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The statement by Senator Karl E. Mundt of South Dakota before this committee and reprinted in the Congressional Record of December 3, 1963, points up most graphically how the Health, Education, and Welfare Department through its tactics of delay, obstruction, and studied confusion has succeeded in preventing the implementation of a Kerr-Mills program in South Dakota. The reported speeches of HEW representatives around the country during recent months are a clear indication of their lack of sympathy in or interest for Kerr-Mills.

It is this association's view that Kerr-Mills, whether viewed in terms of funds dispensed (over $500 million during fiscal 1962 alone) or in terms of aged covered (almost 60 percent, nationwide) or States cooperating (29 now, 36 by the end of 1964), is working, and working effectively.

In closing, we would like to sound again the warning of the consequences that will surely flow if King-Anderson is enacted. It will surely involve the further extension of the dead hand of Federal Government intervention into the affairs of individuals and States who do not need nor ask for a Federal Government handout. It will inevitably discourage and eventually displace those many voluntary programs of individuals, charitable groups and voluntary insurance programs who jointly have dedicated their effects toward seeking a solution for medical care for the aged which is consistent with this Nation's time-honored and traditional approach-through individual initiative, voluntary aid—all without help from Government wherever possible.

Secondly, one cannot foresee the ultimate cost of such a program envisaged by King-Anderson, but it is likely to cost as much as $5 billion annually within a short time. Is this the time to embark on such an expensive and wasteful program when the Federal budget is already seriously out of balance? We think not.

We urge the rejection of H.R. 3920 and urge the continued operation and expansion of Kerr-Mills which, with a more enlightened and cooperative administration, could certainly provide the means by which our elderly citizens can obtain the medical care they need, if private financial resources are not available.

STATEMENT OF THE AMERICAN HOTEL & MOTEL ASSOCIATION ON H.R. 3920 The American Hotel & Motel Association represents over 6,000 hotels and motels in the United States and actually speaks for about 90 percent of the firstclass hotel rooms in the country. We appreciate this opportunity to express our views with respect to H.R. 3920, the Hospital Insurance Act of 1963.

The proposed bill would make available to all persons over 65 hospital and nursing home care. The program would be financed by increased social security taxes on both employees and employers.

We are opposed to H.R. 3920.

We are disturbed over the solvency of the social security system. We are likewise concerned over the increased burdens which Federal legislation along the lines of H.R. 3920 would impose on employees and employer alike. At the same time, we are aware and are solicitous of the problems of our senior citizens. We do not believe that a solution to the latter is to be found by doing damage to the present social security system nor by inflicting increased taxes on employees and employers.

The social security trust fund today is being diminished without any new legislative demands being made upon it. In an attempt to meet its disbursements the annual taxable wage base has been increased over the years from $3,000 to $4,800. The tax rate has also been increased from 1 percent to 35% percent. Without any additional legislation, employees and employers are to experience a greater tax bite when the rate is increased to 4% percent in 1966 and 45% percent in 1968. But even these increases, yet to come, are not sufficient in the minds of many to place the system in a sound financial condition. Legislation has already been introduced to strengthen the actuarial status of the trust funds in the social security system, and to increase the tax base. How then can this sizable new program be superimposed on an unsound financial system and be of service to the Nation? We believe it cannot. The effort to finance it by increasing the taxable base from $4,800 to $5,200 a year and by increasing also the taxable rate by 0.25 percent is unrealistic in the face of the present plight of the trust fund. It is also unfair to those now working and the employers to be further taxed whether it be at an increased 0.25 percent, 0.5 percent, or 0.75 percent. Furthermore, increasing the taxable base is an inappropriate way to

finance hospital benefits. If the program is to be adopted, the employers and employees who are to bear the burden of this bill should be made aware of the cost of it as expressed in an increased percentage of tax. If the taxable base is increased, it will mean that additional taxes are being imposed under the guise of financing present social security benefits but with the money being diverted to finance hospital and nursing home benefits. We do not believe that H.R. 3920 offers a solution, if one is needed, to the problem of our senior citizens in the area of hospitalization and nursing home care.

There is reason to continue to expand and to encourage the tremendous growth of private insurance coverage. Any system which covered 12 million persons with hospital expense coverage in 1940 and increased that coverage by 119 million by 1960 offers solid testimony against such a radical departure from our present system of hospitalization coverage as is proposed in H.R. 3920.

Private enterprise and local and State programs aided by the Kerr-Mills bill, given time, can complete the job already begun. Let us assist, not stifle, those who have been working so long in the vineyard. Let us proceed to the common goal.

A few comments as to our industry.

The hotel and motel business is undergoing radical and wide-sweeping economic changes. Our old problem of greater and keener competition is accentuated by new highway construction, by area redevelopment, urban renewal, and similar programs. These changes are bringing new problems to our existing roperties. Hotel earnings in 1962 were the poorest since 1939. Horwath & Horwath, a national firm of accountants specializing in the hotel-motel field, informs us that on the basis of the hotels included in their annual study, the hotel industry in 1962 earned 2.42 percent on the fair value of the property. After income taxes, the net return was only 1.63 percent, the lowest result since 1939. Both payroll and payroll taxes and employee benefits, in ratio to total sales. rose sharply over 1961. The combined cost was the highest ever recorded and the principal factor in the poorer results in 1962.

