Commerce and Industry Association, as a parts of its policy, believes that any reduced rate must be based on the unemployment experience of an employer. The present law follows this pattern but the present amendment is in conflict with it. We believe that this proposed amendment would not help most new or newly covered employers. Only the most stable employers would be favorably affected and other might

be hurt.

Assume that a new employer has 50 employees and a taxable payroll of $150,000 a year. His tax at 1 percent would be $1,500. One employee with a benefit rate of $60 a week and drawing benefits for 26 weeks would make the employer's account negative. If this happens or the benefit charge to the account of an employer comes close to wiping out his $1,500 tax credit, the tax rate for him the next year would skyrocket under most State tax formulas.

This would be particularly true in the case of farmers whose operations are seasonal in character, and they would be covered by H.R. 12625. This carrot proposed to ease the tax burden to newly covered employers might not be a carrot at all but in the long run would work to their detriment.

F. Financing provisions (title III, sections 301, 302): We recognize that any financing provisions must not only provide funds for recession benefits (at least 50 percent paid by FUTA taxes) but also solve the recurring problem of providing adequate funds relating to the administration of unemployment insurance and related employment security activities.

We are concerned, however, that FUTA taxes are being used for types of responsibilities not related to such State activities. One example is that employers are required to pay for the administrative cost for UCFE (unemployment insurance for separated Federal employees) and UCX (unemployment insurance for ex-servicemen). It seems unfair to us that the Federal Government, one of the biggest employers in the country, should require that the business community pay the cost to administer these solely Federal programs.

To ease the administrative financing pinch this year legislation was enacted (H.R. 9951-P.L. 91-53) by accelerating the collection of FUTA taxes from 1970 through 1972. H.R. 12625 has provided that the taxable wage base would be increased to $4,800 for the calendar years 1972-73 and to $6,000 thereafter. The Secretary of Labor, however, may recommend increases above $6,000 when such taxable wage base is no longer reasonably related to the average annual wage in covered employment.

To finance administrative cost by an ever-increasing taxable wage base would destroy the present methods of the States in financing their own programs to pay benefits by State taxes. Since the inception of the program, the States have had flexibility and when they deem it necessary to increase State unemployment taxes to pay for an increase in benefit costs, they either increase the State taxable wage base, increase the tax rate, and, in some States, the States have increased both the taxable wage base and the tax rate.

The method of financing proposed in H.R. 12625 would destroy this flexibility and require the States automatically to increase their taxable wage base when Congress makes such changes on the Federal level.

If there is a substantial increase in the taxable wage base as proposed by H.R. 12625, we would suggest that the time has come to separate the Federal unemployment compensation tax for administrative purposes and the State tax for benefit payments as follows:

1. The 3.1 percent tax rate on the tax base of $3,000 be retained only for conformity purposes;

2. A new separate provision be enacted to raise the amount necessary for administrative purposes.

If the above suggestions are followed, State legislatures could still enact legislation to obtain additional funds for benefits without being affected by any congressional action. The new Federal tax proposed here could be a flat percentage on a specific tax base without the offsetting provisions which are difficult for many smaller employers to understand. Penalties could be provided if the employer fails to pay the State within the prescribed State time limits.

It appears to us that raising the taxable wage base to $4,800 and then to $6,000 could provide more funds than are required, and if this results, there would be a temptation to use such excess funds to pay for broader activities or additional responsibilities place upon the employment service which are not oriented to unemployment insurance. We request this committee to ask the Department of Labor to justify their proposal in financing by giving actual estimated figures on what would be brought in for the next several years and give the details on how they intend to spend such tax money.

Employers who pay high wages could be discriminated against and low-paying employers favored if the proposed taxable wage base in H.R. 12625 were enacted. It is elementary that the cost factor to handle one claimant at one particular time would be about the same for claimants previously working for both high- and low-paying industries. In fact, the cost factor for claimants in low-wage industries could be more when the cost of the human resources program of the Employment Service is taken into consideration.

Changing the taxable wage base as proposed would therefore exacerbate the imbalance of taxpayments between high- and low-wage employers and in addition cause all State legislatures, except Alaska, to make adjustments in their tax structures from time to time.

We believe that the taxable wage base should be kept at $3,000 and, if additional funds are necessary, that the tax rate should be raised. New York is at $3,000, and as of September 26, which I received yesterday, we have $1,771,631,560 in our fund. Our fund is more than sound on a $3,000 tax base. We have taken no position on other provisions in this bill.

However, changing both the tax rate and the taxable wage base as would have been provided in H. R. 15119 is preferable over what is proposed in H. R. 12625.

G. Other: Commerce and Industry Association has taken no position on other provisions of H.R. 12625 relating to Research and Training Programs; a Federal Advisory Council; a change in the certification date; changes in ceilings and accounts; et cetera. We feel that it would be up to those individuals who have more interest than we to take a position.

