Senator ANDERSON. Precisely, and that is why in the suggestion I hope to make to the committee I use a payroll test where neither a means nor income test is necessary.

I can only say that after some years as a relief administrator, WPA, NYA, and a few other things, I found that means tests and income tests are equally confusing.

Secretary FLEMMING. They are both problems. Our feeling is that it is not wise to abandon the concept completely as I indicated in my testimony.

Senator ANDERSON. Well, you allow social security payments to be made without a means test.

Secretary FLEMMING. That's right.

Senator ANDERSON. If you sought to abandon them completely for this other program, why not abandon it completely there?

Secretary FLEMMING. Well, we feel that the social security program as it is at the present time, is a wage related program in which the benefits are directly related to wages, whereas in a health care program for the first time you would be moving over into the service benefits

area.

Senator ANDERSON. Would an expenditure of this $978 million, if the chairman's figures are correct and I have found him pretty accurate when it comes to counting dollars on expenditures, would that have a tendency to unbalance the budget?

Secretary FLEMMING. In my judgment, Senator Anderson, considering the size of our budget it would be possible to build an expenditure of that kind into the budget without throwing it out of balance. Of course, as you realize, it will take a few years before you would get up to an expenditure of $800 million. All States would have to be participating and be participating to the maximum.

But I think as a Nation we could certainly afford an expenditure ultimately of that amount of money in order to deal with this very pressing human problem.

Senator ANDERSON. Aren't all the State budgets becoming tighter and tighter with the years?

Secretary FLEMMING. I recognize that the State governments are finding it difficult to handle their fiscal situation. Of course, we recognize that it varies somewhat from State to State.

But our philosophy there, Senator Anderson, has been that here is a pressing human need, and we believe if the Federal Government puts up the kind of an attractive package that is incorporated in our program, that the States should be responsive to this need, and will come in and work out ways and means of matching. We think, as you consider governmental expenditures generally, that this kind of an expenditure is entitled to a high priority in the thinking of a State legislature as well as in the thinking of the Federal Government.

Senator ANDERSON. Well, there are many high priorities in these States now. The State of Michigan had some budget troubles a short time ago, as I recall. This would add $30 million a year to the State's budget. Could that be lightly taken by a State legislature?

Secretary FLEMMING. Not lightly by any means, but I do feel

that

Senator ANDERSON. $78 million to the State of California, that is why I am asking you why you have abandoned the payroll tax ap

proach which does not involve the existing budgets of the already hard-pressed States?

Secretary FLEMMING. Well, I tried to indicate in my testimony our feeling that we certainly should give very careful consideration before we put the benefits that are now provided under the social security system into competition with the kind of benefits that would be incorporated in this kind of a program. It is altogether possible that we would find that the possibilities under the payroll tax are not limitless, and we felt that on balance, considering the fact that these are service benefits, that it is fairer to finance them out of general revenues. Certainly as far as the Federal Government is concerned it means that they would be financed by relying to a very large degree on the progressive income tax. We think that that is a fairer thing to do than it is to throw half of the burden on earnings of $4,800 or less.

I have just responded to a line of questioning as to whether or not there are apt to be increases in the benefits that are provided today for retirement, disability, and survivors under the present OASDİ. I think probably all of us would agree that there will be such improvements in that benefit structure.

Now, if we build into it a health insurance program, I know it is not going to stop at whatever point we start. Of course we will improve the benefits and of course we will probably adjust the age requirements as time goes on.

If you put these into competition with one another, it seems one of two things happen. Either you get your payroll tax up so high that you get a revolt and get it frozen to a certain extent. Or, in order to take care of improving your health benefits you don't do what you feel should be done on the retirement, the disability or the survivors benefits. It is our feeling it is better to take care of this out of the general revenues, where I think you have got a fairer tax structure, when you are considering service benefits of this kind. You place more of a burden on those in the upper income brackets than you do on those in the lower income brackets, whereas under social security you put a very heavy burden on the lower income bracket.

