(The following statement was submitted for the record:)

STATEMENT OF GEORGE R. LESAUVAGE, ON BEHALF OF THE NATIONAL RESTAURANT ASSOCIATION

My name is George R. LeSauvage. I am chairman of the Government affairs committee of the National Restaurant Association. Eighty State and local restaurant associations have authorized our association to represent them in national affairs. I, therefore, speak for 180,000 public eating establishments doing about 80 percent of total volume of restaurant business in the country. Primarily our business is small business. Most restaurants are individually owned. We as an industry are an excellent example of the American free-enterprise system. The restaurant industry is interested in a sound social-security program. We are, however, concerned about the many problems with which we would be faced if bill H. R. 6000 is enacted in its present form.

WITHHOLDING TAX ON TIPS

Bill H. R. 6000, at page 169, amends the Internal Revenue Code with reference to withholding tax by employers. Line 24 contains a provision that tips "customarily received by an employee in the course of his employment *sha'l

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be considered as remuneration paid to him by his employer." Such a definition of "tips" goes way beyond the original intent of the withholding tax law. The term "withholding" means to "hold back." The theory of withholding tax was that an employer would "hold back" wages of an employee approximately equal to such employee's income tax. In view of the fact that tips which an employce receives are not given to the employer, it becomes impossible to "withhold" something which the employer never has.

An exception is provided in H. R. 6000 that only such amount of tips as the cmployee reports in writing each quarter shall be so considered as wages. However, this exception does not help the problem but, on the contrary, sets up a whole series of possibilities for confusion. For example: Let us assume an employee received $20 a week in tips and reports at the end of the quarter the receipt of tips in the total sum for that period of $260 (13 weeks at $20). Let us assume further that at the same time he gives the report to his employerhe also quits his job. The questions that come up under such a situation are: Does the employer have to pay the amount of the withholding tax on such reported tips? The withholding tax could amount to over $70. Does the employer have to hold back other wages due the employee to cover the amount of withholding tax on tips? What about the employees who quit their job before the quarter and at the quarter period report tips received to their employers? If such tips are considered wages the employer would be obligated to pay the withholding tax to the Government out of his own pocket. Any attempt to make an employer pay withholding tax on tips puts that employer in the position of a policeman. This would cause the poorest of employeremployee relations. We in the restaurant industry are proud of our fine conscientious employees. It is true that many receive tips for giving courteous service to the public. The American public insists upon their right to tiu. Attempts to abolish tipping almost invariably have failed. As an industry we must recognize this fact. We believe that the vast majority of our restaurant employees want to pay their just share of income tax. We also believe that the vast majority are reporting the amount of tips on their income-tax returns. It seems most unwise to change the law on withholding just because a small number of tip-receiving employees are attempting to escape payment of a just tax. The complications which would ensue would far outnumber any benefits derived.

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TIPS AS WAGES

H. R. 6000 at page 132, line 22, charges the definition of wages to include “tips received by an employee from persons other than the person employing him and shall be considered as remunerations paid to him by his employer." The effect of this change would be to increase the amount of tax paid by both the employer and the employee. Here again an exception is provided that tips will be considered wages only if the amount is reported in writing each quarter to the employer. Again the employer is put into the embarrassing position of prying into the employees' personal affairs. Employees receiving tips are extremely reluctant in divulging tip information to their employers. Employers are of the opinion that they have no right to ask their employees for information on tips.

We, from the restaurant industry, are opposed to the taxation of an employee's income arising from tips for social-security purposes. None of the 2,000,000 employees in this industry are asking for this change. It therefore seems unwise to complicate an already complex law with more complexities.

INSURANCE OR DOLE

Title II of the Social Security Act is entitled "Old Age and Survivors Insurance Benefits Payments." The use of the word "insurance" in this title can be questioned. The word "insurance" means "a contract whereby one party undertakes to indemnify another against loss by the happening of a contingent event." People believe that when they have life insurance a specific sum will be paid in the event of death. Most people believe that the social-security laws will pay a specific sum to their children in the event of death. They believe deductions are made from their wages to accomplish this purpose. In actual practice this is not true. Under the law, benefits are not paid children under 18 years if such child earns in excess of $14.99 in any month. In other words, the ambitious child who wants to work is penalized. A child is rewarded for being lazy. I understand the average benefit for a child under 18 years is about $15 per month. If the child is energetic and wants to pick up extra spending money he must check his ambition when his pay gets up to $14.99 per month. One penny over the amount means he loses the $15 per month from the Government and his work for the month has been for nothing.

