It is equally important that we remind them that the provisions of this legislation would leave ample room for each State to take into account its own economic situation, its own wage rates, and the desires of its people. The Unemployment Compensation Act of 1959 would only provide a floor above which States will be free to develop a wide variety of compensation programs. Had the States made the original act work, further standards may not have been proposed at this time. But the States rejected the opportunity presented to them by Congress and now adequate Federal standards are needed to enforce at least a minimum acceptance of the intent of Congress. Thank you. The CHAIRMAN. Mr. Cohelan, we thank you, sir, for coming to the committee and discussing these problems with us. You have made a very fine statement. We appreciate it. Mr. COHELAN. Thank you, Mr. Chairman. The CHAIRMAN. Any questions? Thank you, sir. Mr. HERLONG. Mr. Chairman, may I have permission to file the statement of Mr. William Netschert in the record? The CHAIRMAN. Without objection, the statement will appear in the record. Hon. WILBUR D. MILLS, Chairman, House Ways and Means Committee, THE GEO. D. EMERSON Co., Somerville, Mass., April 24, 1959. DEAR SIR: Please be advised that as businessmen and taxpayers we are opposed to the profligate spending of taxpayers' money which would follow the enactment of the Kennedy-Karsten measure, H.R. 3547 and its companion piece S. 791. In the endeavor to make it possible for the laborer to be paid for a lifetime of inactivity, we feel that some consideration should be given to the approaching hour when the taxpaying employer can no longer bear the burden. Please make our opposition to the passage of the above bills a part of the records of your hearings. Thank you. Very truly yours, E. P. BRADY. STATEMENT FOR THE BENEFIT OF THE MEMBERS OF CONGRESS CONCERNING THE FACTORS AFFECTING THE FUNDING OF UNEMPLOYMENT COMPENSATION AND THE IDIOSYNCRASIES OF BENEFIT PAYMENTS CREATED BY STATUTES OF THE STATES UNDER TITLES III AND IX OF THE SOCIAL SECURITY ACT OF 1935 AND THE PROVISIONS OF SECTIONS 3301 ET SEQ., OF THE INTERNAL REVENUE CODE (By Wm. Netschert, M.E., Daytona Beach, Fla.) I am a graduate mechanical engineer from Stevens Institute of Technology in Hoboken, N.J. I am retired on pension by the State of New Jersey, having served 20 years in the field of employment security and, from 1939, occupied the post of research supervisor and deputy chief of research and statistics under the late Harold G. Hoffman and his immediate successor. I served for 10 years as secretary of the Statistical Society at Princeton, N.J., and served one term as president of that chapter of the American Statistical Association. I resigned from that association and the Industrial Relation Research Association when I retired in 1955, mainly because my efforts to make a worthy contribution to a better understanding the idiosyncrasies of the national unemployment compensation system were rejected. I have lectured on this subject before the Princeton chapter, the Daytona Beach Rotary Club, and the Actuarial Services Branch of the Bureau of Employment Security. My analytical techniques were recommended to Chairman Altmeyer of the old Social Security Board by Dean J. Douglas Brown, of Princeton University, some 15 years ago, but were rejected by his staff. They are understood and appreciated by the Honorable Carl Holderman, Commissioner of Labor and Industry of the State of New Jersey, the Honorable James T. Vocelle, chairman of the Florida Industrial Commission, and the Honorable Senator Gautier and Messrs. Sweeny and Karl of the Florida Legislature, and, finally, by the Honorable A. S. Herlong, Congressman from Florida. My pamphlet, entitled "Some Progress in Analysis of the Factors Affecting the Funding of Unemployment Compensation," is registered with the Library of Congress. I have written also for the official publication of the Bureau of Employment Security and for the Indicator, a quarterly publication of the alumni of Stevens Institute of Technology, in the March 1959 issue. If you know what questions to ask, the problem is half solved (Lydia Parrish). Out of 15 years of penetrating study of the operating complexities of the unemployment compensation system, from within the system, and independent research beyond that required of a statistician working therein, to develop techniques for analyzing, comparing, and evaluating the laws of the 51 jurisdictions, and for finding a common denominator, I have reached one basic conclusion: The only valid common denominator for comparing benefit allowances and matching contributions from employers is the individual wage of each covered worker taxed under sections 3301 et seq. of the Internal Revenue Code; in short, taxable wages. It takes from 2 to 4 hours of concentrated attention to acquire an understanding of the idiosyncracies of benefit formulas augmented by graphic descriptions of the various types of State formulas, much more to arrive at valid conclusions about their effectiveness, their considerations of equity. It takes long hours of study of a State's economy to be able to judge what relation there ought to be between the contributions