Senator ANDERSON. I would only challenge your feeling that it is easier to get money by increasing the already high accelerated income taxes than it is to get it by a payroll tax. I don't try to pit my experience in this field against yours, but I would suggest that in 1936 we were having discussions of social security and how it might be set up. There were many predictions then and many predictions on the floor of Congress that these payroll taxes were way too high as initially established. Now they are far beyond it, and there is less argument about it now than there was in 1936.

And therefore I feel if you are going to try to have any type of medical care program, it is going to be easier to finance out of a payroll tax than it is out of another burden on the already overburdened States and the already difficult situation with the Federal budget. The chairman of this committee knows that there was quite a little sentiment in the Senate of the United States to get rid of some of the taxes we now have, telegraph, telephone, transportation, and to put some additional burdens on such as repeal of the dividend credit. There was a great plea made that these people who are already so

heavily taxed had to have the dividend credit in order to live and you feel that an increase in that income tax would be easy to accomplish. I couldn't agree with you less.

Secretary FLEMMING. Senator, I think you and I would agree on this, I am sure, that our Nation is wealthy enough and has enough resources to assure adequate medical care for its aging. Then comes the question of how we finance it.

Now I think that we can't overlook the fact that the payroll tax is also a tax on the economy. If the payroll tax is increased for this particular purpose, it will take revenue out of every State in the country, and this, in turn, will have some effect certainly on what the State is able to do with its own tax structure, what it is able to take out of its people in addition.

So that it seems to me that we agree that as a Nation we can afford to take care of these problems that confront us at the present time. Then comes the question, What is the best way of doing it? Either way we are taking it out of people. I mean it is an additional tax burden on people.

I just have the feeling it is a little bit fairer to use the progressive income tax than it is to throw so much of the burden on these low earnings of $4,800 or less or if it goes up to $5,400 or $6,000.

Senator ANDERSON. Mr. Chairman, I don't wish to continue if you wish to go to the joint session. I can only say to you that there are many people who feel that the payroll tax method permits expansion which the income tax method does not. You are right up against a pretty difficult ceiling and you are going to see more pressure rather than less to reduce it.

Hasn't the Treasury taken the position that it wants to see a gradual reduction of the income tax and reduction gradually in some of these excise taxes? They admitted they couldn't do it this year.

Secretary FLEMMING. I am sure they have taken that position. Senator ANDERSON. So there seems to be an effort to try to reduce these individual income taxes.

Secretary FLEMMING. Again it seems to me as the payroll tax increases the burden will be recognized and there will also be the feeling either that the payroll tax shouldn't be increased further or that benefits should not be extended.

In other words, we feel this tax burden, no matter what kind of a method is used for the purpose of collecting taxes. I don't want to concede-I might have to ultimately-but I wouldn't want to concede that it would be absolutely necessary to raise the income tax in order for the Federal Government to take its share of this problem. Maybe I am wrong there.

Senator ANDERSON. If you face a deficit?

Secretary FLEMMING. If you face it then you have got to do it. Senator ANDERSON. If you face deficit spending I judge the administration is not in favor of it.

I judge Senator Butler was not in favor of it.

Secretary FLEMMING. Right.

Senator ANDERSON. And $800 is substantial. It is true people walk in and say if you just raised the postal rates you could get $500 million to balance the budget but nobody has found a way to compel the Congress to raise that.

Secretary FLEMMING. That is right.

The CHAIRMAN. And then another $800 million comes from States and localities.

Senator ANDERSON. I wish we had time, Mr. Secretary, to go through this list of States and pick out the ones that are in desperate financial need. In 1934, back so many years, I prefer to forget, I became the first administrator of an emergency school tax in my State. Nobody wanted to put it on, but they put it on for the narrow emergency of the next few months. You don't have to have me assure you whether the tax is still there or not.

Secretary FLEMMING. No.

Senator ANDERSON. These burdens are becoming greater and greater and greater and the States are looking for revenue.

