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FINANCING

S. 1991 would increase the present wage base of $3.000 to $6.600 by 1971. This increase has been justified on the grounds that it will bring the wage base for unemployment compensation in line with social security. However, social security benefits bear a direct relation to the wage base, whereas unemployment compensation benefits do not.

Increased spending in one type of social legislation does not justify comparable spending in all other types of social legislation. More realistically, large increases in one program decrease the ability of those who must pay for such benefits to absorb the costs of other programs.

The modest increases in the wage base of $3,000 per year to $3,900 per year, effective with respect to wages paid in calendar year 1969 through 1971 and to $4,200 beginning in 1974 and thereafter are more reasonable than S. 1991's attempt to place the unemployment compensation wage base on a par with the social security wage base regardless of the cost.

In conclusion, the Association endorses the enactment into law of H.R. 15119 and urges the Committee to reject S. 1991.

Hon. RUSSELL B. LONG,

AMERICAN BAKERY & CONFECTIONERY WORKERS'
INTERNATIONAL UNION AFL-CIO,
Washington, D.C. July 22, 1966.

Chairman, Committee on Finance,
U.S. Senate, Washington, D.C.

DEAR SIR: In behalf of the membership of the American Bakery and Confectionery Workers' International Union, AFL-CIO whom I have the honor to serve, I wish to present the attached statement for inclusion in the record of the Hearings now being held by the Senate Finance Committee on proposed measures to reform the unemployment compensation "System" by establishing federal minimum standards.

The membership of our International Union numbers approximately 90,000 men and women who are employed in almost every state of the Union and in the District of Columbia.

Recognizing the crowded hearing schedule which your Committee faces, I am not asking for time to appear personally in order to testify, I am asking that the statement be made part of the record. I have full confidence in the members of the Committee and I am firm in the belief that they will give as full weight to the statement attached hereto as they would had I appeared in person.

Very sincerely yours,

DANIEL E. CONWAY,
International President.

STATEMENT OF DANIEL E. CONWAY, INTERNATIONAL PRESIDENT, AMERICAN BAKERY AND CONFECTIONERY WORKERS' INTERNATIONAL UNION, AFL-CIO Mr. Chairman and members of the committee, because the House of Representatives has failed to pass legislation which would bring about the long overdue recasting of our Unemployment Insurance system, the members of the American Bakery and Confectionery Workers' International Union, in whose behalf I present this statement, look to you to present and recommend to the U.S. Senate such legislation as would bring about the much needed reform of our chaotic unemployment compensation "system."

Our concern is far from academic. The baking industry is one which is undergoing radical change. Technological change, among other developments, inlcuding the increasing pace of automation, has been taking its toll of jobs and job opportunities of our members.

Over the past 48 months. 227 plant closings, department shut-downs and small retail shop closings have deprived 5,802 members of their jobs. In a idition, roughly 3,000 jobs have been eliminated by the introduction of new production machinery and changes in production techniques. Our Union has a membership of approximately 90,000 workers and the loss of 8,800 jobs brings this loss to close to 10 percent of our current membership.

These workers, deprived of their livelihoods through no fault of their own, are dependent upon unemployment compensation to tide them over their period

of unemployment. They do not look upon unemployment compensation as an adequate substitute for jobs. They do expect that unemployment insurance would be available to them in an amount sufficient to enable them to meet the needs of their families while they are engaged in finding employment. And since their search for employment in their chosen craft is a difficult one, the comparative brevity of the period during which they receive unemployment compensation creates a hardship difficult to describe.

What are we to say then about our members who lose their jobs as a result of the closing of a small hand-shop production unit-the small retail bakery where the baker craftsman bakes bread, cake, rolls, etc., on the premises. This type of operation is generally exempt from required participation in the unemployment compensation "system" and our members cannot qualify to receive unemployment compensation. Surely equity and justice requires that the basic federal law be changed to provide for their coverage. The exemption of such enterprises, if continued, would only serve to prolong the suffering and discrimination which have plagued these workers for far too long.

