Some persons receive benefits from the old-age and survivor's insurance system even though they have paid no premiums. Others who have paid premiums discover they have no cash surrender value; and for them or their heirs the policy may never mature. Persons paying identical taxes may secure different benefits.

Since the system is based on compulsion and the investments are always in nonproductive enterprises, the normal economic controls for efficient manage ment are lacking.

Political factors tend to encourage the belief that the system is morally and financially sound, and that it will provide greater benefits than could be achieved under noncompulsory coverage.

In view of the inadequacies in many of the basic provisions of the existing social security program, it seems entirely clear that major changes should not be made in the program until Congress has determined whether the program as now constituted is, in fact, calculated to provide a sound public aid and retirement system for the American people, and has made recommendations regarding such changes in said program as the congressional inquiry may indicate to be necessary.

The Illinois Manufacturers' Association accordingly recommends that Congress defer action on H. R. 6000 pending a thorough congressional inquiry into the problem of social security. The association submits that such congressional inquiry should include a study of the following factors:

(1) The extent of the financial obligation which has been incurred by the Federal Government under the existing Federal social security program. (2) A determination of the dependability of the payment of benefits to the American people promised by the social security program.

(3) The relationship of the social security program to other forms of public assistance-Federal, State, and local.

(4) The use of the funds collected under the social security program by the Federal Government.

(5) The relationship between the benefits received and the taxes paid by the various classes of beneficiaries under the social security program.

(6) The influence, present and potential, of the social security program upon our American economy.

(7) The extent to which political expediency, instead of sound financial considerations and the ultimate welfare of the beneficiaries, has influenced the development of the social security program.

(8) An investigation of the manner in which the social security program is being administered.

In event, notwithstanding the representations of the Illinois Manufacturers' Association, Congress elects to proceed with the consideration of H. R. 6000, before making the proposed inquiry, the committee submits the following recommendations in relation to certain specific provisions of said proposal:

(1) The inclusion of the provision for the payment of benefits to individuals who have been permanently and totally disabled should be opposed.

Permanent and total disability is a specialized form of coverage which has no relationship to the problem of benefits for aged persons. The problem of permanent and total disability insurance is not national in scope.

Funds for permanent and total disability benefits provided by this program must come from pay-roll taxes in the States. There is no sound reason for collecting and dispensing this tax on a Federal level.

The proposal to collect pay-roll taxes for old-age and survivors' insurance and then divert those taxes to pay "permanent and total disability" benefits is wrong in principle.

(2) The new definition of "employment," which includes all types of workers, irrespective of their status or need for coverage, is too broad and should be eliminated.

The proposal to enlarge the definition of employment to include new groups of individuals, when the soundness of the existing system is open to question, is unwise.

(3) The proposed definition of "employee" is objectionable.

The bill, after enumerating new classes of employees to be covered by the act, establishes "seven combined tests" for determining what additional classes of workers might be defined as employees and brought under the provisions of the act. These tests, which, it is submitted give unnecessary discretion to the Social Security Agency, are: (a) Control over the individual, (b) permanency of the relationship, (c) regularity and frequency of

performance of the service, (d) integration of the individual's work in the business to which he renders services, (e) lack of skill required of the individual, (f) lack of investment by the individual.

(4) The proposed change in the maximum wages to be taxed from the present $3,000 to a new maximum of $3,600, is objectionable. This plan contemplates an increase in the tax burden upon the individuals involved without a corresponding increase in benefits.

A new, higher taxable wage base of $3,600 in place of the present $3,000 base would mean a hidden tax increase on top of another admitted taxrate increase for old-age and survivors' insurance. The basic level of benefits neither requires nor should it place a greater burden on one wage earner than another, unless comparable benefits are assured. The conflict of this proposed wage base with unemployment compensation and private retirement plans involves serious difficulties which should be avoided. (5) The tax rates contemplated by the existing law are adequate and should not be increased.

The original tax rate of 1 percent each on employer and employee for old-age and survivors' insurance was increased to 12 percent on January 1, 1950. The existing law provides that the rate be increased to 2 percent on the employer and employee on January 1, 1952. This 100-percent increase in tax revenue is adequate for the foreseeable future. The proposal in H. R. 6000 to raise the rates on both the employer and employee to 2 percent for 1951-59, 21⁄2 percent for 1960-64, 3 percent for 1965-69, and 34 percent thereafter is based upon an unrealistic and unsound estimate of the future cost of the old-age and survivors' insurance program.

(6) The act should not be extended to include Puerto Rico and the Virgin Islands.

