Senator MILLIKIN. I see. What percentage of your revenues in Illinois is devoted to welfare? Mr. SCHMIDT. Approximately 20 percent. Senator MILLIKIN. I mean your State revenues. Mr. SCHMIDT. Right. We have a $265,000,000 biennium budget, which is approximately 20 percent of the total. The CHAIRMAN. Thank you very much, Mr. Schmidt, for your appearance. The other witnesses who were scheduled for today are not here, and we have no one else, then, to hear this morning. The committee will recess until tomorrow morning at 10 o'clock. (At the request of Senator Millikin, the following letter is inserted in the record:) Hon. EUGENE D. MILLIKIN, HOUSE OF REPRESENTATIVES, Washington, D. C., February 28, 1950. United States Senate, Washington, D. C. DEAR SENATOR MILLIKIN: In further reply to your letter of February 8, I am glad to provide you with a statement on the so-called gross income tax that has been the principal source of revenue in the Territory of Hawaii for 15 years. I am indebted to the Legislative Reference Bureau of the Territory of Hawaii for this information, and therefore am certain that it is up to date and authentic. "Hawaii's general excise (gross income) tax is a comprehensive turn-over tax levied on virtually all sales of goods and services in the Territory. Origi nally enacted in 1935, the general excise tax is the chief source of Territorial revenue in Hawaii. During the fiscal year ended June 30, 1949, it yielded $26,152,000, approximately 40 percent of all Territorial tax collections. The general excise is buttressed by two auxiliary taxes, designed to minimize avoidance of the general excise: (i) a consumption tax, similar to the use taxes imposed by several mainland States; (ii) a compensating tax levied on purchases made through sales representatives and manufacturers' agents. Personal compensation is not taxed under the genral excise, but rather under separate Territorial taxes a net income tax and a compensation-dividends tax. "A. Tax base and legal incidence.-The general excise tax is levied on the gross receipts of persons licensed under this tax law to do business in Hawaii. All such receipts, except for those of persons or firms specially exempted, are taxable. In the case of taxpayers engaged in overseas trade, such as sugar or pineapple firms, the value of shipments prior to their entrance into foreign or interstate commerce is taken as the tax base. "Legally, the general excise is a tax imposed upon the vendor for the privilege of engaging in business in the Territory. No explicit provision for passing the tax on to purchasers is made by law, but vendors are prohibited from holding out to the public that the tax is not included in the price of goods offered for sale. "B. Exemptions.-Persons and firms exempted from the general excise are limited to the following: Banks, public utilities, insurance companies (all subject to special taxes in lieu of the general excise); fraternal benefit societies; associations operated exclusively for religious, charitable, scientific, or educational purposes; business leagues, chambers of commerce, boards of trades, etc., if not operated for profit; hosiptals; nonprofit cemetery associations; agricultural cooperative associations; building and loan associations; and lepers confined to the hospital settlement at Kalawao. In addition, persons with impaired sight are granted special exemptions of $2,000 per annum. "C. Rates. Percent 1. Manufacturing and producing of agricultural commodities (except pine apple and sugar products). 1 2. Wholesaling- 3. Canning and sugar processing_ 4. Retailing and all other types of business not otherwise specified. 5. Blind vendors.. "D. Administration.-The general excise tax is administered by the Territorial Office of the Tax Commissioner. Persons engaging in business are required 1 2 212 1 to obtain a license, paying a yearly fee of $1. Reports of taxable sales and remittances of tax due are made monthly, and a reconciliation form filed annually. "E. Allocation of revenues.—Forty percent of all the general excise, compensating, and consumption taxes which are collected at the rate of 22 percent are allocated among the counties of the Territory in the following proportion: City and county of Honolulu, 55 percent; county of Hawaii, 20 percent; county of Maui, 15 percent; county of Kauai, 10 percent. In the calendar year 1949, the total amount of general excise taxes shared among the counties was $8,420,000. "F. Auxiliary taxes.—(1) Consumption tax: To prevent avoidance of the general excise tax by direct purchase from out-of-Territory sources, a tax of 2% percent is imposed upon goods brought into the Territory for consumption or other use, unless such property is taxed under the general excise tax or compensating tax law. "(2) Compensating tax: A compensating tax is imposed upon purchases of commodities through purchasing agents, manufacturers' representatives, or other intermediaries who are not licensed under the general excise tax. If the purchased is licensed to sell at retail and has purchased the commodity for that purpose, the rate of the tax is 1 percent. In all other cases, the tax is 21⁄2 percent of the purchase price." I appreciate very sincerely your interest in the Territory of Hawaii. Yours sincerely, J. R. FARRINGTON. Delegate from Hawaii. (Whereupon, at 10:35 p. m., the committee recessed to reconvene