In using the term "system" to describe the various unemployment compensation arrangements which exist, I would not want the Committee to think that either I or the members of the Union I represent have the mistaken idea that there are uniform requirements, uniform insurance payments, uniform disqualification provisions, or uniform duration periods in all the 50 states. With membership in 42 of the 50 states we are very much aware of the lack of system, the lack of standards-in short-we are aware of the hodge-podge patchwork of 50 different arrangements that exist.

Some order ought to be brought out of such chaos.

As each year passes, and as the cost of living rises, the failure to establish federal minimum standards for unemployment compensation in terms of payments, duration, and extension of coverage, increases the hardships and reduces the meaning of unemployment compensation.

The benefit levels, while they were initially geared to approach two-thirds of the average wages in a given state have hardly kept pace with the realities of life. The initial rationale has been forgotten or ignored. There is immediate need to restore the benefit levels to the levels originally intended. Only in this way can the unemployed worker meet the needs of his family and only in this way can the unemployment compensation arrangement provide the maintenance of purchasing power in the community which provides business with the customers they depend upon.

So far removed from the original intention of the framers of the legislation when it was first introduced and passed thirty years ago, that in all too many instances unemployment compensation payments are well below the level of welfare relief payments. Our members do not want to become recipients of welfare relief. They want jobs and they need the type of insurance payments which will enable them to continue their search for jobs without facing the prospect of becoming welfare recipients.

We appeal to the Senate Finance Committee to provide the needed federal minimum standards. We have too long gone along with minimum federal standards and this has not proven to be satisfactory. The House of Representatives has continued the unacceptable approach of minimum federal standards-therefore we look to you to approve the list of standards, federal minimum standards, as contained in S. 1991.

Only through action in the Federal legislature can we overcome the tendency in the various states to look upon the unemployment compensation system as a program which must be tailored to meet the demands of businessmen who complain of the taxes they must pay in order to fund the state system in which they participate. The object of unemployment compensation is to provide unemployed workers with temporary support and not to provide businesses with a minimum of tax contributions.

It is our opinion that the payments of employers into the unemployment insurance funds are premium payments similar to what they would be required to pay for any insurance program. Their payments into the unemployment funds are as much a standing cost of doing business as is their fire insurance, burglary insurance, or any other form of standing and regular expense they must face in the conduct of business. The system was not established for their convenience, it was established to meet a pressing social and economic need.

Only through action by your Committee can we see any possibility of restoring the unemployment compensation arrangement into a semblance of rational order and put an end to its deterioration at the hands of various state legislatures. We urge that you recommend S. 1991.

AMERICAN PETROLEUM INSTITUTE,
New York, N.Y., July 25, 1966.

Re H.R. 15119.

Hon. RUSSELL B. LONG,

Chairman, Committee on Finance,

Senate of the United States, Washington, D.C.

DEAR MR. CHAIRMAN: Attached is a statement submitted in behalf of the American Petroleum Institute, the Independent Petroleum Association of America, Mid-Continent Oil & Gas Association, the New Mexico Oil & Gas Association, the Rocky Mountain Oil and Gas Association, and the Western Oil and Gas Association, which represents the position of the petroleum industry on H.R. 15119, Unemployment Insurance Amendments of 1966.

Sincerely yours,

FRANK N. IKARD.

STATEMENT IN BEHALF OF AMERICAN PETROLEUM INSTITUTE, NEW YORK, N.Y.; INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA, TULSA, OKLA.; NEW MEXICO OIL & GAS ASSOCIATION, SANTA FE, N. MEX.; ROCKY MOUNTAIN OIL AND GAS ASSOCIATION, CASPER, WYO.; WESTERN OIL AND GAS ASSOCIATION, LOS ANGELES. CALIF.

The Unemployment Insurance Amendments of 1966, H.R. 15119, would make three major revisions in the existing Federal-state system of unemployment compensation. These revisions are (1) a provision for court of review of decisions by the Secretary of Labor concerned with determinations of state conformity and compliance, (2) a Federal-state program of extended benefits for persons who have exhausted their state benefit entitlement, and (3) upward adjustments in the Federal taxable wage base and in the Federal tax rate. The bill would also make several other less important changes in the law.

