Mr. O'CONNELL. Yes, sir.

Mr. BYRNES. Now, you state that that is needed because of the situation in a number of the States. I wonder if you could advise the committee as to what States you feel require as a growing proposition tax increase in their revenues, a tax increase to produce an increase in their revenues, and what their present tax rate and base is in those particular States? Could you supply that for the committee?

Mr. O'CONNELL. Yes, we could supply that. I want to be sure, Mr. Byrnes, I understand exactly. That would be to maintain a present level of benefit without in a sense infringing on their solvency so they wouldn't have to come to the loan fund. Suppose we take all those who are fairly close, you might say, to requiring a coming to the Federal Government for a loan and then give you that data. Mr. BYRNES. What is that?

Mr. O'CONNELL. We have to have some way to pick out the States. Mr. BYRNES. What you are suggesting here, though, is that there are a number of States that need as a permanent proposition-there is nothing temporary about this $4,200 base. Once you do it you are not going to go back, I would assume. You are suggesting a permanent tax increase which you say is essential to take care of a number of States who have need for increase in their revenues and their reserves. I would like to know what States are causing us as the Federal Government to go beyond raising the money that we need to carry out our obligation.

Mr. O'CONNELL. We will supply that.

(The above-mentioned figures are as follows:)

States whose benefit costs during last 5 years averaged close to or more than 2.7 percent of taxable wages

! Alaska now has a $4,200 tax base; Oregon and Rhode Island have a tax base of $3,600.

Mr. BYRNES. Also let me ask this since you are now moving into the area of benefits, really suggesting a tax increase for the purpose of providing funds and reserves to pay benefits, let me ask you whether or not the advisory committee to the Secretary has not consistently recommended against an increase in the base by the Federal Government to accomplish that particular objective?

Mr. O'CONNELL. The majority of the advisory committee at its last meeting recommended an increase in the tax base.

Mr. BYRNES. Did they recommend it for benefit purposes?

Mr. O'CONNELL. I don't

Mr. BYRNES. It is my understanding that was for benefit financing.

Mr. O'CONNELL. I don't believe that they did. It is not contained in their recommendation. You know the purpose for their recommendations of an increase in tax base.

Mr. BYRNES. But they did have a recommendation, didn't they, with respect to benefit financing? Could you advise me as to what their recommendation was on benefit financing?

Mr. O'CONNELL. You mean what did they recommend on-they really recommended consideration of 30 weeks uniform and a weekly benefit equal to 50 percent of wages to be secured by the greater number by a graduated increase at the State level in the maximum benefit amount.

Mr. BYRNES. If you don't know, you supply it for the record. It is my information that the majority, that all of the committee, they were unanimous on the point, on their recommendation in the area of benefit financing. There was disagreement in the area of administrative financing. But in the area of benefit financing it was unanimous that this should be left completely to the States and they didn't recommend either benefit increase or rate increases. They recommended staying away from a base increase or rate, to say away from any recommendation and suggested that was a matter that must be left to each State to determine by itself, that the Federal Government should not for the purpose of benefit financing go into a base increase. Mr. O'CONNELL. I think I would put it this way, that in considering adjustments in financing they stated that they would not enter into consideration in that regard of benefit financing, that they would restrict themselves to the consideration of administrative financing. Mr. BYRNES. Didn't they say, though, and I quote:

Any increase in benefit cost as a differential impact in different States because of the different instances of unemployment, its cost resulting from differences in wage levels, different composition of industry and so on, in view of these variations between States, it is our view that each State will have to study its own needs before it can reach a decision as to which benefit financing methods are appropriate for that State?

Mr. O'CONNELL. For the record I would like to be absolutely sure on this, Mr. Byrnes. It is my recollection that this is the recommendation of the subcommittee which dealt with this area and that the recommendation of the full committee may differ somewhat and I would like to furnish you with an accurate report of their recommendation.

Mr. BYRNES. If you would, please.

Isn't it also true that in 1956, I believe it was, and prior to that, the advisory committee recommended against using an increase of a base to produce an increase in revenue rather than increasing the rates?

Mr. O'CONNELL. I believe this is correct, but also, I would like to give you the accurate record of the recommendations in this area. (The above-mentioned data is as follows:)

REPORTS OF FEDERAL ADVISORY COUNCIL ON TAXABLE WAGE BASE

(1) The report by the Committee on Benefit Financing, "Taxable Wage Base for Unemployment Insurance," was adopted by the Federal Advisory Council by consensus in its meeting on October 3-4, 1956.

(2) The report of the Committee on Administrative Financing, adopted by the Federal Advisory Council on December 3, 1958, contains a statement of its

position on benefit financing in section 3 of the report. At the same time, th public and labor members of the Council adopted a "Statement of Position i Support of Increased Federal Unemployment Tax Base," which recommended an increase in the taxable wage base from $3,000 to $3,600. The employer mem bers present at the meeting adopted a "Statement of Position on Increased Tax Income for Administrative Purposes," recommending an increase in the Federa unemployment tax from 3 to 4 percent, with an increase in the Federal portion of the tax collected from 0.3 percent to 0.4 percent until a $250 million admin istrative trust fund is accumulated.

