STATEMENT OF JAMES J. MAHER, CHAIRMAN, SOCIAL SECURITY COMMITTEE, COMMERCE AND INDUSTRY ASSOCIATION OF NEW YORK, ACCOMPANIED BY MAHLON Z. EUBANK, DIRECTOR, SOCIAL SECURITY DEPARTMENT

Mr. MAHER. My name is James J. Maher. I appear here as chairman of the Social Security Committee of the Commerce and Industry Association of New York.

With me is Mahlon Z. Eubank, who is director of the association's social security department.

The CHAIRMAN. You are recognized, Mr. Maher.

Mr. MAHER. Mr. Chairman, I have a prepared statement which I would like to enter into the record, and with your permission I would like to comment on some of the highlights of that statement.

The CHAIRMAN. Without objection, the entire statement and the material appended to it will appear in the record, and you are recognized to proceed in your own way.

Mr. MAHER. Thank you, Mr. Chairman.

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 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.

This original concept of State responsibility in unemployment compensation was sound then and is just as sound today. The States are in the best position to adapt their unemployment programs to their particular unemployment pattern, their industrial composition, and their economic circumstances.

What is more important, I think, gentlemen, is that this has afforded the States an opportunity to develop through experience and experimentation programs that are best suited to their individual economic and employment patterns.

By transferring control over the unemployment insurance programs to the Federal Government, we would eliminate a sphere in which the States find their greatest scope of experimentation to meet the everchanging employment pattern and economic circumstances. Our 20 years of experience with unemployment insurance have been marked by constant changes in the laws of the various States. These were the result of individual State experimentation which has been helpful to all of the States.

This has been especially true with respect to benefits, duration, and other areas in the system.

The proponents of this bill by implication are saying that the elected officials and legislators of various States' governments are unwilling to respond to the needs of their citizens. That this is not true is best evidenced by these facts:

In New York during the 1959 session, the legislature passed legislation which broadened coverage to all employers who pay $300 in wages in a calendar quarter. In addition, the New York Legislature passed in 1959, "tapering off" extended unemployment benefits, rather than borrowing from the Federal Government.

New York's Industrial Commissioner Martin P. Catherwood, in referring to this legislation, said:

This is a significant forward step. In providing emergency benefits under our regular State program, it restores State initiative in an area of State responsibility.

Also in New York in 1958, the maximum benefit amount was increased from $36 to $45 following a pattern of setting the maximum at 50 percent of the State's average wage. Entitlement was broadened from 20 weeks in the base period to 40 weeks within a 2-year period, 15 of which must be within the last base year.

Other States have not waited for the Federal Government to act to broaden coverage below four in 20 weeks. Twenty-five States now have a lower coverage provision. All but two of the remaining States extended coverage below the present requirement by common ownership, multiple unit, and contract-tacking provisions.

A study of the various duration provisions in the State unemployment insurance laws has shown that about 75 percent of all covered workers are in States, 35 in all, which provide 26 weeks of uniform duration or 26 weeks of maximum variable duration. This is in contrast with 20 years ago when 42 States limited payments to 16 weeks or less and none paid benefits for more than 20 weeks.

This trend in increasing the maximum amount of duration will be reflected among some more of the 44 States whose legislatures are meeting this year.

We predict that many of these States will take action to extend the maximum duration of benefits in their unemployment insurance laws. Over the past 5 years 45 States have increased their maximum benefits one or more times.

Among the 44 State legislatures which are meeting this year, we expect again a substantial number of them will take action to improve their benefit formulas.

There is a point that I would like to make, Mr. Chairman, and that is with regard to the depressed areas around the country. We fully recognize that these areas present special problems where continued high levels of unemployment persist in prosperous as well as in recession years.

Some advocates of the Karsten-Kennedy bill have contended that this is one of the fundamental problems it would solve, but the extended benefits this legislation would provide by themselves cannot bring about lasting improvement. Actually, in the long run, they may aggravate the problem by discouraging the mobility of labor, and such standards cannot possibly fit the many diverse local conditions that exist in the 50 States, including Hawaii.

These facts do not tell the whole story. Although no statistics are available, it is clear, nevertheless, that a vast majority of claimants today are receiving benefits of more than 50 percent of their takehome pay.

We object to the manner in which this bill would regulate the amount and duration of benefits. It provides that the maximum benefit provided in any State must equal two-thirds of the average weekly wage of covered workers in that State; that benefits must be at least equal to one-half of the claimant's average weekly wage; and that all claimants are to be eligible for at least 39 weeks of benefits.

Up to their stated maximums, most States, where a claimant has at least one quarter of the full-time work, pay the claimant 50 percent of his average weekly wage. The benefit formula is further geared in these States so that the lower paid workers receive more than 50 percent of this wage. This is true in New York, as illustrated by the exhibit that is attached to our statement.

I would just like to comment on that, Mr. Chairman, with some illustrations.

A gross weekly wage at $75 in New York would produce a benefit of $38, which is a little over 50 percent. At $88, the benefit would be $44 which would produce a benefit of 50 percent. At $90, the benefit would be the maximum of $45, or approximately equal to 50 percent, although, in relation to gross weekly wage, and on the take-home pay basis, of course that would be more and depend upon the tax status of the individual.

To pay for an extended duration of 39 weeks to seasonal workers, secondary wage earners, and others who have a meager attachment to the labor market, would prove extremely costly to many States and might develop undesirable countereffects.

We submit that the States have exercised sound judgment in paying more than 50 percent of the average weekly wage to the low-wage earner who is regularly attached to the labor market, rather than to pay benefits of long duration to seasonal workers and others who show only a meager attachment to the labor market.

