STATEMENT OF DONALD B. THRUSH, PRINTING INDUSTRIES OF AMERICA, INC., ACCOMPANIED BY GERARD D. REILLY, GENERAL COUNSEL

Mr. THRUSH. Mr. Chairman, I would like to introduce the people who are with me. On my right is our general counsel Mr. Gerard D. Reilly and on my left Mr. James Shields, president of Judd & Detweiler in the District, and he will also speak in behalf of the printing industry. I am particularly pleased to have this opportunity because I think many of you are aware that printing in the United States is a real classic example of private enterprise and it is made up of many, many small entities, and the chairman of the committee, who is active in the Small Business Committee, Senator Smathers and Senator Williams, have all had an active interest in what happens to small business in this country, and we are particularly appreciative of the attitude of Congress and of the Senate toward small business.

We, in our industry, although we are the seventh largest in terms of dollar item, we have a collection of small business enterprises, some 35,000 in all, and I think perhaps one of the interesting facts about this is that many of the people who run our businesses today worked in them in production capacities or sales capacities before and have been able to embark on their own to become heads of businesses.

That is the reason, possibly, for the size of our establishments as individual companies.

So on behalf of the members of the Printing Industries of America, the principal national trade association in the graphic arts industry, we certainly welcome this opporunity to appear before this committee to state some of the reasons why our industry is opposed to S. 1991, the Senate counterpart of H.R. 8282, which was rejected by the House last month when it enacted H.R. 15119, a comprehensive revision of the unemployment compensation laws.

The problems of our industry are such that some of the key provisions of S. 1991 would have a particularly severe impact upon employing printers. Accordingly we recommend that the committee, in reviewing the House bill before you, also reject those provisions of S. 1991 which the Ways and Means Committee of the House did not see fit to adopt.

The proposals in S. 1991 which we particularly oppose are:

1. The impairment of the "experience rating" system--a system that provides an incentive to employers to stabilize employment by granting significantly lower tax rates to companies whose operations are geared so as to minimize layoffs.

2. The imposition upon the States of Federal standards relating to the scale of benefit payments, eligibility, and duration of payments. States failing to amend their statutes to comply with these standards would face a loss of tax credits.

3. An increase in the taxable wage base of the Federal Unemployment Tax Act from $3,000 to $5,600, beginning next year, and to $6,600 thereafter. In contrast to this drastic proposal, the bill passed by the House would limit the increase in the taxable wage base to from $3,000 to $3,900 in 1969, and to $4,200 beginning in 1972.

4. Establishment of a Federal system of unemployment benefits for an additional 6-month period for workers who had exhausted their

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primary benefits under State law, such payments to be made irrespective of whether or not opportunities for employment at the State or national level were high.

5. A section drastically curtailing the rights of States to establish grounds for the disqualification of applicants.

Presumably the provisions of S. 1991 were drawn to carry out the President's message of May 18, 1965, in which he urged a "modernization" of the system in light of figures showing an increase in recent years of the number of unemployed persons who had exhausted their benefits. He recommended that the law should be amended so as to extend the coverage of the system, raise the benefit amounts, and lengthen the benefit periods for unemployed workers.

While we recognize the desirability of lessening the hardships encountered by regular workers who have become unemployed for long periods through no fault of their own, S. 1991 seems to go far beyond the objectives stated in the President's message. On the matter of extended benefits for persons who have exhausted their payment rights under State laws, we believe that the authors of H.R. 15119 acted wisely in providing that an extended duration of benefits should occur only in times of recessions on a national or statewide scale.

As witnesses at the House hearings pointed out, the States themselves have made tremendous improvements in the original laws passed after the enactment of the Social Security Act in 1935. Forty-eight out of fifty States now provide benefit protection for as long as 6 months, the average scale of benefits in the States has more than doubled since 1938, and the waiting periods once averaging from 3 to 4 weeks after layoff have been reduced to a single week. Thus a survey of the State laws fail to reveal the need for such a drastic federalization of the system as this bill contemplates. Until now each State has been responsible for the solvency of its own system and has been given great latitude in the tax rate, the schedule of benefits, and eligibility requirements. The key proposals in S. 1991 would not only increase costs enormously but would destroy the basic actuarial principles of the original Federal statute.