CONCLUSION

The restaurant industry has many benefit programs offered employees. We, as an industry, have found great advantages in setting up group-insurance plans, hospitalization programs, health and accident provisions. Pension plans are also coming into greater prominence in our industry. We, as an industry, know the value of giving the employee a feeling of security. In our opinion, planning of this type should fall within the scope of good employee-employer relations. Expansion of Federal legislation on this score complicates our Government and departs from the fundamental concept of that government, which governs least, governs best.

In conclusion, we wish to invite your attention to the situation as it exists in the restaurant business today, and that is, for several months there has been a steady decline in the volume of business. The cost of doing business has decreased very little so that any added cost will be of serious import to the restaurant business.

The CHAIRMAN. Dr. Alexander? Doctor, you are appearing for the relief and annuity board of the Southern Baptist Convention?

STATEMENT OF DR. WALTER R. ALEXANDER, EXECUTIVE SECRETARY, RELIEF AND ANNUITY BOARD OF THE SOUTHERN BAPTIST CONVENTION, DALLAS, TEX.

Dr. ALEXANDER. Yes, sir.

The CHAIRMAN. You may have a seat if you wish, Doctor. We will be glad to hear you.

Dr. ALEXANDER. I thought I would conserve your time if I reduced everything to writing. I will not read all of this, but I would be pleased if you would follow it as I proceed to read most of it.

Before proceeding with any formal statement, permit a very sincere word of appreciation for the privilege thus extended me. That word I express for the more than 612 million members of the denomination I represent in my official capacity. I am Walter R. Alexander, executive secretary of the relief and annuity board of the Southern Baptist. Convention. This denominational board has its headquarters in Dallas, Tex., by which State it was chartered as an eleemosynary in

stitution in 1918. It is the pension board of Southern Baptists, operated by and answerable to that great Christian body. They hold membership in more than 27,000 Baptist churches dotting the land from Maryland to Florida, down the Atlantic seaboard, thence westward to the Pacific coast, including California and Oregon-22 States in all, and the District of Columbia.

The functions of this board are twofold. It extends relief, in the form of direct financial grants, to aged Baptist ministers and their wives, and to the widows and orphans of Baptist ministers. In so doing, it disburses denominational funds designated for the financial relief of these aged individuals who served for the most part on very modest salaries in other days before the retirement plans of the board had been instituted. For the past 10 to 15 years, the board has been operating retirement plans looking toward age annuities, with disability provisions, for all servants of the denomination. Its major plan is designed for the ordained ministers, pastors of churches. Into that plan, the Baptist minister pays 3 percent of his salary as dues, his church or churches contributing a like amount, these totals supplemented by denominational funds. In addition to this, the ministers' retirement plan, through which more than 11,000 Baptist preachers are participating, together with more than 12,000 Baptist churches, our board operates other contributory retirement plans: One for the employees of all south-wide denominational boards, institutions, and agencies; one for the employees of our Baptist orphanages; another for employees of our Baptist hospitals; another for the faculties and staffs of our Baptist schools and colleges; and still another entitled the "Age security plan," designed for lay church workers. Some of these plans are on a voluntary basis, although more and more employers are now making participation mandatory upon all new employees. These plans are meeting with increasing favor and are growing rapidly in the extent of their coverage. In all, over 26,000 certificates of participation have been issued to date. Southern Baptists offer, through the board I represent, the coverage of a contributory retirement plan to every salaried employee of the denomination, without regard to race, sex, age, or type of service rendered, and whether ordained or lay.

Several times in the past years, amendments to the original Social Security Act of 1935 have been considered by the Congress. Each time, Southern Baptists, along with other great denominations of America, have urged that no amendment be passed that would, to the least degree, or in any sense, violate the American principle of the separation of church and state, contrary to the spirit of the first amendment to the Constitution of the United States. In the Southern Baptist Annual for 1940 appear these words as the expression of the Southern Baptist Convention:

Baptists believe in social security for the American people. They have advocated it for many years. Their several retirement plans are evidence of their be lief in the plan of social security and of their desire to secure the application of this principle in behalf of all the workers in all the estates of the denomination, none of which are covered by the Federal Social Security Act. Baptists desire that the Government shall not amend the Social Security Act in any way that would result in an infringement upon our religious liberty. * * We are informed that Congress does not desire to disturb the churches and church institutions by placing a tax upon them and their employees for social security yet much pressure is being brought to bear upon the Government

to extend the coverage of the Social Security Act to employees of tax-exempt agencies.