rates assigned under the "conditions of additional credit allowance" of section 3303 of the Internal Revenue Code, and the ratio which potential benefits in 1 year shall have to the wages of the previous year for each individual. In 1954 I wrote, "Potential liability for 1 year at a rate of 30 percent requires 10 years at 3 percent to recuperate; a 45-percent liability rate, 15 years, etc. Put another way, taxes on 5 to 10 like-paying jobs are required to support one potential man-year of benefit drain (at a lower benefit rate and more in proportion at a higher benefit rate). Fortunately, in the past there has been a 'bonus' setup in past contributions. Taxes were levied on individual wages up to $3,000 per year while, for most of the first decade of operations, maximum benefits were limited to wages less than $1,000, and since 1938 to wages less than $2,000; this by the nature of the benefit formulas in most of the States. Attempts to catch up with inflation are putting benefitable wages on a par with taxable wages. The significance of this trend is plain enough to If the fund is to be maintained at a constant level, with income and drain alike in magnitude, then not more than 10 percent of the work force whose wages are taxed can be compensated in full at a rate 10 times the contribution rate. This is gross oversimplification; but it serves to pinpoint the problem." Having sensed the coming of current events in unemployment compensation almost from the beginning, and expressed the certainty of them in 1954, I now feel qualified to comment on the present and the future need, in the field of unemployment compensation for the benefit of the Members of the present Congress. see. I wish to pay tribute to the fine contribution to the record of published facts about the unemployment compensation laws of the several States made by Helen S. Cunningham of the Unemployment Insurance Service of the Bureau of Employment Security. Her factual review in "Comparison of State Unemployment Insurance Laws, as of January 1, 1958" must be classed as a monumental contribution to the subject. But difficult as her task must have been, how much more difficult must be any detailed analysis of the facts she presents in that publication. Moreover, it is virtually impossible to describe in a single review the multiplicity of complications which arise in the State-by-State coordination of operations required to administer the factors and conditions separately presented in that comparison. The situation is further complicated by eleemosynary purposes attached to the unemployment compensation systems in the minds of some responsible for administration and operation of the system. It cannot be proved, but it is obvious after a penetrating study, that this may be one of the prime causes for failure of the system, as expressed in the preambles to S. 3244 of the last Congress and S. 791 of this session. If unemployment compensation is to be a system of insurance, as present nomenclature implies, then hard cold facts and not wishful thinking must govern future decisions, and policies. If the standard is adopted by Congress that the weekly benefit rate shall be at least 50 percent of the beneficiary's nominal or average weekly pay, then the weekly rate should be limited by the taxable maximum specified in section 3306(b)(1) of the Internal Revenue Code. The minimum standard, if there is to be one, should specify one-half of 1/52d of the taxable maximum, and not some theoretical index derived by statistical manipulation of unrelated data of all wages, however high they may be. Governors of several of the States have declared that each State should be allowed to set its own standards "governing eligibility, duration or the amount of benefits." This is a valid purpose, if applied equitably. But not all States practice the principle of equity in benefit allowances. Some States like New York predicate benefits on wages in a manner inversely proportional to the length of time worked in the base period. This is the so-called uniform duration type benefit formula. Under such it may be possible to get 26 or even 39 weeks of benefits of only 20 weeks of work. In fact, this is what the so-called minimum standards of S. 791 would require of all States. I want at this point to call to the attention of the Members of Congress the implications of a variable ratio of benefit allowances in any State on the basis of taxable wages. It is not beyond the possible for some aggrieved beneficiary, whose benefit allowance does not match that of another, to take his case to the Supreme Court, if he has the financial means and the will to so do. This could rest on the precedent set by the decision in Lane v. Wilson, 307 U.S. 268, at page 275, wherein it was said by the Court that the Constitution, "nullifies sophisticated as well as simple-minded modes of discrimination." Then there is the question of extra unemployment compensation allowances for dependents. When was it concluded that business, in addition to being accountable for unemployment, must also be held accountable for the size of a worker's family? The support of dependents in need is already accounted for in other titles of the original Social Security Act of 