The CHAIRMAN. In connection with that question also, Mr. Cohen, let me make the request that you supply us, if you have it, any data which would indicate how many people have been retired under the Assistance Act at 65 that were originally in the self-employed class or were wage earners, salary earners. Mr. COHEN. Yes. In reply to the question that you raise now and Senator Millikin raised yesterday, we are making a study which will indicate what the different types of employment were of people who are on the assistance rolls now; so that we will have the information as to whether they were farmers or self-employed or whether they were covered under the insurance system. The CHAIRMAN. We will appreciate that information. Are there any further questions? Senator KERR. I would like to ask just one question, Mr. Chairman. The CHAIRMAN. Yes, Senator. Senator KERR. On page 5 of your statement, Mr. Guernsey, you say that Last year in the State of Virginia there was paid out on 24,369 weekly premium life policies death benefits amounting to $4,334,000. If you could give us the total number of deaths in the State of Virginia that year, then we would know the percentage of those dying who had these policies, would we not? Mr. GUERNSEY. You are correct. I do not have that figure. The CHAIRMAN. Could you supply that, Mr. Guernsey? Mr. GUERNSEY. I would be happy to do that. The CHAIRMAN. I suppose from some of the insurance companies, their records, you might get it. Senator MYERS. I might add, Mr. Chairman, that we could then view the statement in the proper perspective; namely, that "the conspicuous absence of a social problem to be solved in this instance points to the unnecessary inclusion of the proposed lump-sum death benefit in this bill." There may not be a social problem, but merely because there were policies in effect for every one person in Virginia does not indicate that every person had a policy. They may have had a number of policies. And Senator Kerr's question was as to what percentage of the population was covered by insurance. Mr. GUERNSEY. I think your point is very well taken. Senator MYERS. Then, of course, we can much better determine whether a social problem exists. Senator MILLIKIN. I suggest, Mr. Chairman, in addition to the policy, there are many people who do not have policies who are financially able to provide for funerals. So there is still an open gap there as to whether there is a social problem. The CHAIRMAN. Mr. Turpin, you are experienced in this field, as I happen to know. Could you give us any idea about how many policies of this character are held by the citizens of Georgia, which has a population almost equal to the Virginia population? Mr. TURPIN. I can give you figures from my own company, which is a Georgia company, and which has been in the industrial insurance business in Georgia for 40 years, and with which operations I intimately am personally familiar. The CHAIRMAN. Yes, sir. Mr. TURPIN. We have over 200,000 policies in force in the State of Georgia, on over 200,000 different persons, of the industrial type, which, under Georgia law, is a policy with a death benefit not exceeding $500, and in which the premiums are paid either weekly or monthly. And coming to the specific question which the Senator asked with respect to deaths and funerals, let me mention the case of Bibb County, from which I come, and which Senator George knows intimately. It contains Macon, a-for us-large industrial city, with 40 percent Negro population. When I was a boy, which was longer ago than I like to think, the city of Macon maintained a potter's field. Macon has no potter's field today, and so far as I have been able to learn has not had a single pauper burial, white or colored, in the last 15 years. And the industrial insurance companies, of which mine is one of the largest in that field, though one of the very small companies, has buried those people. We are taking care of that need, sir, certainly in the South. I am not prepared to testify about the industrial cities of the North. But we are taking care of the funeral expenses of the working and poorer classes of people. Senator BREWSTER. This would be true, would it not, that practically all of these would be for people in the lower-income brackets? Mr. GUERNSEY. That is correct. Senator BREWSTER. So that if we had the figure as to the number of people with moderate incomes, in the one-, two-, and three-thousand-dollar class, that would be the fairest comparison to determine how adequately they were covered. The social problem would not arise with people with incomes above those amounts, would it, to any degree? Mr. GUERNSEY. I think you are correct, sir, but there is one interesting fact that I think would surprise you gentlemen. It has been very pleasing to us and interesting to find that men who have become successful in after life, who received their first taste of life insurance on the little 25-cent or 50-cent policy, and now may perhaps have a million dollars in life insurance, are still retaining those initial policies, perhaps for a sentimental purpose. It would not be significant, but it is interesting to those in the life-insurance business. Senator MARTIN. I would like to suggest this, Mr. Chairman: Using the Commonwealth of Virginia as an example, there are so many policies there. Does that include fraternal policies? There are a great number of fraternal insurance policies in the Northern States which provide a funeral benefit. Mr. GUERNSEY. If they come under this classification it would include them. The CHAIRMAN. It is the weekly benefit plan. Mr. GUERNSEY. The weekly benefit plan; yes. Senator MARTIN. There are quite a number of fraternities that also have an insurance benefit, and particularly the funeral benefit, and I wondered whether that included those. Mr. GUERNSEY. It would if the payments are made weekly. The CHAIRMAN. Thank you very much, Mr. Guernsey. Mr. GUERNSEY. Thank you, Mr. Chairman. (At the request of Senator Butler, the following tables are inserted in the record:) EXHIBIT D.