quests, or even eligibility for requests, on the 1-year basis, we would find that the conditions in some States could have improved adequately that they might never have had to come in had they been under the shorter requirement. The CHAIRMAN. As I understand it, there is some resistance, under existing law, to a State obtaining these funds when, in the opinion of the State itself, there is no need for the loan. The money has to be paid back, does it not? Mr. O'CONNELL. Yes, it does. The CHAIRMAN. Does the State have to pay interest under existing law for this loan or not? Mr. O'CONNELL. They are interest-free advances. The CHAIRMAN. Let me get to the question of the increase in the tax base. Your recommendation is that we increase the base from $3,000, the figure for the base since the enactment of the original program, to $4,200? Mr. O'CONNELL. Yes, sir. The CHAIRMAN. You point out without specifically saying so, or at least you point out indirectly, that if we should do this the threetenths of 1 percent of the wage base at $4,200 would bring into the Federal part of the program some $73 million additional." What at the moment is the cost of the administration of this program, our appropriations for this purpose to the States? What are we spending in the fiscal year 1959 and what do we contemplate it will cost us in fiscal year 1960? Mr. O'CONNELL. In fiscal year 1960, I think we expect to spend $336 million. The CHAIRMAN. How much will we take in according to your figures under the three-tenths of 1 percent at the present base? Did you say it will be less than that amount? Mr. O'CONNELL, No, we said for 1960 it would probably be $4 or $5 million more. Our estimate is that we would collect $341 million. In 1961, it looks as if it would just about balance even around $349 or $350 million. It would be close one way or the other. In 1962 we would expect to run a deficit of about $10 million; in 1963 a deficit of about $18 million, and in 1964, which is as far as we have computed, a deficit of around $30 million. This is on the present $3,000 base. The CHAIRMAN. In other words, Mr. O'Connell, you do not anticipate in these years that you mentioned any excess in receipts over the administrative costs reflected in appropriations that may be placed in the so-called Reed fund? Mr. O'CONNELL. It looks as if we would get none. The CHAIRMAN. What is the provision of existing law with respect to a direct appropriation from the general funds to the so-called Reed fund? Is there any provision in existing law for a direct appropriation? Mr. O'CONNELL. Yes. The CHAIRMAN. It is my recollection that if we do not have enough. money in the Reed fund to meet the needs of the requested loan by the States, we may appropriate from the general fund into that. Mr. O'CONNELL. That is right, sir. The CHAIRMAN. However, is there a provision for any repayment by the Reed fund to the general fund for those moneys appropriated out of the General Treasury to the Reed fund? Say that we have to appropriate next year $10 million out of the General Treasury into the Reed fund because of the requested loans and the low level of money in the Reed fund. Then the fund builds back up. Does the fund have to repay the Treasury for that advance under existing law? Mr. O'CONNELL. It calls it, as I understand, a repayable advance, but there are no specific provisions as to when you pay it back. It is kind of an open-ended advance. The CHAIRMAN. That is what I had in mind. We called it a repayable advance, but we did not provide any specifics for the repayment? Mr. O'CONNELL. There is no procedure for it. Mr. MASON. Mr. Chairman, when it was set up, it automatically said before you build up the Reed fund to $200 million you have to pay back what the Reed fund borrowed from the Treasury. The CHAIRMAN. That was my recollection also, but I think we do need perhaps to make some provision for greater clarity in this operation. Mr. O'CONNELL. I think it could be made clearer. The CHAIRMAN. Is your request for an increase in this tax base predicated largely upon the thinking that the three-tenths of 1 percent of the $3,000 base just does not bring enough money into the Federal Government to operate this program and therefore we need to increase the base, or is it for some other reason, Mr. O'Connell? Mr. O'CONNELL. I think essentially, Mr. Chairman, it is for two reasons: One, it is to bring the added money we need for the Federal administration, including the administration of these funds which we need to use to balance the system. Second, I think we have in mind strengthening the financing of certain States systems which in a sense are at the moment in the position of having to move into Federal financing; in other words, becoming eligible with some regularity for Federal help through this repayable advance system. The CHAIRMAN. I wonder if we could be assured, if we enacted your recommendation in this area, that the States actually would develop more money within their own funds for the payment of benefits? Mr. O'CONNELL. That would be up to the States. The CHAIRMAN. That is right. Mr. O'CONNELL. They would have the availability. The