1935, now administered by the Department of Health, Education, and Welfare. Why the duplication of effort and purpose? This might be considered to be a "simple-minded mode of unemployment compensation discrimination." Finally, on this subject, the code itself now provides a form of sophisticated discrimination in paragraph (C) of 3304(a) (5). Under this provision the States have a requirement that practically forces them to deny benefits, if a job is refused wherein one of the requirements is that of joining a bona fide labor union. The Congress is strongly urged to eliminate the words "a company" and substitute the word "any." The possibilities of pressure from vested labor and political interests on minor subordinate administration of nonmonetary determinations is too obvious to be denied. Another misconception of the function of the unemployed compensation system is the assumption that the system was originally designed to be a subsidy for seasonality. Nothing could be more in error. The sytsem was sold to the Nation in 1935 as a valid means of security against what my generation went through after 1929. Yet up to 1954 less than half the taxes paid from 1936 on remained in the fund. The Bureau of Employment Security furnished these data: Deposits, January 1936 to November 1953. Source: BES. $18,501, 766, 000 1,694, 666, 000 11, 301, 600, 000 8, 894, 832, 000 My 1954 paper contains this comment: "Operations experience since 1939 has been convincing enough to cause a turn in explanation of purpose. Today the fund is expected to protect passing, casual, and seasonal unemployment, year after year. Thus, the change in social engineering philosophy is a factor affecting the funding of unemployment compensation." In this connection I want to raise the flag of caution toward the wishes of the eight Governors who met with the President. They favor "Federal advances to meet emergencies where the problems of unemployment are beyond the ability of the State governments." It could not be assumed under any circumstances that Congress would not require that such underwriting of State funds be secured by future premium rates on the businesses of the particular State. If the States want the discretion of setting their own standards of income and benefits, then they should also match such standards with means of preventing insolvency. Again I quote my 1954 paper: "Thus 'living within means' is an important consideration. If high tax rates are resisted, then high benefit rates cannot be permitted. On the other hand, if high benefit rates are demanded, then the only recourse is high tax rates." In all my experience in receiving pertinent communications from Washington, I do not ever recall reading any such advice from the responsible agency of the time. It should therefore be the purpose of the present Congress to find out if there ever were any confidential communications to States like Rhode Island (they were the first to plug for Federal underwriting) before they reached the condition of insolvency which stimulated help desire. The power of persuasion in the Federal agency has always been considerable. It remains to be learned whether the old Social Security Board and its successor had it in their powers, granted by Congresses of the past, to prevent insolvency of State funds. If one were to gage from past literature, out of the tons and tons which circulated between the State capitals and Washington, one could reach the conclusion that the Federal agency is equally responsible with the States for having played one against the other in the race to see who could become the most "liberal" the soonest. Resistance from Washington against "experience rating" and the imposition of workers contributions was not difficult to read between the lines when not directly stated. Yet the last mentioned could have saved every State fund that is now facing insolvency from that fate. The relatively low ratio of contributions to taxable wages is a good indication of how many businesses have had only a limited need for the protection of their employees against the probability of unemployment. But the pressure of vested interests has prevented the maintenance of State funds that would meet the last recession, by preventing the imposition of penalty contribution rates on seasonal industries in prosperous times. Such seasonal industries are now know to be overdrawn and in the red by amounts in excess of half a year's taxable wage. The responsibility for this state of affairs rests squarely on the legislatures of the States. The hard cold facts are that we may expect more of the same urge to get something for nothing unless Congress steps in to save the system from disrepute. There are those who are in it for all they can get who would cry to high heaven if someone at the track were to get a free ticket on the 15-to-1 shot sure thing out of their money. Yet they cry out in anguish when asked to contribute 1 percent each year to help provide for the 30 percent potential benefit rate they annually receive. Meanwhile those whose wages are taxed for every quarter of every year have their benefits limited to the equivalent of only three of the quarters in the last of the 10 years of their constantly taxed