TAXABLE WAGE BASE FOR UNEMPLOYMENT INSURANCE

(A report by the Committee on Benefit Financing adopted by the Federal Advisory Council, Oct. 3-4, 1956)

The Committee on Benefit Financing has considered whether the taxable wage base of the Federal Unemployment Tax Act should be increased from the present limit of the first $3,000 in annual earnings. In this connection, the Committee considered the majority and minority reports on ths subject adopted by the Federal Advisory Council on October 26, 1953. It has also considered material prepared by the staff on developments since that time, including the increase in the taxable wage base for old-age and survivors insurance to $4,200, increases in wages, increases in benefits, and the implications of the Reed Act of 1954. It has concluded that the taxable wage base for unemployment insurance should not be increased by Federal legislation for the following reasons: (1) While it would result in some simplification in reporting by employers to have an identical wage base for unemployment insurance and old-age and survivors insurance, the administrative savings would be relatively small and would be far outweighed by at least temporary increases in taxes for employers. While the State tax rates could be adjusted so that most employers might eventually not pay increased taxes, this adjustment would take time. The tax schedules would have to be changed in most States, particularly in those that use a reserve-ratio method of experience rating. New employers would always have to pay higher taxes until they were eligible for experience rating, which would be a minimum of a year and would be longer in most States. The wage base increase could also operate unequally after experience rates are adjusted notably as between seasonal and nonseasonal industries and between high-wage and low-wage industries. It would also probably result in increases in the tax base for employee contributions in Alabama and New Jersey, and the latter State's law has no experience rating of employee contributions through which the tax rate could be adjusted as it could be for employers.

(2) An increase in the taxable wage base would be unnecessary for adequate financing of benefits in all but a few States. These few States are already free to increase, and in the case of Alaska and Rhode Island have increased their taxable wage base to $3,600. Any State that needs to increase tax income can do so by either increasing its tax rates or taxable wage base without Federal legislation.

(3) An increase in the Federal tax wage base is also unnecessary in order to secure adequate funds for Federal purposes. The $200 million loan fund is now full and a substantial excess in Federal tax collections was distributed at the end of fiscal year 1956 under the Reed Act to the States. It appears that Federal tax receipts will be ample to finance Federal and State administration over the next few years and still leave some excess funds for distribution to the States. Moreover, should there be a continuing deficiency, an increased tax base is only one of the sources from which additional revenues could be obtained. (4) From a program standpoint, there is no sound rationale for equating the tax base for unemployment insurance and old-age and survivors insurance. The programs are for different purposes. Unemployment insurance is a short-range program in which there need not be a connection between taxable wages and wages used for benefits; in a long-range program such as old-age and survivors insurance, there is more justification for using the same wage base for taxes and benefits since all taxable wages are used in determining benefits. Also, in OASI, there is no experience rating. Finally, under OASI there are employee contributions on the wages used to determine benefits.

(5) The most serious consideration is whether it is necessary to increase the taxable wage base over $3,000 if the wage base for determination of benefits exceeds $3,000. First, will the $3,000 base be a psychological deterrent to increasing benefits? There is no evidence that it has been. Eight States use a larger wage base than $3,000 for determining maximum amount and duration of benefits, only one of which has increased its taxable wage base. That one, Alaska, has increased its taxable wage base to $3,600, but uses $4,000 for determining maximum benefits. Under the majority of State laws, there is no connection between taxable wages and wages used for benefits. While 14 States limit benefit calculations to taxable wages as a technical restriction (these include Rhode Island, which has raised its taxable wage base to $3,600), all but 1 qualify claimants with lower earnings for the maximum potential benefits; all but 3 of these have liberalized benefits in the last 2 years. Nevertheless, since such limitations may be thought to serve to restrict increases in benefitsalthough there is no evidence that they have done so-and this problem may be intensified as money wages rise and States wish to increase maximum benefits, we believe that the Secretary of Labor should draw the attention of the States to the fact that their taxable wage bases need not be a deterrent to increasing benefits, and point out how other States have utilized wages in excess of the taxable maximum.

A labor member noting that unemployment insurance taxes levied against individual employers under present State laws are the product of two factors; namely, the taxable wage and the rate of tax adjusted under experience rating, thought that consideration should be given to lowering the base-possibly to $2,000-rather than raising it. He pointed out that, if this were done, the rate of taxes collected by the Federal Government would have to be adjusted to yield approximately the same gross revenue as that yielded by the 0.3 percent. In this connection, he pointed out that the Federal standard now permits States to modify their tax rate by the single method of employer experience rating. Lowering the tax base required by the Federal Government without putting any ceiling on it would give the States more latitude in their financing program.

