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Mr. POST. The real question is what are the facts and not what these fellows say and I would hope these hearings and the action on this bill would completely eradicate that kind of an argument both at the State level and at the Federal level. I said so in my testimony last year and I say it again here. It is an unsound argument and it has no basis. It should not be used as a basis for completely revising the unemployment insurance system.

The CHAIRMAN. Well, I suggest that those people you are supposed to represent should quit telling it to the Legislature of Texas and the Legislature of Louisiana when they start raising benefits for unemployment insurance at the State level because what happens is you come up here and they say, "Well, it ought to be a State matter," and the same groups go to the State legislature and say, "The States should not raise their benefits, we would not be competitive," and then come up here at this end and say it does not have a thing to do with it. Mr. POST. If anything has been accomplished by these hearings, it is getting on the record the position of the employers, as I have stated it today, so they can be confronted with it at the State level when taking this position. I entirely agree with you, I think it is an erroneous argument and should not be made in the States or here and, as I said in my statement, it is making mountains out of molehills and should not be used on either side. The main thing is what are the facts and on the facts, the unemployment insurance tax will have very little impact on business decisions.

In my statement attached I discussed the refining industry and that was generated by a comment made in the hearings last year. I might just comment briefly, Mr. Chairman, on your question of the previous witness about the benefits in Louisiana, and I am not undertaking to talk about Louisiana, but just to suggest an approach. In the appendix to the statement I filed today on page 4 is a table which shows the relationship of benefits in 1939 to benefits in 1965. I have some serious question as to whether 1939 is a good date. The world changed so drastically betwen 1939 and the end of World War II, that probably some postwar date ought to be taken to see if the States have kept pace. But even taking 1939, if you look at the whole benefit picture you have to take into account the increase in duration in benefits as well as weekly benefit amounts, and you will see that between 1965 and 1939 benefits in Louisiana were multiplied three and a half times which was far greater than any change in conditions. In most other States when you include duration with the amount of the increase in benefits, you find there has been a tremendous increase in benefits provided by the States, and that they more than kept pace with the increase in wages.

I will be glad to answer any other questions. We appreciate the opportunity to appear, and as I said, we endorse this bill as the best overall job that could be done under the circumstances and we hope it will be enacted.

(The prepared statement of Mr. Post follows:)

STATEMENT OF JOHN POST, REPRESENTING THE NATIONAL PETROLEUM
REFINERS ASSOCIATION

SUMMARY OF NPRA STATEMENT

(1) The National Petroleum Refiners Association is generally in accord with HR 15119 as passed by the House of Representatives and urges the Senate Finance Committee to adopt HR 15119.

(2) The proposed increases in HR 15119 in the tax base and tax rate to provide funds to meet State administrative expenses go far beyond any demonstrated needs. An increase of no more than 0.05 on the present tax base would be sufficient to meet projected costs until 1970 and 0.1 thereafter until 1975.

(3) The proposal to amend HR 15119 to impose minimum Federal standard for State benefits based on the average weekly wage of covered workers should be rejected. Such proposals would not meet the aims of the proponents to assure weekly benefit amounts to claimants of 50% of their earnings. In addition, the proposal is based on discredited theories of interstate tax competition and State failure to provide adequate benefits.

(4) The provisions of HR 15119 regarding extended benefits and judicial review should be accepted by the Senate.

INTRODUCTION

My name is John Post. My address is 613 Southwest Tower, Houston, Texas. I am appearing before this Committee on behalf of the National Petroleum Refiners Association (hereinafter called NPRA), an association of 90 companies which operate over 90% of the crude oil refining capacity in the United States. The NPRA appreciates this opportunity to present to this Committee its views on HR 15119 and S 1991.

"From 1954 to 1962 I was a member of the Federal Advisory Council on Employment Security of the United States Department of Labor. I am also associated with Henry Golightly & Company, Inc., International Management Consultants, New York City, New York.