The system as conceived, financed, and administered is designed for the economy of continental United States and not for nonindustrial economies. Puerto Rico and the Virgin Islands have a low standard of living compared: to the 48 States. In many cases, the problem of the individual would be to earn enough in wages to qualify for old-age benefits. The proposed minimum benefits would guarantee a disproportionately large proportion of the normal wage. This would improperly divert funds to those nonindustrial areas. (7) The proposed method of determining the average monthly wage is undesirable.

The present method of determining said wage is more realistic than is the proposed method in relation to the contributions which are made to the national production by each covered worker and should be retained.

The present formula is direct, and easily understood. The new formula is involved and difficult.

(8) The proposed changes in the lump-sum death-benefit provision of the act are unreasonable and inconsistent with the purported purpose of the act.

Lump-sum death benefits, equaling six times the worker's primary monthly benefit amount, are now paid only when no survivor of the deceased is immediately eligible for monthly benefits. The proposal in H. R. 6000 to pay lump-sum death benefits equaling three times the primary-benefit amount, irrespective of the payment of monthly benefits to a survivor of the worker, projects the Federal Government into the field of burial insurance and represents an unreasonable extension of the coverage of the act.

(9) Public assistance should be the responsibility of State government. Federal participation, supervision, and direction of such services should be

discontinued.

When enacted, the Social Security Act, and particularly the old-age and survivors insurance program, was intended to eventually supplant direct types of State public aid. The act has not accomplished its original purpose in this regard.

Public-aid programs are essentially local in character. They do not constitute a national problem or require handling on a national scale. The Federal Government should withdraw from this field.

Respectfully submitted.

JAMES L. DONNELLY,

Executive Vice President, Illinois Manufacturers' Association. The CHAIRMAN. I will call the only other witness listed for this morning, Mr. Carl K. Schmidt, Jr., executive secretary of the Illinois Public Aid Commission.

STATEMENT OF CARL K. SCHMIDT, JR., EXECUTIVE SECRETARY, ILLINOIS PUBLIC AID COMMISSION, CHICAGO, ILL.

Mr. SCHMIDT. I am here, Mr. Chairman.

The CHAIRMAN. Will you come around, Mr. Schmidt?

There were two or three other witnesses listed for the morning, from the NAM, and the clerk advises me that the principal witness, who was expected to give us a rather full review of the bill, has canceled his engagement for some reason. So you seem to be the only witness present this morning. Will you identify yourself, please, sir, for the record?

Mr. SCHMIDT. My name is Carl K. Schmidt, Jr. I am executive secretary of the Illinois Public Aid Commission.

Senator MILLIKIN. What is the Illinois Public Aid Commission? Mr. SCHMIDT. The Illinois Public Aid Commission administers directly the old-age-assistance, aid-to-dependent-children, and blindassistance programs in Illinois, and supervises the administration of general assistance through some 1,455 local governmental units. Of these it supervises directly the ones which receive State relief funds. The CHAIRMAN. We will be glad to hear you on this bill.

Mr. SCHMIDT. Mr. Chairman and members of the committee, at the present time there are about 342,000 persons receiving assistance in one form or another in the State of Illinois, and the cost is running somewhere between $11,500,000 and $12,000,000 a month. In the summer of 1945 the number of persons reached a low point and has been increasing steadily since that time, with seasonal changes.

In considering the problem of dependency, I feel very strongly that the primary responsibility for obtaining security against the risks of present-day living rests with the individual, his own energy, his own initiative, and his own resourcefulness. However, in the American economy and society of the present day and the foreseeable future there are large numbers of the population who may, for reasons mostly beyond their control, be deprived of income sufficient for a livelihood consistent with decency and health at American standards.

I consider these major risks as loss of employment in times of business decline or readjustment; loss of employment due to sickness, disability in old age, or other handicap; the possibility of voluntary savings being inadequate to meet the costs of necessary medical care, or the basic maintenance requirements of the individual and his dependents upon his retirement or death; and the inability of some individuals, because of various physical, mental, or personal limitations, to provide an adequate livelihood for themselves and their dependents or to solve in a manner acceptable to society the personal and social problems with which they are confronted.

The general welfare requires that the whole society, through the instrumentality of government, provide for preventing dependency, destitution, and social maladjustment due to these causes, and that it alleviate such destitution, dependency, and social maladjustment whenever and wherever it cannot be prevented.

Responsibility for preventing and alleviating dependency, destitution, and social maladjustment, and promoting the general welfare is of concern to the National Government as well as to State and local governments. The United States is a nation as well as a federation

of diverse States and of localities of citizens with their local governments, local needs, standards, and philosophies.

It is fundamental, therefore, that the Federal, State, and local governments participate jointly in meeting present-day welfare problems and in assisting the average American citizen in safeguarding himself against the economic and social risks that confront him. The distribution of responsibility among the various levels of government, however, should be subject to adjustment in the light of experience and in the light of changing conditions in the economy.