CHAIRMAN. That is right. Mr. O'CONNELL. Additional availability or potentiality of funds. The CHAIRMAN. As I understand, there is no prohibition against the State now that may be short of funds raising its tax above the level required in the Federal statute. Mr. O'CONNELL. None whatever, Mr. Chairman. Several have raised the tax base; several have raised the tax rate. The CHAIRMAN. That is what I am getting at. Some States have. an effective rate of 42 percent at the moment, do they not? Mr. O'CONNELL. Yes. The CHAIRMAN. Some States have a base for purposes of tax in excess of $3,000 at the moment, do they not? Mr. O'CONNELL. That is correct, sir. The CHAIRMAN. Is it not something then that the States themselves can handle without us having to tell the States that without exception 39678-59-3 they must tax up to $4,200 in lieu of $3,000? Why do we have to tell the States that they must tax up to $4,200 in lieu of $3,000 in order to better protect the State's own fund if the State, under existing law, can go to a higher base and if the State, under existing law, can levy a higher rate than the 3 percent overall? Mr. O'CONNELL. I think the potentiality certainly rests with the State. In other words, the State could, as you indicate, take care of increasing its tax base or adjusting its tax rate; in other words, making whatever taxing provisions it wanted to provide the revenues which it felt that it needed. I think there is one point in that connection, and that is that if the tax base were to be increased, it would place the States, at least to that degree, on a more equal basis with regard to this arrangement. The CHAIRMAN. There is a great disparity among the States, though, in the purposes to which these moneys are put, the amount that it pays, and the duration of the payment. Maybe some States do not pay for 30 weeks, or do not pay as high a benefit within that 30 weeks, and thus do not need the additional money that would come to the State fund from taxing on a basis of $4,200 versus the $3,000. Is that not possible? Mr. O'CONNELL. Yes, sir. The CHAIRMAN. Why then should we make the State tax its employers in excess of the needs of the program within a State? Mr. O'CONNELL. I think it really reduces itself to considering whether the present tax base is consistent with the early tax base arrangement, or the financing of the system as it was established. One point that might be raised is that as your taxable wage base differs from your average wage in covered employment, certain relative benefits go to the high wage-paying industries. I think there is some relationship, but it has never been defined too carefully, between the average wage in covered employment and the tax base on which the employers tax should be based. per The CHAIRMAN. Mr. O'Connell, I have a great deal of sympathy with the possibility that you outline that we do not receive a sufficient amount of revenue on the $3,000 base under the three-tenths of 1 cent rate that we apply to equal the needs for expenditure and foan under the program. Rather than require the increase in base, is there not some alternative that we could enact that would supply the Federal Government with the revenues that it needs to defray the costs of the Federal part of this program, including the need for loan funds? We levy a three-tenths of 1 percent rate that we do not allow to be reduced by the States rate. What is to prevent us from saying, if that is not producing enough money, that we go to four-tenths of 1 percent, or five-tenths of 1 percent, or even 1 percent if that is necessary for the Federal part if we are going to protect the State against bankruptcy through the establishment of a fund from which loans can be made? Would that not be a satisfactory way of resolving your needs for additional funds? Mr. O'CONNELL. I think, Mr. Chairman, it can easily be done this way. If your purpose is to provide solely for making solvent the Federal handling of this, Federal administration, it can be done, as you indicate, by some provision, and there are several ways to do it, whereby the Federal portion of the tax, the offset three-tenths, could be raised to four-tenths. It could be raised just against the present 3 percent, or you could increase the total one-tenth, and actually onetenth of a percent, just to put the facts on the table without endorsement of this, would provide more funds to the Federal part of the Federal financing part of the system than would the increase in the tax base. Roughly speaking, it would provide, I think, $110 million, or something of that order on today's taxable payroll. The CHAIRMAN. That was my understanding actually. Here is what disturbs me about increasing the base: We would tell the State that it must increase its taxable base to $4,200, at the same time, on the basis of your suggestion, we are not making any provision e for the employee who has an annual wage between $3,000 and $4,200 receiving any additional benefit under the State program? Mr. O'CONNELL. We are not. The CHAIRMAN. If we should enact any of the suggestions that are presently before the committee for Federal standards in the area of the amount to be