The following paragraphs of this statement will present, first, a comment on the above enumerated three major revisions that would be provided by H.R. 15119. This will be followed by a brief reference to some of the less important changes that would be made under the bill. The concluding portion of the statement will discuss some of the issues presented by proposals that are being urged as amendments to the House-passed bill. These amendatory proposals would provide Federal standards in regard to benefits, eligibility, and employer experience rating and would provide a new program of Federal benefits.

COMMENT ON MAJOR REVISIONS IN H.R. 15119

Judicial review

In providing for judicial review of decisions by the Secretary of Labor ruling on the question of whether or not a state law and the administration of the law conform to the requirements of Federal law, the bill would permit an impartial determination with respect to areas of disagreement between the state and Federal governments.

Under present law the absence of opportunity for court review has forced the states into immediate compliance with rulings of the Secretary, even though the states had valid reasons to consider the position they maintained on a point in controversy to be the correct one. Any state that does not comply with the Secretary's rulings under existing law is in danger of losing the offset tax credit and Federal reimbursement of administrative costs. The proposal in the bill to grant judicial review is meritorous.

Extended benefit program

The Federal-State Extended Unemployment Compensation Program that would be initiated under the bill would provide a permanent means of dealing with benefit exhaustions arising in periods of economic downturn. On two occasions in the past when benefit exhaustions had reached high levels, the Congress

acted to institute extended benefit programs to deal with the particular situations then existing.

It would seem desirable to have a permanent program to deal with this problem, and the bill meets that need by, in effect, requiring the states to pay extended benefits equal to half of an individual's regular state benefits when those state benefits have been exhausted during periods of higher than normal unemployment. The Federal Government would reimburse the states for half the cost of these extended benefits. Under the bill, extended benefits would be payable in all states when the rate of insured unemployment nationally is five percent or above, and the rate of benefit exhaustions nationally equals or exceeds one percent of covered employment. The extended benefit program would also provide for the payment of extended benefits in an individual state, even though the national indicators would not trigger a national program, if insured unemployment in the state has, for a 13-consecutive-week period, equaled or exceeded 120 percent of the insured unemployment within the state during the same period in the two immediately preceding calendar years, provided that the rate of insured unemployment in the state is at least three percent. The bill also provides criteria for terminating either the national or state extended benefit period in which payments would be made.

While this extended benefit program fills a gap in unemployment compensation protection, two brief observations might be made with respect to specific criteria and limitations contained in the bill. First, the criteria under which the payment of extended benefits would be triggered would seem to be somewhat low. Secondly, there are unsound limitations in the bill which would preclude a state from withholding eligibility for extended benefits from certain categories of claimants (e.g. seasonal workers, etc.) whose unemployment is not caused by the prevailing economic conditions.

Tax adjustments

The increase in tax burden provided under the bill would increase the rate of the Federal Unemployment Tax from its present level of 3.1 percent to 3.3 per cent effective January 1, 1967, with no change in the 2.7 percent offset tax credit : and the taxable wage base would be increased from its present level of $3,000 to $3,900 beginning in the calendar year 1969 and to $4,200 beginning in 1972 and thereafter. In evaluating the significance of these tax changes, it should be noted that when the increases become fully effective in 1972, the level of Federal Unemployment Tax collections will be more than double what it otherwise would have been under existing law.

Additional Federal Unemployment Tax revenue obviously will be required to finance the Federal share of the extended benefit program and to meet rising administrative costs; however, it would be more equitable to raise this additional revenue by an increase in the tax rate without any increase in the taxable wage base. Since there is no correlation between the level of wages paid by an employer and state program administrative costs or the Federal share of the cost of extended benefits, any necessary additional revenues should be raised by adjusting the Federal tax rate. The increase in the taxable wage base places a disproportionate share of the burden of these costs on employers who pay high wages and provide steady employment.

In addition, increasing the Federal tax base will force most of the states to make a similar upward adjustment in their taxable wage base. Thus, the states generally will be compelled to shift drastically from their traditional approach to unemployment compensation financing, which placed principal reliance on adjustments in tax rates to secure equitable distribution of the cost of the state unemployment compensation program among employers. This shift in financing emphasis will adversely influence the effectiveness of the experience rating incentive.