"In the hearings in 1965 before the House Ways and Means Committee on HR 8282 I filed a statement on behalf of the NPRA and I also testified on behalf of over 60,000 employers in the State of Texas."1

BRIEF SUMMARY OF HR 15119

The most significant features of HR 15119 are: (1) increase the tax base from $3.000 a year to $3,900 a year in 1969 and increase it again to $4,200 in 1972; (2) increase the Federal unemployment insurance tax rate from 0.4 per cent to 0.6 per cent, beginning in 1967, with one-half of such increase (0.1 per cent) assigned to finance administrative costs and the other half of such increase (0.1 per cent) assigned to finance the proposed new program for extended benefits; (3) broaden the coverage of the program to include additional workers; (4) provide for extended payment of benefits during periods of recession or high unemployment; (5) assure judicial review of administrative determinations by the Secretary of Labor with respect to certain State action; (6) provide certain other features regarding interstate claims, disqualification from receiving benefits and administration of the program.

NPRA'S POSITION ON HR 15119

NPRA recommends that the Committee adopt HR 15119 as passed by the House of Representatives.

For emphasis and in accord with the Committee's request for brevity, we will confine our principal discussion to two points:

(1) The proposed increases in the tax rate and tax base to provide funds for State administrative costs go far beyond any foreseeable need.

(2) The proposal for minimum Federal standards for State benefits will not work to meet the aims of its proponents, in addition to being based on discredited theories of interstate tax competition and State failures to meet responsibilities. The provisions of HR 15119 for extended benefits and judicial review will be discussed only briefly. Other provisions of HR 15119 and S 1991 will be covered thoroughly by other witnesses and therefore will not be discussed herein.

"HR 15119 represents the most comprehensive revision of the Federal-State program of unemployment compensation Congress has undertaken since the system was inaugurated in 1935."

2

HR 15119 fully warrants, therefore, the thorough consideration your Committee is giving it in these hearings. As the committee knows, H.R. 15119 evolved

1 Hearings before the Committee on Ways and Means, House of Representatives, 89th Congress, First Session, on H.R. 8282, pages 596-617 and 1887-1892.

2 Data relating to H.R. 15119-The Unemployment Insurance Amendments of 1966--Prepared by the Staff for the use of the Committee on Finance, July 13, 1966, page 1 (hereinafter referred to as Staff Report).

after extensive hearings on HR 8282, the companion bill to S 1991, which proposed to revolutionize the Federal-State unemployment insurance system. HR 15119 is a bipartisan bill, as evidenced by the almost unanimous vote on the Committee and the House of Representatives (374 in favor and 10 against). HR 15119 and HR 8282 bear so little relationship to each other that they are not even 42nd cousins.

As we shall point out below, we are not in full accord with each and every provision of HR 15119. In view, however, of the comprehensive scope of the study in the House, the complexity of the subject, and the interrelationship of the provisions of HR 15119 with each other and with every other aspect of the unemployment insurance system, we have concluded that HR 15119 should be viewed as a whole. On that basis we are willing to accept HR 15119 as the best overall piece of legislation on this subject to be expected at this time.

We recommend therefore that, after due consideration, your Committee adopt HR 15119 as enacted by the House. This recommendation carries with it the further recommendation that you reject proposals to insert in HR 15119 various portions of S 1991 identical with those of HR 8282 which were considered and rejected by the Ways and Means Committee.

THE PROPOSED TAX INCREASES

We stated above that we are willing to accept HR 15119 as passed by the House of Representatives. We do so with reluctance because we seriously question the need to increase Federal unemployment insurance taxes to the extent proposed by HR 15119.

We believe the following analysis should be presented to your Committee in view of the persistence of proponents of S 1991 in pressing for even larger tax increases.

Just to increase the Federal tax rate from its present 0.4 per cent to 0.5 per cent on the present tax base of $3,000 will generate in fiscal 1968 $136 million more in taxes, of which $129 million will be available for State administrative expenses. This is at least five times greater than the estimated need for additional taxes.