The able Senators from New York introduced an amendment the other day which provided if the Government drops the telephone tax New York would be glad to pick it up and turn it back into its own coffers. They need so much money, and yet you are going to take $78.5 million out of New York per year when this becomes fully effective. I say I think you picked out a difficult method of financing. Secretary FLEMMING. Mr. Chairman, if I might just say on the point, take the McNamara bill, for example, just as one illustration, I think the estimated cost there is around a billion-three something like that. Of course, if we use the payroll tax, then that has got to be raised and it has got to come from the wage earners in addition to the employers.

The CHAIRMAN. Senator Douglas?

Senator DOUGLAS. Mr. Flemming, in view of the fact that the State contributions under your plan would amount to approximately $800, million a year, do you believe that all of the States would voluntarily accept the plan which you propose?

Secretary FLEMMING. Senator Douglas, I don't think they would do it immediately, but, based on the experience that the Federal Government has had with Federal-State programs, particularly in the health and welfare area, I think that within a reasonably short period of time they would come in.

Now, the reason I feel that is that I believe it is an attractive program that is being offered. I think that there is a very deep-seated feeling on the part of the citizens of this Nation that something ought to be done, and I believe that the citizens of the various States would indicate that in a rather convincing way to their State legislatures. I know you are interested in the whole Federal-State area. I had a little study made of the various Federal-State programs that our Department administers, and it is very interesting to note the number of States that have come into those programs, sometimes within the first years. Sometimes it has taken a period of 3 years, and in some instances they haven't come into it adequately. I would be the first to admit, for example, that there are seven or eight States that haven't taken advantage of the vendor payment part of public assistance in the way in which I had hoped they would have taken advantage of it. So it is a problem.

I wouldn't deny it.

Senator DOUGLAS. Would there not be States which for a considerable period of time would not accept the program and whose aged

citizens would therefore be excluded from the benefits of the plan which you propose?

Secretary FLEMMING. Well, of course, this is speculating. I don't know whether I would agree that it would take a considerable period of time because, again, I feel that the interest of the citizens within the States in seeing this problem dealt with in a more adequate manner would express itself to the State legislatures and that they would come in. Certainly for as long a period as they didn't, you are right. I mean the citizens in those States would not get the kind of assistance that I think probably both of us agree they should have.

Senator DOUGLAS. Do I understand your plan to be that for those who are not under old-age assistance that an enrollment fee of $24 a year is required from each individual before they will be entitled to the benefits of the plan?

Secretary FLEMMING. That is correct.

Senator DOUGLAS. Now, in other words, it would require individual acceptance?

Secretary FLEMMING. That is right.

Senator DOUGLAS. Of the plan, and payment of the $24 a year?
Secretary FLEMMING. Right.

Senator DOUGLAS. Individuals would be free not to make the payments?

Secretary FLEMMING. That is correct.

Senator DOUGLAS. Now, then, what percentage of the aged persons do you think would accept the plan, what percentage would refuse the plan, and what basis do you have for any estimate which you make?

Secretary FLEMMING. Well, the cost figures that are reflected in the tables that I have presented to the Chairman and to the members of the committee rest back on the assumption that 75 percent of those (not on old-age assistance) that would be eligible to participate would participate. I think you will recall that under our plan, of course, the 4 million who are paying income tax would not be eligible but that leaves about 12 million, and then about 22 million of those are under public assistance and then the remainder would be eligible for this program.

We estimated 75 percent of this latter group would participate.

Now, that is subjective judgment, very frankly. However, it rests back on the fact we are dealing with a low-income group who certainly increasingly recognize the seriousness of this problem, and we feel if they were given this opportunity at least 75 percent would probably take advantage of it.

Senator DOUGLAS. Let me make this point, if I may. For those who because of reasons of pride or otherwise are not on old-age assistance, but who are very close to the margin themselves, isn't this requirement of $24 a year one which would cause them to refuse to come under the plan?

Secretary FLEMMING. Well, we felt that putting it at that low figure that it would not have that effect, but that is a matter of judgment and as I indicated in my presentation we are not wedded to the details. We are certainly perfectly willing to think through a problem of that kind with the committee.

I think your point is a point that should be weighed carefully. We did weigh it, and we came out at the $24 point, but here, again, we conceivably could be wrong on that.