, of benefits are available to workers with a substantial work history, the type of worker for whose benefit the program was primarily designed. Only three States have a maximum duration of less than 20 weeks.

The benefit amount has increased steadily. Twenty years ago, the average benefit was $10.66. Today it is $30.55.

Benefits have more than kept pace with the cost of living. The Consumer Price index has gone up 107.9 percent since 1939. The increase in average benefits is 186.6 percent. Putting it another way and expressing 1939 benefits in terms of 1958 dollars, the average 1939 benefit was $22.16, while today, as stated above, it is $30.55, an increase of 37.9 percent.

Much has been made of the fact that some States pay benefits for as short a period as 6 weeks. This has been advanced as proof of the inadequacy of State programs. Actually, this springs from the fact that many States pay unemployment insurance benefits to persons with low qualifying wages. In a majority of States, a worker can qualify for benefits with from 2 to 5 weeks of employment in his base year. Rather than eliminate such workers completely from the program, some States have chosen to pay limited benefits, either in amount, or duration, or both. Unemployment insurance should not be expected to carry the load of a worker who is not, and probably never will be, a permanent part of the labor force.

This brief summary of what the States have done, and are still doing in the improvement of their unemployment insurance laws, should serve as an answer to those who would abandon the present Federal-State program and replace it with a Federal one.

In connection with the proposal to increase the coverage of the Federal tax to employers of one or more, and thereby in effect force the States to comply, it should be pointed out that in this case too, the States are better judges of what their law requires. Some 17 States already cover employers of one or more and others are expected to expand the coverage of their laws. It is to some extent a matter of administration. The present Federal law applies to employers who employ four or more employees on 20 days in the year, each day being a different calendar week. This limits the application of the Federal tax to employers who have a substantial employment record. The propsal is to cover an employer who employs one employee at any time in the year. It is a matter of considerable difficulty to police such employers adequately. Most of them are small businessmen who require paid help only sporadically or seasonally. Much of this help comes from the ranks of those who would otherwise not be a part of the labor force. It is highly probable that, if coverage is extended as proposed, a large number of small businessmen will be taxed to pay theoretical benefits for which their employees, in actuality, would never become eligible. There is admittedly a problem here, the problem of the worker who is steadily employed by a small employer, but it is a problem that the States can solve. The solution is not found by extending the tax to many to benefit a few.

Finally, is the proposal that States be permitted to adopt a flat tax rate of less than 2.7 percent, applicable to all employers subject to the law. This proposal also does violence to the present system. The Social Security Act of 1935 provided that States might, if they saw fit, vary the tax rates paid by employers within their State in accordance with the employment experience of the taxpayer. There was a twofold reason for this. First, it was designed to encourage employers to improve their employment record, and to keep unemployment to a minimum as much as possible. Second, it was in line with the insurance principles on which the program is based. No one with a modern brick factory, with fire doors and automatic sprinklers, and who was engaged in manufacturing noninflammable items, would expect to pay the same premium for fire insurance as would be charged to the owner of a wooden frame structure where flammable items were manufactured.

To sum it up, the present program was initiated as a Federal-State unemployment insurance program. It has functioned well over the past 20 years. It has been, and still is being, improved. There is no demonstrable need to destroy a program which is serving its purpose and replace it with what must became a rigid Federal program.

This is a vital issue, which embraces far more than the question of unemployment benefits. If the trend toward aggrandizement of Federal power at the expense of the historical sovereignty of the States is not reversed, and reversed soon, the time is approaching, and is not far off, when the States will become mere satellites of the Central Government, with their functions largely limited to raising and collecting taxes, administration and general housekeeping duties.

NATIONAL ASSOCIATIONS

American Retail Coal Association.

Associated Retail Bakers of America.

Association of Family Apparel Stores, Inc.

Institute of Distribution, Inc.

Mail Order Association of America.

National Appliance and Radio-TV Dealers Association.

National Association of Chain Drug Stores.

National Association of House to House Installment Co.'s, Inc.

National Association of Music Merchants, Inc.

National Association of Retail Clothiers & Furnishers.

National Association of Retail Grocers.

National Association of Shoe Chain Stores.

National Council on Business Mail, Inc.

National Foundation for Consumer Credit, Inc.

National Industrial Stores Association.

National Luggage Dealers Association.