3

The $136 million figure is derived from Staff Report, page 7 (middle), which sets forth estimated amounts available for the extended benefits program. The same amount of new taxes will be generated for administrative costs. HR 15119 provides for an increase of 0.2 per cent in the Federal tax rate, of which one-half (0.1) will be devoted to the extended benefits program and the other half (0.1) will be devoted to administrative expenses.

The Staff Report (page 33) indicates that in fiscal 1966 under present laws State administrative costs will approximate $500 million compared with Federal unemployment insurance tax receipts of $487 million available for such costs a deficit of $13 million. In fiscal 1967, such State administrative costs are estimated at $530 million while such tax receipts are estimated at $510 million, a deficit of $20 million. We have not seen figures for estimated deficits in subsequent years.

At a time when unemployment insurance claims are declining and have reached their lowest level since at least 1957, it is difficult to understand the necessity for imposing such massive tax increases to finance relatively small increases in State administrative costs.

Even if the estimated deficit under present laws were to increase to $30 million in fiscal 1968 and thereafter increase further by $10 million a year, it would be 1970 before the deficit would reach $50 million and 1975 before the deficit would begin to approach $100 million.

If the Federal tax rate were retained at 0.4 percent and the tax base were increased from $3,000 to $3,900, the new taxes generated in fiscal 1968 would be over $150 million and provide an even larger surplus than the increase of 0.1 percent in the tax rate.

By 1972 estimated tax collections under HR 15119 on currently covered employers and available for administrative expenses will reach over $900 million, an 80 percent increase over estimated costs in 1967. Nowhere have we seen any estimates of administrative costs which even remotely project such an increase between 1967 and 1972.

3 The Ways and Means Committee Report on H.R. 15119 says, on this point. "The portion of the tax increase that will be available for administrative expense will result in a 25 per cent increase in the amount that would otherwise be available for fiscal 1968 **** (page 28).

There is no rational justification, therefore, to increase both the tax base and the tax rate in order to cover the estimated increases in State administrative costs.

An increase in payroll taxes of 0.05 percent-one twentieth of one percent— on the present tax base of $3,000 would suffice to meet estimated administrative costs until at least 1971 and thereafter another increase of 0.05 percent would be more than sufficient to meet such costs until at least 1975.

As between an increase in the tax base and an increase in the tax rate, we submit that Congress should increase the rate.

There is no logical relationship between the level of wage rates paid by an employer and the unemployment insurance tax burden he should bear. A high wage rate employer does not necessarily have greater ability to pay than a low wage rate employer. Where an unemployed person uses the facilities of the system, the administrative cost is the same whether his former employer paid low wages or high wages. The costs of the unemployment insurance system should be met by employers on the basis of their use of the funds and facilities provided by the system.

No doubt, programs other than those relative to the normal unemployment insurance program will be administered by the State agencies. Provision to finance such other programs should be made in such other programs rather than divert employers' taxes imposed to finance the normal unemployment system.

It has been argued that the tax base for unemployment insurance taxes should be raised simply because the tax base for Social Security has been raised.

To

It was just a coincidence that in 1939 the tax base under both laws was the same. Since 1939 the Social Security program, which has entirely different actuarial factors, has undergone many substantial changes. meet increased costs under those changes Congress has had to increase both the tax base and tax rates under Social Security many times.

It would be just as logical to argue that because Congress has substantially increased the tax rates under Social Security, it should also substantially increase the tax rates for unemployment insurance, regardless of the financial needs of the unemployment insurance program. But that argument

is so patently unsound that it has never been advanced.

Social Security and unemployment insurance are designed to meet two entirely separate situations. Congress should approach the tax problems of each program with the specific needs of that program in mind.

In summary on this point, therefore, we support HR 15119 but urge your Committee to recognize that the proposed tax increases are far greater than any demonstrated need. Any further tax increase, as proposed by S. 1991, would be even more unwarranted.