employment. These latter looked upon the system as a racket and have said so when the occasion arose. Finally there are those who walk away in disgust rather than stand in line in the dole-handout atmosphere of the local employment office. Thus the system is failing to protect those who have made the best contribution to our national progress and rising level of living. Congress can stop the system from continuing to be a political football by simply refusing to be told by vested interests, either directly or by implication of submitting a bill by request-do this or else. It is not my purpose to point the finger to show how little political profit there was in becoming liberal by request. There is one State where the Governor and the legislature collaborated to provide one of the most liberal benefit laws of the country. Within 4 years after they had done this under great pressure from vested interests the political complexion of the office of the Governor and one branch of the legislature was reversed. This has not stopped the vested interests from continuing to cry for more. Considering the type of legislation proposed in this and the last Congress it would appear that the same interests have now put the same kind of pressure on the national scene, judging by the character of the proposals, as has no doubt been resisted of late on the State level. In retrospect we now know that the original legislation of 1935 was not as good as it should have been and we forgive the planners because they had nothing to guide them in their designs. The Congress of that early date must of course bear the responsibility for what happened. Since then we have accumulated 20 years of learning what not to do, in the unemployment compensation field. Therefore the present Congress must now bear the responsibility for putting the unemployment compensation house in order by improving on what its predecessors have done, using the experience of the interim. But this Congress like all others must rely on secondary information and in the process try to reason backward in the impossible process of reverse logic, in speculation of how the many factors which produced the evident result, operated with and against each other, in a myriad of combinations. How then can the Congress extract itself from the unenviable position of frustration? One could find dozens of reliable researchers in key positions within the State agencies, where statistics in the raw are analyzed. The only safeguard needed among them is elimination of those whose ideological bias has prevented their understanding the significance of what they saw and know. Having occupied a key position where less than complete understanding of the significance observed data and operational phenomina was an invitation to professional repudiation, I now have little difficulty in arriving at conclusions of interest to the Congress and of visualizing key concepts applicable to legislative process. Since I do not expect an invitation to demonstrate graphically the processes of logic which lead to my conclusions, I ask the Members of Congress to accept the end-product without the benefit of proof. On the assumption that it will be up to Congress to do for the States what they are not able to do for themselves, for a variety of reasons, I submit respectfully to you a seven-point program for conversion into appropriate legislation. I recommend that these be incorporated into section 3304 of the Internal Revenue Code. The CHAIRMAN. Our next witness is Mr. R. T. Compton, representing the National Association of Manufacturers. Mr. Compton, would you please come forward? You have appeared before the committee on other occasions in the past but for this record will you identify yourself again? STATEMENT OF R. T. COMPTON, NATIONAL ASSOCIATION OF Mr. COMPTON. My name is R. T. Compton, and I appreciate the opportunity to express here the viewpoint of the National Association of Manufacturers. I realize these hearings have been long and arduous and the ground has been plowed and harrowed to the point to where it almost becomes harrowing. For that reason I would like to place my statement in the record and read bits of it and comment about it. I might say for the record that part of the views that I express will be those of the association and part will inevitably be my own, since no association policies can completely cover ground as broad as this. Lest there be any mistake as to which is the association's position and which is mine, I would like to place in the record and I have it in the statement, all the positions of the association relevant to the subject. The CHAIRMAN. Without objection, Mr. Compton, your entire statement will appear in the record at the conclusion of your testimony. You are recognized to proceed as you desire. Mr. COMPTON. Thank you. I might say with respect to these statements that I am putting in the record, some of these sound like recommendations for State legislation and, in a general way they express a viewpoint about unemployment compensation which, of course, is operated under State laws. I would like to say that the National Association of Manufacturers does not engage in any State legislative activities of any kind, doesn't |