-Social-security versus railroad-retirement monthly survivor benefits-a comparison 175 percent of the primary insurance amount for first child and parents. EXHIBIT E-FOUR TIMES 12 PERCENT EQUALS 6 PERCENT One rail worker pays 6-percent railroad-retirement tax. One industrial worker pays 12-percent social-security tax. Therefore, one rail worker pays as much tax as the combined tax of four industrial workers. Social security provides four industrial workers and their families with retirement and survivor benefits as compared to railroad-retirement benefits received by one rail worker, for whom there are no family benefits until after his death. Social security versus railroad retirement tax rates and monthly benefits—a Source: Rail Pension News, published by the National Railroad Pension Forum, Inc., Chicago, Ill. The CHAIRMAN. The next witness is Dr. Ernest H. Hahne, president of Miami University, of Oxford, Ohio, and member of the board of directors of the Cincinnati Federal Reserve Bank Branch. Will you have a seat, please, sir? What particular phase of the proposed bill do you propose to cover? STATEMENT OF DR. ERNEST H. HAHNE, PRESIDENT, MIAMI UNIVERSITY, OXFORD, OHIO, AND MEMBER, BOARD OF DIRECTORS, CINCINNATI BRANCH, FEDERAL RESERVE BANK Dr. HAHNE. Mr. Chairman, it is my intention to speak briefly about the self-employment tax and the relationship of the extended coverage to the general costs of government. I am interested in those two phases primarily because I have taught public finance at Northwestern University for 26 years, and I speak primarily as a person interested in the tax aspects of the bill. The CHAIRMAN. We will be glad to hear you. I was simply inquiring on behalf of some of the Senators who may be required to go to the floor. Dr. HAHNE. I realize the time limitations, Mr. Chairman. The CHAIRMAN. We will be pleased to hear you. Dr. HAHNE. I will be as brief and succinct as I can under the circumstances. The CHAIRMAN. You are dealing with what to my mind is an important issue in this legislation, and that is the self-employment problem, including the self-employment tax. Dr. HAHNE. I am attempting, sir, to not duplicate what you have already heard, but to pick out the self-employment problem and focus my attention upon it. The CHAIRMAN. Yes, sir. Dr. HAHNE. My first proposition is that we are trying to levy a self-employment tax, and in doing it, we are introducing into our tax system a new type of tax. The Ways and Means Committee report in August last year specified that unless the net earnings from self-employment amount to more than $400, and are less than $3,600 a self-employed person does not pay a self-employment tax on the income, and he receives no credit for old-age and survivors insurance benefits. So it is that specific thing, Mr. Chairman, that I am interested in. Dr. HAHNE. Now, the reason that I call it a specific tax and speak from the point of view of one who is interested in public finance is that it has a base, that is to say, from $400 income to $3,600. In the second place, it has a method of computation, which is specified definitely in section 211. And in the third place, it has a rate which is specified in section 1640. I will not enumerate those rates, Mr. Chairman; you are so familiar with them. In the fourth place, it has exclusions from gross income. And in the fifth place, it allows deductions from gross income, and therefore has all the characteristics of an individual tax. Now, my third proposition is that it is not a payroll tax. It more closely resembles, in my opinion, a personal income tax with a $400 exemption and a $3,600 maximum. And therefore, being at the present time, according to H. R. 6000, levied upon urban self-employed, it must be regarded as essentially a tax that classifies the urban selfemployed businessmen as an employee. Psychologically, sir, it reduces him from an ordinary entrepreneur with the standing of a businessman to a wage earner. My fourth proposition is that this tax is not a contribution, in the sense that the present taxes levied under the Social Security Act are; because it possesses an element of legal compulsion, as distinguished from economic compulsion. And if the self-employed persons wanted the benefits that were proclaimed by the sponsors of the bill, they would, as Mr. Benson pointed out, seek inclusion in this act voluntarily. And therefore the element of compulsion is present. I will not go any further into this statement. I am assuming, Mr. Chairman, that the printed statement may be included in the record. The CHAIRMAN. Yes; we would be pleased to have your entire statement included in the record. Dr. HAHNE. In that way we can be brief at this juncture. My next proposition is that this self-employment tax differs from the pay-roll tax in that it cannot be shifted. Here is a small-business man; and this tax is levied upon his net earnings. And it so defined in the Act. Consequently, unlike a payroll tax, which enters into the costs, as computed by lawyers and accountants, it is not shifted, and therefore the small-business men fall in a little different position than |