The desirability of setting a maximum at two-thirds of the State's average weekly wage is open to serious question.

For example, the average weekly wage in New York is now between $91 and $92. Under the standards proposed in this bill, the maximum weekly wage would increase from the present $45 to $61. To obtain this maximum the worker's average weekly wage would have to be $122.

We have in New York situations involving seasonal industries where earnings are high and we have these situations in mining, and quarrying, and some other industries, and some workers in some of these industries must only work 20 weeks and could now receive 26 weeks of benefits.

Under the Karsten-Kennedy bill, these same workers who just meet the 20-week New York entitlement provision would receive benefits for as long as 39 weeks.

A study of wage patterns in other States would no doubt show that you would also have somewhat of a similar situation. Such seasonal workers thus would receive tax-free benefits for longer periods in each year than the periods they actually work. In fact, they would be receiving either wages or benefits in some cases during the entire year except for a 1-week waiting period.

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Another provision of the Karsten-Kennedy bill reduces coverage to an employer who at any time during the taxable year has one or more individuals in his employ. All States would have to extend coverage under this formula.

We object to the provision in its present form for the following

reasons:

There are many small employers who hire temporary workers during periods of heavy seasonal business. Under this bill these employers would automatically be covered. In many instances such temporary workers are not generally attached to the labor market and therefore would not be eligible to receive benefits. Small employers thus covered would have to pay Federal and State unemployment insurance taxes on these employees even though they are not eligible to receive benefits.

I don't know the exact statistics, but I think there are about 1,800,000 that have been brought under the different State laws, leaving something better than a million that would come under the Federal, in addition to the other 1,800,000; and I think, too, that we have here a question of administrative costs, as well as the problems that does impose on a lot of these small employers.

New York provided coverage for one or more this year in a bill which extended coverage to all employers who paid remuneration of at least $300 in a calendar quarter.

We consider this to be the more practical way to accomplish the extension of coverage than that proposed in the bill. We understand that this committee has always also been urged to consider legislation which would increase the wage base for the Federal unemployment tax from $3,000 to $4,200.

If additional revenues are required to finance the cost of administration of the program, we strongly believe it would be sounder and more equitable to increase the tax rate rather than the tax base. If added revenue is needed, all employers should bear their proper share of the additional cost.

Studies have indicated that the vast majority of claimants who exhaust their benefits do not earn $3,000 in their base year. An increase in the tax base would require extra taxes from only those stable employers who are contributing the least to the benefit and administrative workloads.

An increase in the tax base beyond $3,000 would have no impact on the low-wage industries or on the seasonal high-wage industries. They would not pay any additional tax by reason of an increase in the wage base. These same industries are those which are presently producing benefit costs far in excess of their contributions to State funds.

Thus, increasing the wage base would result in substantial inequities by placing the added tax burden on the stable high-wage employer rather than on the seasonal low-wage employer.

Many of the States faced with the need for increasing revenues to pay for additional benefits and increased duration have decided that a tax rate increase is the more preferable method. Seventeen now have tax rates in excess of the so-called standard of 2.7 percent, and these 17 States embrace over 50 percent of the workers covered under the programs.

In contrast to the judgment of these States, only five States have elected to increase the wage base.

Now, proponents of an increase in the taxable wage base for unemployment insurance cite the discrepancy between the unemployment insurance wage base and the old age and survivors insurance wage base, and of course we don't feel that they should be considered in that light since the two are entirely different: One, the old age benefit provision, being where you accumulate wages over a long period of time and the computation of the benefit is based on those accumulated wages, and you have a better percentage relationship to changes that occur in your economic levels.

Unemployment insurance, computed each year, stands by itself, so it is computed only on the period of 1 year. Support for some of these contentions as to the preferability of an increase in the rate rather than an increase in the wage base can be found in various of the reports of the Federal Advisory Council on Unemployment Insurance.

The point I did not make before, Mr. Chairman, when I was discussing the matter of benefit of 50 percent, was that most States up to their maximum or cutoff points are providing benefis up to 50 percent or more of the claimant's gross wage. In fact, if we consider it from the point of view of spendable income, the relationship between benefit and wage would be at least 50 percent in the great majority of the States.

I don't think the effect of increased income of social security taxes since 1939 on take-home pay can be disregarded in comparing tax-free benefits with wage income.

In 1939 wages were virtually free from income tax. Therefore, the comparability of these ratios becomes somewhat cloudy.

In conclusion, Mr. Chairman, I would like to again emphasize that this legislation is both unnecessary and undesirable. The States themselves have proven that they are capable of legislating and administering their unemployment insurance programs according to their own best needs.

The Karsten-Kennedy bill would impose standards on them, and, in our judgment, would be an unwarranted intrusion on their rights. For this reason we urge your committee to act unfavorably on this and any other similar measures that may come before it. (Prepared statement of Mr. Maher follows:)

STATEMENT OF JAMES J. MAHER, CHAIRMAN OF THE SOCIAL SECURITY COMMITTEE OF COMMERCE AND INDUSTRY ASSOCIATION OF NEW YORK, INC., AND ASSISTANT VICE PRESIDENT OF THE CHASE MANHATTAN BANK

Commerce and Industry Association of New York, Inc., the largest service chamber of commerce in the East, represents approximately 3,500 employers, large and small, in all branches of industrial and commercial activity, including many corporations headquartered in New York but engaged in multistate operations. Through its social security committee, which includes tax and personnel executives of leading national organizations, and its social security department, the association studies and actively represents management thinking of significant unemployment insurance issues at both the National and State levels. The Commerce and Industry Association appreciates this opportunity to testify before your committee concerning legislation that would impose Federal standards on the States in connection with the benefit and other provisions of their unemployment insurance programs.