EXTENDED UNEMPLOYMENT COMPENSATION PROGRAM

We endorse these provisions of HR 15119. There is room in this new program for reasonable differences of opinion on such matters as the "trigger point." We believe, however, that until the nation and some States have had some experience under the program, the provisions worked out by the House Ways and Means Committee should be left unchanged.

By the same token, however, we urge the Committee not to accept the proposals of the Secretary of Labor which would change the extended benefit program from a recession-oriented program to a welfare-oriented program.

JUDICIAL REVIEW

Because of our interest in the efficient and proper administration of the unemployment insurance system, which is financed entirely by taxes on employers, we endorse the proposals in HR 15119 for judicial review.

The only difference between HR 15119 and the Secretary of Labor's proposals concerns the apparent scope of the review. HR 15119 provides that the Secre

tary's findings of fact shall be conclusive "unless contrary to the weight of the evidence." The Secretary proposes that the quoted words be changed so that his findings of fact shall be conclusive "if supported by substantial evidence." The Secretary does not suggest that the scope of the review under HR 15119 would impose any burden on him.

In the final analysis the courts would have to determine how significant the difference is between the language of HR 15119 and the Secretary's proposal. Regardless of the language and procedure under other statutes providing for judicial review of the actions of an administrative agency, a disagreement between a sovereign State and the Federal Government is entitled to the utmost consideration, particularly when the effect of an adverse ruling is to deny credit against the Federal tax to all employers in the State involved.

We recommend, therefore, that your Committee accept the judicial review provisions of HR 15119.

PROPOSED MINIMUM BENEFIT STANDARDS

Your Committee has received proposals similar to those presented to the House Ways and Means Committee to impose on the States minimum Federal standards for weekly benefit amounts, qualification for and duration of benefits.

Although weekly benefit amounts, duration and qualification are tightly interrelated, the heart of the matter is the proposal for minimum benefit amounts geared to the average wage of covered workers in a State.

This proposal is founded on the frequently discredited argument that States have failed to provide adequate benefits.

It is also said, on equally flimsy evidence, that the reason States fail to provide adequate benefits is that they are inhibited by interstate tax competition. The theory runs that interstate tax competition forces States to maintain low unemployment insurance tax rates and the low yield from such taxes forces the States to keep unemployment insurance benefits low. These arguments have been refuted so often and so thoroughly that we hesitate to burden the record with one more rebuttal. Because of the fundamental nature of the problem, however, and to avoid the appearance of avoiding it, we attach hereto as Appendix A a portion of NPRA's statement to the House Ways and Means Committee relating to this issue. Since the NPRA statement to the House Ways and Means Committee in 1965, another fundamental argument against the proposed minimum Federal benefit standard has emerged. This is that no standard geared to average weekly wages of covered workers will work equitably among the States. This situation arises out of the significant differences among States in the extent and type of industrial activities carried on in them and the resulting wide variation among States in the average weekly wage of covered employees.

A striking example of these differences in industrial activities is found in a comparison of Washington, D.C., Michigan, and Wyoming. Similarly, the occupational structure of the unemployed differs widely among States; this difference arises again out of the variety of industrial activities carried on in the States.

The effect of these differences on the proposed 50 per cent minimum Federal benefit standard geared to average weekly wages of coverd employes is demonstrated in the following comparison. This comparison, developed by Unemployment Benefit Advisors, Inc., shows that in the 12 months ending June 30, 1965: (1) In five major states whose maximum weekly benefit amounts did not meet the proposed 50 per cent standard, a majority of the claimants did receive at least half of their average weekly wage; (2) on the other hand, in five states where the maximum weekly benefit amount met the 50 per cent standard, a majority of the claimants during the same period did not receive half of their average weekly wage.*

The proponents weekly benefit standards based on the average wages of covered workers have also failed to take into consideration the effect of such standards on states with dependents' benefits or variable maximums.

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