paid and the duration it is possible that an employee in a wage range each year between $3,000 and $4,200 would be some additional benefit; is it not? Mr. O'CONNELL. If the benefit level is raised, he would get an increase. The CHAIRMAN. As I understand, under the proposals that are pending before the committee for minimum and maximum payments, the maximum is predicated upon about $78 a week earnings; is that not right? Anyone who gets $78 a week would come within the maximum that might be paid under the 50-percent requirement in these bills that are before the committee; is that right? Mr. O'CONNELL. I think that would still vary State by State. Mr. O'CONNELL. I think the average today of wages in covered employment would be nearer $85. I don't know the exact amount, but I believe it is $84 or $85, which means they could get $42, or 50 v percent. The CHAIRMAN. What I am getting at is this: If an employer is to be taxed at a certain base for this purpose, and it is a higher base than under previous law, should that not be reflected in some higher benefit to be paid? Mr. O'CONNELL. I would say that that really brings us back to the question as to whether, when or if the Federal Government should change the base on which the employer is taxed, that at the same time the Federal Government should establish some standard of benefit to be paid by the States with relation to this $4,200. The CHAIRMAN. I am not talking about the Federal Government doing it, or the State doing it, or who does it. What I am getting at is this: Would any program be fair that extracted more from the employer for the protection of his employees in time of unemployment that did not also provide a higher payment to those that would be included in this higher base? Mr. O'CONNELL. In the first place, you do not extract more from an employer unless his costs are higher, and his costs would only be higher if you were to provide greater benefits. There is nothing, for instance, to prevent a State from readjusting its taxing provisions on one base or another so that the actual amount of money, relatively speaking, might vary a little, depending o people who are covered, but the employer could adjust. If the State, for instance, were to continue on a new base a highe level of tax or the same level of tax on a new base, you would pre sumably at that higher level of income then go into one form of bene fit or another, so that the individual employee would benefit from thi increase in tax, but the State would have the responsibility of adjust ing its taxing provisions to provide a benefit level and duration which they considered to be proper for their people. They would just hav more leeway on which to do it. The CHAIRMAN. I realize there is a great difference between thi program and the program of old-age survivors and disability insur ance, but in OASDI we do not ever increase the rate of tax withou some increase on the other side. I think if we increase this base, w might well be faced with the question of equity of providing fo increases on the other side, either through action of the State o through action of the Federal Government in requiring thos increases. I could be wrong, but it just occurs to me that it does raise som question of equity. Mr. Secretary, you did not in your statement make any referenc to anything other than the administration's proposals. We hav before us a number of other proposals in forms of bills that hav been introduced by members of this committee as well as Member of Congress who are not on this committee. What is the position of the administration with respect to thi matter of so-called Federal standards in amounts that States wil have to pay and the duration of time within which States woul have to make those payments in order to qualify or be in complianc under this program? Mr. O'CONNELL. This administration I think has shown that it ha a very strong belief in the total unemployment system. We believ it is very useful and a device which is useful economically and ex tremely important socially from the point of view of income main tenance of the individual. The President has, since 1954, repeatedly requested the States t bring their benefits up to a point which he felt would more thoroughl satisfy these two objectives. Since that time there have been ver significant actions I think on the part of the States to improve th system. Last year temporary unemployment compensation was recom mended with the idea that during this period the States themselve would reexamine their structures to test their adequacy, if you wan to use that term, under a period of increased unemployment. Thi year was a year in which many of the State legislatures were to con sider this problem. Recently the President, as I think the chairman and the committe knows, met with the representatives of the Governors through thei executive council, at which time the Governors indicated that the felt very strongly that the present division of responsibility unde this Federal-State partnership system should remain essentially un changed. I think that our position in the administration would b that action by the States has been good. |