With regard to insurance provisions, a broad principle might be stated as follows: That the economic risk of income losses due to unemployment in old age, should be pooled through a system or systems of contributions by employees and employers; that such system or systems should be self-supporting; that the benefits thus established should be made available to all qualified individuals as matter of right, without personal investigation or subjection to a "means test"; that so far as they can be financed through the contributions received the benefit rates should be established at a level sufficient to meet average needs in the contingency; that such system or systems should be compulsory both for the protection of the individual and the whole society; and that such system or systems should properly constitute the primary provision against dependency.

The present Federal Social Security Act and also H. R. 6000 fall short of carrying out this principle. Large numbers of the population who are most in need of protection against income losses are not covered, in particular: Agricultural workers, all domestics, taxi drivers, and other groups whose incomes generally fall in the lower brackets. Failure to include these groups accounts in large measure for the size of the public assistance load in States which have a large rural population.

Senator MILLIKIN. Mr. Chairman, may I interrupt, please?
The CHAIRMAN. Yes.

Senator MILLIKIN. I think it has been the experience of the members of this committee that we have had remarkably few requests from farm workers and domestic workers to be covered by this system. Our mail is usually a pretty good barometer of what people are thinking. How do you account for that?

Now, of course, some of the farm organizations have come out. There is not any particular smoke or steam coming out of their shoes as they rush here to tell us about it. But as far as the grass-roots expression, the desire to be covered by farm workers or domestics, is concerned, I believe I am safe in saying that the members of the committee have had very, very little correspondence. How do you account for that?

Mr. SCHMIDT. I don't think I can account for that, Senator. I don't know why they haven't come forth and made their wishes known, if they have wishes, in this direction.

Senator KERR. Is it possible that they do not have the knowledge that the opportunity is available to them to make such wishes known? Mr. SCHMIDT. I have heard that stated. And when you ask, "Is it possible?"-I would say it is possible. It may be probable.

Continuing: Admittedly, inclusion of these groups presents administrative difficulties, but the principle of compulsory social insurance categorically assumes universal coverage, with no exceptions. If it

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is valid to compel some groups to contribute toward the contingency of dependency, it is valid to compel all other groups to contribute toward the same contingency.

It is recommended that all groups now excluded should be included, especially agricultural workers, farmers, and domestics not covered by the present bill.

The CHAIRMAN. Do you think all self-employed should be compelled to come into the system? Have you thought of that yet?

Mr. SCHMIDT. Yes; I have thought of it.

The CHAIRMAN. And have you any comments to make on it? I am speaking now of the self-employed.

Mr. SCHMIDT. I admit the administrative difficulties of administering a program covering the self-employed, but I think that they can be worked out, and that if they can they should be covered.

Senator MILLIKIN. What is your philosophical basis for that, keeping in mind that we are setting up a system to take care of the worker; on the theory that the worker, for the reasons you have stated, is not able to protect himself under all of the contingencies of modern industrial life. Bring yourself over, now, to the self-employed, and give us your philosophy as to that.

Mr. SCHMIDT. It is my feeling that the self-employed person falls much into the same category as the worker; that he bears the same. risk of going out of business or not making enough to provide himself with savings to take care of himself in his old age. And to the extent that that is true, with these many self-employed people-we have in Illinois 130,000 persons on old-age assistance. When we have a group of persons that large, many of whom have been self-employed persons in the past, who have not saved enough money to take care of themselves, or who felt that they could not and still maintain their standard of living that they thought they should have

Senator MILLIKIN. You have said something very interesting. What percentage of the persons on public assistance in Illinois were formerly self-employed?

Mr. SCHMIDT. That percentage I don't have before me.
Senator MILLIKIN. Can you get it?

Mr. SCHMIDT. Not readily.

Senator MILLIKIN. I think we should have dependable figures on that, Senator.

Senator KERR. I think it would be most interesting if we could have a tabulation showing the relative comparative percentage of those now on assistance rolls who were formerly self-employed, as related to those on the assistance rolls who were formerly workers.

Senator MILLIKIN. I think it goes to the heart of it, Senator.

Mr. SCHMIDT. I think it would provide a very good bit of information for you, if you had that.

Senator MILLIKIN. Will you try to get it for us?

Mr. SCHMIDT. Yes, sir: I will.

(The information follows at this point:)

We do not have currently available first-hand information concerning persons now receiving old-age assistance in Illinois who were formerly self-employed, but we are now making such a study in cooperation with the Federal Bureau of Public Assistance and the Federal Bureau of Old-Age and Survivors InsurOn my earlier point on the importance of including agricultural workers, I should like to add that as of August 1944, about 12 percent of our old-age rolls in Illinois were formerly agricultural workers. At that time there were 15,750 former agricultural workers on our rolls then totaling 125,950.

ance.