COMMENT ON OTHER REVISIONS IN H.R. 15119

With respect to the changes that would be made by the bill that are of relative lesser importance, it may be worth noting that some of them have the effect of imposing Federal standards in areas in which Federal requirements do not now exist. While these are not of such importance as to merit detailed reference, the observation can be made that in principle the expansion of Federal criteria should be undertaken only upon a clear showing of need and of refusal on the part of the states to act.

The proposal in H.R. 15119 to initiate a continuing program of research and factual study to evaluate the unemployment compensation system has the poten

tial for being a constructive step toward progress in maintaining sound, up-todate state unemployment compensation programs. Similarly, the provision of funds for training personnel in the administration of the unemployment compensation programs is meritorious. These two provisions should make meaningful contributions to the objective of a strong and vital unemployment compensation system.

COMMENT ON PROPOSED AMENDMENTS TO H.R. 15119 TO IMPOSE FEDERAL STANDARDS AND FEDERAL BENEFITS

During the deliberation by the Committee on Finance on the subject of unemployment compensation, consideration will be given to other proposals that are before the Committee either in bill form or as Administration recommendations, which would have the effect of imposing Federal standards affecting benefits, eligibility, and the experience rating, and which would create new Federal benefits. The adoption of these proposals will likely be urged as amendments to the House-passed version of H.R. 15119. The balance of this memorandum will pertain to these proposals for "federalizing" the Federal-state unemployment compensation system.

On May 18, 1965, the Administration sent to the Congress its proposals for fundamental changes in the Federal-state unemployment system. The Administration's recommendations were embodied in companion bills, S. 1991 and H.R. 8282. It is S. 1991 that is likely to be under consideration in connection with work on H.R. 15119. The balance of this comment will essentially pertain to proposals such as are contained in S. 1991. Aside from its tax provisions, the major components of this bill are as follows:

1. Impose Federal benefit, duration, eligibility, disqualification and financing standards on the state unemployment compensation programs.

2. Provide six months of Federal unemployment benefits (called Federal Unemployment Adjustment Benefits) to persons who have collected state unemployment benefits for six months and who are still unemployed.

3. Provide Federal grants to any state where the unemployment compensation benefits paid out exceed two percent of the total covered payroll in the State.

Enactment of Federal standards such as contained in S. 1991 not only would shift direct legislative control over unemployment compensation from the states to the Federal Government, it also would drastically change the fundamental philosophy upon which unemployment compensation is based. Unemployment compensation is a special purpose program; it was designed to provide temporary protection during the period of unemployment that normally occurs when a worker has been laid off from one job and is searching for another. The Federal unemployment benefits that would be provided by S. 1991 would extend state unemployment benefit duration so far that the program would become closely akin to a national guaranteed annual wage plan.

Congress established the present Federal-state unemployment compensation system in 1935. In doing so, after careful consideration, it deliberately chose to allow each state to determine the substantive provisions of the state's unemployment compensation law. The responsibility placed on each state to provide an unemployment compensation program that would meet the needs of the people of that state and the authority to carry out that obligation were for all practical purposes unlimited. That Congressional decision, which is the keystone of the unemployment compensation system in this country has been reaffirmed, directly or indirectly, by each succeeding Congress. Nevertheless, the decision has been attacked continuously. Time after time efforts have been made to persuade Congress to reverse its decision and strip the states of all but token responsibility for their unemployment compensation programs. The advocates of "federalizing" the unemployment compensation system are again confronting the Congress with this fundamental issue: Shall each state government control its unemployment compensation program or shall this responsibility be taken away from the states and direct legislative control over all 53 state programs be pre-empted by the Federal Government? This issue is basic to any consideration of imposing sweeping Federal standards and new Federal benefits.

If the Congress is convinced by the facts that the states have failed to provide unemployment compensation programs that are reasonably in accord with the needs of their citizens, if it is demonstrated that the states have been derelict

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