CONCLUSION

When the Social Security Act first was enacted in 1935, it left full responsibility and discretion with the States to determine eligibility conditions, benefit amounts and duration of benefits. Committee reports of both the Senate and the House in connection with the original Social Security Act contain the following statement:

"Except for a few standards which are necessary to render certain that the State unemployment compensation laws are genuine unemployment compensation acts and not merely relief measures, the States are left free to set up any unemployment compensation system they wish, without dictation from Washington... Likewise, the States may determine their own compensation rates, waiting periods, and maximum duration of benefits. Such latitude is very essential because the rate of unemployment varies greatly in different States, being twice as great in some States as in others."

The provisions of H.R. 12625 could fundamentally change the original concept of States responsibility in unemployment insurance. We urge that this committee not change such concept by enacting H.R. 12625 and request consideration to be given to our suggestions. I want to thank you for letting me testify today. (Mr. Eubank's prepared statement follows:)

STATEMENT OF MAHLON Z. EUBANK, DIRECTOR OF THE SOCIAL INSURANCE DEPARTMENT, COMMERCE AND INDUSTRY ASSOCIATION OF NEW YORK, INC. Commerce and Industry Association of New York, Inc., the largest service chamber of commerce in the East, represents approximately 3500 employers, large and small, in all branches of industrial and commercial activity, including many corporations headquartered in New York but engaged in multi-state operations. Through its Social Security Committee, which includes tax and personnel executives of leading national organizations, and its Social Insurance Department, the Association studies and actively represents management thinking on significant unemployment insurance issues at both the national and state levels. The Association appreciates this opportunity to testify before your Committee on the Administration's proposal to "amend" the federal-state unemployment insurance program.

In the past Commerce and Industry Association has not taken a position on coverage proposals before this Committee and left testimony on this subject to the particular employers affected. We would prefer, however, leaving such proposals for coverage to the states whose legislatures are more attuned to local needs. The same position is taken in reference to coverage provisions of H.R. 12625 except for the coverage of farmers employing 4 or more workers in 20 weeks ($103 of the bill). This provision in the bill is similar to that provided in H.R. 8282 (89th Congress) whereby it was proposed that farmers who had 300 or more man-days of hired labor in a calendar quarter, would be covered. Both houses of Congress at that time rejected such coverage, and Commerce and Industry Association requests that it be rejected again because the coverage of farmers is a serious problem which would be difficult to be governed by the federal law and which it would be best to leave to the states.

The enactment of this provision could adversely affect all New York employers because of the New York Unemployment Insurance Law financing provisions. Under such provisions there are two tax rates. One is the normal tax rate which varies from employer to employer because it is based upon the experience rating formula in the law. The other is the subsidiary, or socialized, tax which is the same for all employers and one of its purposes is to help keep the state unemployment insurance fund in balance as nearly as possible. This subsidiary tax

depends upon the balance of the General Account. This account, part of the state's unemployment insurance fund, is primarily a device for recording benefit charges that exceed an individual employer's tax payments by more than 2% of his payroll during the payroll year preceding the computation date. It serves as a barometer to signal the occasion for a subsidiary tax to be imposed on all employers.

Credits to the General Account include the subsidiary tax, interest earned on the fund, balances of employers' accounts which have lapsed, taxes paid late, and certain monies credited to the unemployment insurance fund by the United States Government. Charges include negative overdrafts on individual employer accounts caused by benefit withdrawals that exceed tax payments.

All employers are required to pay a subsidiary tax depending on the balance of the General Account in addition to normal taxes. On December 31 of each year the General Account is examined. If the balance of the General Account is less than $120,000,000 a subsidiary contribution ranging from .1% to 1%, depending on the balance in the account, is required on wages paid in the following calendar year. Unlike normal taxes, subsidiary taxes are not credited to individual employer accounts but to the general account.

Farmers are engaged in a seasonal industry and many of them, if this provision were enacted, would not pay enough in taxes to pay benefits to their employees. In New York, if this happens, the General Account would have a greater drain on it because of these additional charges. Farmers who have negative accounts could pay up to the maximum of 3.2% normal tax plus a 1% subsidiary tax or a total tax of 4.2% on their taxable payrolls. Other states, not using the device of the General Account and the subsidiary tax, could have an unwarranted net loss to the unemployment insurance funds.

New York legislation enacted in 1969 permits the farm employer to cover such services on a voluntary basis. Previously, such services could not be covered even on a voluntary basis. The employer who elects coverage must remain in the unemployment insurance system for the balance of the calendar year of his entry. Thereafter, he can leave the system at any time by giving notice to the Division of Employment. Coverage will cease at the end of the calendar quarter in which his notice is received.

It is hoped that the experience gained by the 1969 law would provide information if compulsory coverage of farmers is feasible and if so, the best method to provide such coverage, such as benefit rights, taxes on farmers, and the impact on the state unemployment insurance fund and its economy. We understand that several other states are studying this question, and experimentation is necessary before federal mandated coverage of farmers is enacted into law.