Friday, February 24, 1950, at 10 a. m.) SOCIAL SECURITY REVISION FRIDAY, FEBRUARY 24, 1950 UNITED STATES SENATE, The committee met at 10 a. m., pursuant to recess, in room 312, Senate Office Building, Senator Walter F. George, chairman, presiding. Present: Senators George, Kerr, Myers, Millikin, Taft, Butler, Brewster, and Martin. Also present: Mrs. Elizabeth B. Springer, chief clerk, and F. F. Fauri, Legislative Reference Service, Library of Congress. The CHAIRMAN. The committee will pleace come to order. Mr. Benson, I believe you are the first witness on the morning's list. You are the president of the National Association of Life Underwriters? STATEMENT OF JUDD C. BENSON, PRESIDENT, NATIONAL ASSOCIATION OF LIFE UNDERWRITERS, NEW YORK, N. Y. Mr. BENSON. Correct, sir. The CHAIRMAN. While the committee has a general idea of what you mean by the National Association of Life Underwriters, will you please indicate to us the nature of the organization, if you do not cover that in your statement? Mr. BENSON. I believe we do not cover it. The National Association of Life Underwriters is the agents' or salesmen's group, and our organization is constituted in this manner: There are 565 local associations, distributed throughout the States, Alaska, and Hawaii, and the National Association of Life Underwriters is actually a federation of the local associations. Together they comprise individual memberships that run about 50,000 to 55,000-about 52,000 as of December 31 last year; that is, paid and of good standing. Senator MILLIKIN. What are the categories of insurance men that one finds in an average community? You have salesmen, and you have agents. Mr. BENSON. Well, I think in our case the words "salesmen" and "agents" are synonymous, Senator. The usual set-up in ordinary insurance in a city involves a manager or general agent, who has agents or salesmen working for him. Characteristically, in the industrial or weekly premium field, the men who operate those offices are known as district agents and they have agents working for them. Senator MILLIKIN. I see. Let me ask you another question. Maybe Senator George is groping for this same thing. There is a definite underwriting function, where you make a contract and somebody underwrites the contract? Mr. BENSON. That is true, Senator, I mean the home office does the underwriting. Senator MILLIKIN. Well, does this organization you are concerned with do that type of underwriting? Mr. BENSON. No, sir. We get the applications, and when you get to the home office the medical department and the so-called underwriting department underwrite them. Senator MILLIKIN. I see. The CHAIRMAN. We will be very glad to hear you, Mr. Benson. Mr. BENSON. If it is agreeable with the chairman and the members of the committee, I do not believe it will be necessary for me to read the prepared statement. If you are willing, I would be glad to comment extemporaneously and make some references to the statement. Is that satisfactory, sir? The CHAIRMAN. Yes, sir; you may do so. Mr. BENSON. I would like to refer back, if I may, to some statements that have been made here, and I believe perhaps we can give the committee some information that might be interesting and helpful that I do not believe has been supplied. I have read each statement that has been submitted to the committee on H. R. 6000, and I will try not to repeat, because I notice that there has been quite a lot of repetition. I would like to indicate this one thing, that I think we are sort of like the hired hand that has been sent out to try out a new combine. Because our members deal each day with social security; that is, we sit down at the dining-room table and explain it to the man who is going to get the benefits. So the first point I would like to bring to you is how the thing actually works. And if I could leave nothing else with the committee, I would like to impress upon you this point, namely, that the contributory structure of the Social Security Act is, in our opinion, a sound structure basically. We agreed with the basic structure when it was originally established. We agreed with it again in 1939. And I would like to, as I said, emphasize the fact that the basic pay-roll tax structure is all right. There have been, I have noted, some observations here that perhaps the whole thing should be, as I think someone used the word, "junked," and that we should start out on a new tack. Now, that upsets us quite considerably, and I would like to point out why. When we go out to talk to a prospect about selling a policy, the No. 1 thing we do is to explain to him in some detail, and map out for him, just how his social security is going to work for him. And what we sell is on top of the basic structure, and we sell the superstructure. Well, during the last 13 years though, of course, I can't give precise figures, we have had 80,000,000 policyholders. Of course, all of those people don't carry enough insurance to have what we call an insurance program; that is, an amount payable at death to take care of expenses and an amount to take care of the wife while the children are growing up. But I would like to offer you the conservative estimate, as an opinion, that somewhere between 10 and 20 million people have had their insurance programed. The basic thing in this programing is social security. Now, if we were to junk social security, that would |