In view of the testimony in the record on this aspect of the matter, we shall confine our criticism of S. 1991 to two provisions which would have an unusually severe impact upon the thousands of small printing employers represented by our association. We refer to those provisions that discourage States from maintaining a merit rating system and force States to pay benefits to persons whose unemployment is a matter of deliberate choice on their part.

According to the last census of manufactures, the industry referred to as "printing and publishing" consists of some 35,000 establishments spread throughout all 50 States. The average establishment employs 18 production workers. Thus it is readily apparent that the industry is composed of a large number of small businesses operating with limited resources, serving small market areas and sensitive to the burdens of increasing costs. Yet in the composite, preliminary figures released this spring from the census of manufactures indicate that in terms of total dollar payroll, this is the seventh largest industry in the United States. Average hourly earnings in the industry for March of this year were $3.03.

The employees of this industry rank fourth in average rate of pay and are 45 cents an hour above the average wage reported for all manufacturing. The average employer unfortunately does not fare as well as indicated by an average profit based on sales of only 3.17 percent, slightly more than half of that reported for all manufacturers.

In the period between 1957 and 1965, figures compiled by the Bureau of Labor Statistics show that the industry has increased from 557,000 production workers to 615,000-a growth rate of about 2 percent a year. The trend to shorter workweeks, the increase in the total work forces, and the shortage of skilled printing craftsmen has meant that for many years, the industry has had virtually no unemployment. In other words, this industry has been able to meet the principal goal of the unemployment compensation laws, viz, stabilization of employ

ment.

One provision in S. 1991 (section 208) which encourages the States to stop the practice of basing the rate of tax upon the individual experience rating of the employer is grossly discriminatory to an industry like this. The merit rating provisions that exist under most State laws are in line with the original conception of unemployment compensation as expressed by President Roosevelt in his 1935 message to Congress:

An unemployment compensation system should be constructed in such a way as to afford every practicable aid and incentive toward the larger purpose of employment stabilization.

To encourage the States to abandon this method of taxation would mean a substantial increase in the tax rates of employers who have virtually eliminated recurrent layoffs among their own employees and would be a windfall to employers in industries that for seasonal reasons are unable to avoid recurrent layoffs or because of poor planning, have peaks and valleys of employment.

So far as our industry is concerned, the elimination of the merit rating system would result in a catastrophic tax burden. My fellow witness, this morning, Mr. Shields, has prepared a chart showing the impact upon his own company here in the District of Columbia, if S. 1991 is enacted, and a set of exhibits projecting the increased costs upon other representative printing companies selected at random in such widely scattered States as Illinois, Louisiana, Connecticut, Florida, Indiana, Kentucky, and Arkansas.

The other provision of S. 1991 that would operate most unfavorably against conscientious employers, and conscientious workers is the provision preventing States from disqualifying applicants for unemployment compensation for more than 6 weeks (except for fraud, labor disputes, and crime). This means that a person who has voluntarily quit his job or who has been discharged for cause, could draw under this proposed legislation a full 52 weeks of benefits after only a 6-week postponement. It would also mean that such persons could continue to draw benefits even though they had been offered substantially equivalent employment.

It is difficult to think of a provision better calculated to encourage malingering and self-imposed idleness. Its enactment would be an invitation to unscrupulous workers to exhaust whatever paymets are available to them before making any real effort to find other jobs.

Such claimants would put a heavy drain upon the State funds which in some jurisdictions might bring about insolvency in those funds.

In closing, we wish to assure the committee that our industry is not opposed to all reforms in the Federal-State system of unemployment compensation. Consequently, we do not oppose favorable Senate action on such a bill as H.R 15119, even though we recognize that its provisions for increasing the Federal tax would apply to employers in the graphic arts field-an industry in which even in periods of mild recession, there has been no scarcity of employment opportunities.

I would like now, Mr. Chairman, to introduce Mr. Shields, who will make a further presentation on behalf of our industry.

STATEMENT OF JAMES W. SHIELDS, PRESIDENT, JUDD &
DETWEILER, INC.