B. PROVISIONS REQUIRED TO BE ENACTED IN STATE LAW-SECTION 121

It has been the policy of Commerce and Industry Association to oppose all federal standards relating to benefits because the advantage of our federal-state system is that decisions in this area have been left to the states. This makes such systems subject to experimentation, more flexible and in line with local needs and economies.

Your attention is directed to the fact that New York meets all of these requirements expect one, but we cannot assert what is best for New York with its complex employment pattern would also be good for the economies of other states. On the requirements which were enacted by New York, Commerce and Industry Association on the state level favored or did not oppose them.

The only requirement which New York would not meet is the proposed provision that "compensation shall not be paid by reason of the expiration of a specified period of time to an individual who has been disqualified under a labor dispute provision in such State law." Presently the New York provision on labor disputes denies benefits to both strikers and non-strikers for a period of 7 weeks plus the normal waiting period. Thereafter strikers as well as non-strikers would be eligible for benefits. The purpose of the New York law, according to state officials, is to keep the state neutral in labor disputes by not having to decide which claimants in both categories should be denied or paid benefits.

The only other state that pays benefits to strikers is Rhode Island. Under its labor dispute provisions benefits are denied to strikers and to a specified group of non-strikers for 6 weeks plus the additional one week waiting period. This proposed standard affects only two states and it is our position that the problem

is not of sufficient national importance to be subject to a federal standard. Both New Jersey and Pennsylvania had provisions for paying strikers in the past but subsequent legislatures repealed them.

In prior years the U.S. Department of Labor has not been interested in the payment of benefits to strikers. With its active encouragement we believe that this problem can be resolved by New York and Rhode Island without a federal standard on this subject.

C. EXTENDED BENEFITS-TITLE II

In principle we favor a permanent program for extended benefits during economic recessions. On a temporary basis Congress in 1958 and 1961 enacted laws providing for an extension of unemployment compensation on a temporary basis. Since the principle has been set by Congress for this type of benefits, it appears that a permanent program could be desirable. The question to be determined, however, is what method should be used which would be in accordance with the federal-state relationship.

H.R. 12625 would provide a program for federally financed extended benefits to be "triggered in" when the national rate of unemployment compensable under the state programs reaches 4.5% for the last 3 months-about twice the present level. Once triggered in, the program would continue for at least 13 weeks and until the national unemployment rate for a month was less than 4.5% and the total number of claimants exhausting their regular benefits in the last 3 months was less than 1%. Extended benefits would be payable at the individual's regular state rate for a period equal to one-half the length of his state duration, or 13 weeks, whichever is lesser, with a further limit that regular and extended benefits could not exceed 39 times the individual's weekly benefit amount. The states would simply act as agents in making the federal payments.

H.R. 15119 (89th Congress) would have provided a joint federal-state program financed 50% from the federal unemployment compensation tax and 50% from the states. A national trigger applicable to all states would be established if (a) the seasonally adjusted rate of insured unemployment for the nation as a whole equalled or exceeded 5% for each month in a 3-month period and (b) during the same 3-month period that total number of claimants exhausting their rights to regular compensation (over the entire period) equalled or exceeded 1% of covered employment for the nation as a whole. Also, a recession benefit period would be established for an individual state (a) if the rate of insured unemployment for the state equalled or exceeded during a moving 13-week period, 120% of the average rate for the corresponding 13-week period in the preceding 2 calendar years and (b) if such rate also equalled or exceeded 3%. In addition, states would be permitted to require 26 weeks of covered employment in a claimant's base period in order to qualify for extended benefits. This would prevent seasonal workers who are unemployed for certain periods every year from obtaining extended benefits just because a recession occurred.

In 1961 the New York Legislature enacted a plan (which did not become operative because of the federal TEC Act) under which duration was increased from 26 to 39 weeks in an individual's benefit year for a claimant who had exhausted benefits in any week prior to a week in which the ratio of total exhaustions in the immediately preceding 13 weeks to average insured employment is 1% or more. This formula, in our opinion, would be more exact than any that has been proposed. We suggest that the provision in H.R. 15119 be amended to give the states an alternative in setting a trigger-retaining the provision presently contained in that bill and including as an alternative the one contained in the 1961 New York law.

We prefer the provision that was contained in H.R. 15119 (89th Congress) with a slight change, over that proposed in H.R. 12625. This proposal (H.R. 15119) is in accordance with the present federal-state relationship. It would also be less costly because some states would be affected by a recession sooner and others recover more rapidly than if the proposal in H.R. 12625 is enacted. In addition, seasonal workers with less than 26 weeks of work in their base period would be eliminated. We fear that if the national trigger provided in H.R. 12625 is enacted into law it would have a different effect among the states by being too late to provide extended benefits in some and last longer in others.