Mrs. EVELINE M. BURNS, Chairman.
Mr. E. D. STARKWEATHER.

Mr. HARRY WALTNER

(Alternate for Mr. Joseph Dunn).

SUPPLEMENTARY STATEMENT ON TAXABLE WAGE BASE

Since I was the only member of the Committee who in 1953 supported an increase in the unemployment insurance tax base to $3,600, I believe I owe the Council a brief supplementary statement explaining why I have joined the majority in a unanimous report opposing any increase by Federal law in the unemployment insurance tax base at this time.

My principal fears 3 years ago were that the $3,000 wage base for taxation purposes would prevent States from increasing maximum weekly benefits to amounts utilizing more than $3,000 for benefit computation purposes. The facts, however, have shown that where there is a will (to raise benefits) there is a way. Many States have raised benefits without any psychological deterrent from the $3,000 wage base, and some, where the $3,000 limit was a legal barrier, have raised the barrier.

It has also been conclusively demonstrated that whatever financial needs may arise in the States or the Federal agency can be met by other unemployment tax policies, without raising the wage base and thereby penalizing new employers, contributing workers in New Jersey and Alabama, and others.

Since employer representatives do not feel that the administrative savings and simplification inherent in the uniform wage base would outweigh its other disadvantages, I see little purpose in a labor representative continuing to argue for employer advantages which the employers apparently do not want.

Finally, there is nothing to prevent any State legislature that desires to from raising its taxable wage base for unemployment insurance, if the circumstances in that State make such an increase desirable.

Accordingly, I concur in the Committee report on this subject at this time.

HARRY KRANZ.

REPORT OF COMMITTEE ON ADMINISTRATIVE FINANCING

(Adopted by the Federal Advisory Council, December 3, 1958)

The Committee Chairman reported orally to the November 13-14, 1958, meeting ofthe Federal Advisory Council that the Committee, at its October 3 and October 31 meetings, had discussed the adequacy of present revenues under the tax offset of three-tenths of 1 percent to pay the administrative expenses of the program, which have been steadily rising under the impact of higher salaries, rents, and materials. The Committee had considered proposals to raise either the taxable wage base or the tax rate. Subsequently, the Committee was asked to consider these proposals in connection with more adequate benefit financing. Proposals of employee contributions and minimum employer contribution rates were likewise considered. Finally, the Committee considered the possibility of lowering the tax offset.

The Committee concluded informally that any method of increasing Federal tax revenues for administrative purposes would fail to achieve its objective of making such revenues available to the States if there were no provision for a contingency fund or reserve into which the excess of such increased revenues over expenditures in 1 year might go to cover deficits in later years.

As

The original Committee assignment was to develop legislation "that will provide adequate Federal funds for the administration of the employment security program in periods of increased unemployment"; but at the last meeting of the Council the directive was broadened on account of constantly rising costs. requested by the Chairman of the Council, an effort was made to increase the Committee membership. Since two employer representatives contacted were unavailable to serve because of the short notice, no additional public or employee representatives were asked to serve on the Committee.

With that background, the Committee, at its November 24 meeting, discussed the administrative financing situation. Data were presented showing that the margin between the annual Federal income under the Federal unemployment tax and annual expenses of administration is narrowing to the point that the income is becoming inadequate to cover the administrative costs of the States and the Federal Government. For example, it is expected in fiscal year 1959 that administrative costs will be $335 million, whereas Federal unemployment tax income is estimated to be $332 million. This upward trend of costs due to higher salaries, rents, and materials seems likely to continue. The Committee recognized that there is no legal restriction on appropriations in excess of unemploy ment tax collections, but was advised that congressional appropriation committees have expressed interest in the amount of unemployment tax collection.

The Bureau of Employment Security's experience was compared with that of the Bureau of Old-Age and Survivors Insurance in securing requested appropriations for administrative purpose. The Bureau of OASI's appropriation requests are reduced only slightly by the Bureau of the Budget and Congress, while the Bureau of Employment Security's requests are reduced substantially at the Budget Bureau and congressional levels. This may be due to the fact that despite the enactment of the Reed Act, the employment security appropri ations are still a part of the President's budget and subject to the same economy moves as other parts of the budget, while the appropriations for the OASI program are made from the old-age and survivors and disability insurance trust funds.

1. Administrative trust fund

RECOMMENDATIONS

The Committee considered the question of a separate account in the unemploy ment trust fund from which administrative expenditures can be made. The Committee unanimously concluded that it should recommend to the Council that all collections under the Federal Unemployment Tax Act be put in a separate account in the unemployment trust fund, from which account administrative expenditures will be made. When a reserve of $250 million is built up, there should be provision for the use of excess funds beyond that amount. 2. Increased tax income

The Committee considered the need for increased income to meet rising State and Federal administrative expenditures and discussed alternative methods of providing this additional income. The public and employee representatives fav ored raising the taxable wage base from the present level of the first $3,000 of wages to $3,600 and providing for holding the excess of such increased revenues