Mr. SHIELDS. Mr. Chairman and members of the committee, my name is James W. Shields. I am president of Judd & Detweiler, a member of Printing Industry of Washington, D.C., which belongs to Printing Industries of America.

I have prepared some exhibits to Mr. Thrush's testimony which illustrate in rather dramatic fashion what the tax impact upon typical printing companies would be if Congress should adopt (1) the provisions of S. 1991 which increases the taxable wage base from $3,000 to $56,000 beginning in 1967 and to $6,600 in 1970, and (2) should couple with it the provisions of that bill calculated to compel the States to abandon the experience rating system.

Exhibits 1 and 2 deal with my own company, one of the larger companies in the District, but still small business as that term is generally defined in Federal publications. You will notice in exhibit 1 that because our company has been able to avoid layoffs in the past 3 years, our State tax rate under the experience rating system is only one-tenth of 1 percent, and that our total payments to the Federal and State Governments is slightly less than $5,000.

If the House bill should be amended merely by adopting the proposals in S. 1991 for increasing the tax base, this figure would more than double next year and in 1971 jump to about $12,000. If the District is compelled to abandon the merit rating plan, our bill for unemployment compensation, assuming a work force of the same size and yet no layoffs for lack of work, would be close to $64,500, approximately 13 times our current tax.

Obviously this would create a severe hardship and remove any incentive for stabilizing employment. Plants with a high layoff rate and plants with none would be treated alike. Exhibit 2 is a chart also based upon our own experience showing how the existing experience ratings create an incentive. In the period 1960-62, as a result of losing a major customer, we were compelled to reduce our work force in order to remain in business. As a result under the present law our local tax

rate went up to 2 percent, requiring us to pay a District of Columbia tax of about $28,000 in 1961, and almost as much in 1962. The company had to undergo a long and painful period of readjustment to regain our merit rating. We do not quarrel with this situation, however, for even though the circumstances in 1961 were beyond our control, it was not a permanent situation. But, as the committee will observe from projection on the lower part of the chart, our tax figures if S. 1991 is adopted, would be doubled over what they had been in the grim years of 1961 and 1962, even though no Judd & Detweiler personnel have to resort to the unemployment compensation rolls.

The other exhibits are based on projections of the effect of S. 1991 on 11 other printing companies, some large, some small, located in eight different States, viz, Illinois, Connecticut, Kentucky, Arkansas, Indiana, Louisiana, Florida, and Kansas. Exhibits 3 and 4, from Illinois, show that in a small Chicago firm with an experience rating of fourtenths of 1 percent, now paying a tax bill of $2,300, would eventually be faced with costs of $17,500; but in a larger firm in a nearby community which enjoys the minimum rate, the tax would go from approximately $1,100 to nearly $56,000.

In Connecticut, exhibit 5, the rates for a medium-size company, not having a minimum experience rating, would more than triple. In Kentucky (exhibit 6), a firm reporting its local merit rating such that no State tax is required, would find its tax bill going from $1,400 to $17,800.

The same principles of geometric tax progression are illustrated in the figures for an Arkansas concern (exhibit 7), two Indiana firms (exhibits 8 and 9), two companies in New Orleans, La. (exhibits 10 and 11), and of Florida (exhibit 12) and Kansas (exhibit 13) printers.

These exhibits show clearly that the passage of S. 1991 would result in serious cost dislocations in the printing industry. The favorable experience ratings prove that we generally maintain stable employment levels and that there is no justification for a tax increase of the magnitude proposed in S. 1991. For the same reasons they show why we favor the passage of H.R. 15119 which retains experience ratings. I request permission to have these exhibits inserted in the record. The CHAIRMAN. As I understand it, S. 1991 had a provision that would give the State the option to repeal the experience rating if they wanted to, but it was not mandatory.

Mr. SHIELDS. Well, that is correct, as I understand the thing, what we have to look at the thing is we have to make projections that it could happen and therefore we have to look at it in that light. The CHAIRMAN. Thank you.

Mr. SHIELDS. Mr. Chairman, I requested permission to have these exhibits inserted in the record. I didn't know whether you heard it. The CHAIRMAN. Yes.

(The exhibits follow:)