The foregoing, expressed at the time the Walsh amendment was pending in the Senate, is a true expression of Southern Baptist convictions today, and remains applicable, although nearly 10 years have passed. Up to the present time, employees of nonprofit organizations have been excluded from the coverage of the Social Security Act. To be more specific, the services excluded are those performed by "(1) employees of nonprofit organizations organized and operated exclusively for religious, charitable, scientific, literary, educational, or humane purposes, if the organization does not engage substantially in propaganda or other activities designed to influence legislation" (Social Security Revision, p. 3, hearings before the Committee on Finance, U. S. Senate, 81st Cong., 2d sess., on H. R. 6000, pt. I, Testimony and Recommendations by the Social Security Administration, January 17, 18, 19, and 20, 1950).

Under the bill now being considered, H. R. 6000—and again I quote

all services excluded under present law are covered except services performed by (1) ministers and members of religious orders

et cetera.

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Baptists have no members of religious orders, but we do have thousands of denominational servants, ordained and unordained-employees of churches, boards, institutions, and agencies. Under the terms of H. R. 6000, and as recommended by the Advisory Council, these would be covered automatically. This would mean (1) that, in the future, the function of providing for the economic security of employees of churches, denominational organizations, and other institutions of religion would be taken away from these groups and be made the function of the State; (2) that the churches and their institutions would be taxed by the State for the support of its social-security program; (3) that the door would be open for the punitive coercion of the churches by the State in the enforcement of its regulations; and (4) it involves the individual workers of the churches in a direct economic dependence upon the State that will tend to dull religious conviction and stifle independent, conscientious action.

Baptists still believe that the church is not in the same category as the economic corporation, that it is the voice of God in the world, and that its spiritual function becomes impossible when its organization and methods are controlled by the State, or when it becomes economically dependent upon any other group whatsoever. The church must remain free from entangling alliances if it is to continue its function as the voice of God in human society.

It should be noted here that H. R. 6000 makes an interesting and appreciated concession. It calls for contributions by employees of nonprofit organizations on a compulsory basis, permitting contributions made by the employer to be on a voluntary basis. To many people, this provision may appear to keep well defined that line of demarcation between church and state. In its practical application, however, it remains our conviction this would not be the case. There would soon be brought to bear upon nonparticipating employers a series of pressures-pressures that would intensify rather than diminish as the years pass. The demands of employees would be one

such pressure; public opinion, another; and sooner or later, the pressure of governmental authority. Participation upon the part of the employer would cease to be voluntary, except in theory, for such pressure would become practically coercive.

If and when such pressure upon the employer becomes coercive, the rights of freemen, guaranteed under the first amendment, are abridged. If not coercive, the employer, in the case of many of our Baptist institutions and agencies, will choose not to pay the employer's share of the tax; thus, the benefits accruing to the employee under the bill would be greatly reduced, for the bill further stipulates thatif the employer does not elect to pay the employer's contribution, only one-half of the employee's wages will be credited toward benefits.

The Advisory Council has recommended inclusion of the employees of nonprofit organizations—and I quote—

to assist these institutions in fulfilling their purpose.

I submit to you gentlemen that, with benefits accruing to the employee greatly reduced, these institutions would not be fulfilling their pur pose nearly so well as they are fulfilling it under existing conditions; for, in every case thus far in the administration of our plans for the lay employees of our denomination, the employer has agreed to, and is, matching the employee's money. Where the employee pays 3 percent of his salary, the employer contributes 3 percent; where the employee pays 4 percent, the employer contributes 4 percent; where the employee pays 5 percent, the employer matches his money.

Senator KERR. May I inquire, at that point: If I understand your statement correctly, you are advising the committee that your plan covers all of the employees of your organization, and that these items you give us, here, represent the minimum which is being received by them.

Dr. ALEXANDER. You mean these percentages I just referred to, Senator Kerr?

Senator KERR. Yes. All of the employees are in one of those three classifications?

Dr. ALEXANDER. I cannot truthfully say they are all in any plan. There are plans for all, and the majority are in, and the others are coming in rapidly. They are not all, as individuals, covered, but all covered are in one of those three classifications.

Senator TAFT. It is optional?

Dr. ALEXANDER. Yes, sir. Some plans are, and some are not. Now, the employers are making it mandatory for new employees but optional with those in the employ when the plan was inaugurated. Do I make myself clear?

The CHAIRMAN. But all the employees are eligible if they wish to come in?

Dr. ALEXANDER. Yes, sir, and we have a plan to cover every individual. There is no one omitted.

Senator KERR. And it is available to every employee: mandatory with reference to new ones, optional with reference to the old ones. Dr. ALEXANDER. Generally speaking, that is the case. Now, there are a few minor exceptions. I can't say "Yes" or "No" as covering every individual.

Senator KERR. But generally?