Harris, Kerr, Forster & Co., the other major national hotel accounting firm, informs us that their figures show that payrolls in 1962 took 43 percent of the income dollar and that this figure will inevitably increase when the 1963 results are known. So we are naturally concerned with increases in payroll costs. Profits are so small that increased costs cannot be absorbed nor can the industry faced with greater and keener competition pass on any increase in taxes to the

consumer.

Should Congress in its wisdom decide that Federal legislation is required to provide some assistance to the elderly in solving the problem of medical care, we strongly urge that the solution be found either in a method of a tax deduction for the full cost of health insurance plans or a tax credit for voluntarily providing their own insurance coverage.

STATEMENT OF GEORGE J. BURGER, VICE PRESIDENT, NATIONAL FEDERATION OF INDEPENDENT BUSINESS, WASHINGTON, D.C., ON MEDICARE LEGISLATION

I am George J. Burger, vice president, legislative activities, National Federation of Independent Business. We are a national organization composed solely of smaller, independent business and professional people. As of January 24. 1964, our membership consisted of 195,082 individual, directly supporting and participating independents. This figure continues to grow. Our members are distributed throughout almost all of the Nation's 435 congressional districts. They are a true cross section of all the vocations at all levels of America's smaller, independent enterprise community.

The stand of the federation is determined by direct vote of the entire membership, with each member having one and only one vote, which he registers on a signed ballot which is sent to his Congressman. The federation conducts these polls through its the Mandate regularly throughout each year.

Additionally, the federation conducts special business conditions surveys among its members each year. These do not determine federation policy. But they do serve to give a greater view in depth into the problems and thinking of our members.

Within the past 5 years we have polled our members, through the Mandate, on four occasions on measures proposing to finance hospital and nursing home care

for the aged through an expanded social security tax program. On each and every occasion our members adamantly opposed these proposals. For instance: In May of 1959 we polled on a proposal by the late Representative Aime Forand (Rhode Island) to increase social security taxes in order to pay for the hospital and nursing home expenses of retired people. The result: 20 percent for, 78 percent against, 2 percent undecided.

In August of 1961 we polled on a proposal by Senator Clinton Anderson (New Mexico) to increase social security taxes to provide hospital and nursing home care for those over 65 years of age. The result: 24 percent for, 73 percent against, 3 percent undecided.

In April of 1962 we polled again on Senator Anderson's proposal. The result: 21 percent for, 77 percent against, 2 percent undecided.

In April of 1963 we polled on a joint proposal by Senator Anderson and Representative Cecil King (California) to provide hospital and nursing home care for those over 65 through the social security program. The result: 15 percent for, 83 percent against, 2 percent undecided.

Additionally, in December of 1963 we polled on a variant of the foregoing, a proposal by Representative William Mailliard (California) for Government financial aid to retired people who desire to enroll in privately operated medical insurance programs but who haven't money to do so. The result: 25 percent for, 71 percent against, 4 percent undecided.

Let us make it clear that these votes do not indicate that our members are insensitive to the social needs of our Nation. In our 1963 special, factfinding "Let's Take Care of Our Business" survey we asked members how they thought the country should go about cutting back on Government spending programs to justify tax reductions. On the basis of 68,167 signed responses received from all parts of the Nation, our members voted by a margin of 61 to 1 in favor of general reductions in Government spending programs, by a margin of 29 to 1 in favor specifically of reductions in foreign aid programs, by a margin of 14 to 1 in favor specifically of reductions in Federal payrolls and employment, but by a margin of only 4 to 1 in favor of cutbacks in the general category of "social welfare" programs.

Rather they reflect deep concern over tax burdens.

As you well know, from your own studies, and from studies by the Small Business Committees, the Small Business Administration, and other bodies, smaller business units, while enjoying fluctuating fortunes, have been undergoing a severe profit pinch over the years. Part of this has been due to intensified competition, part to ever-increasing overhead including wage and tax rates. As a matter of fact, in order to afford some needed relief, Congress right now is in process of reducing the Federal income tax burden, with special attention being given to smaller business units.

There is no doubt that this attention is merited. Smaller business units account for upward of 98 percent of all our business institutions and furnish gainful employment to 30 million workers and their families. They are vital in serving the needs of tens of millions of consumers, in the production of goods, and in affording distribution. They are a most important segment of our economy.

In this connection, much concern has been and is being expressed about the pressing need to accelerate the growth of our economy, to provide jobs for those currently unemployed. In its recent annual report, the President's Council of Economic Advisers stated that taking into account the added workers who seek employment as jobs become more plentiful, we would need at least 2 million more jobs today just to get rid of stubborn excess unemployment, that we need about 2 million new jobs each year to offset the laborsaving effects of rising output per worker, and that more than a million added jobseekers enter the labor market each year.

This need can be met, of course, only through the expansion of existing enterprises and through the formation of new enterprises. And this can come about only to the extent that more money is left in private hands for private spending-on consumption, investment, and reinvestment.

With large business units necessarily increasing their degree of automation, to hold costs and prices in line, the small business segment of our economy will have to assume a major share of this expansion and job-providing responsibility. It cannot do so when Government with the one hand puts more money in its pockets through reduced income tax rates, then with the other hand takes some of this additional money out of its pockets through increases in the social security tax rate, even for the purpose of providing hospital-nursing home care for the aged. The plain fact is that it takes money to provide jobs.

With these facts in mind, let's take a look at how these medicare bills would work out.

Commencing 1965 they would increase the social security tax rate by onefourth of 1 percent each on employers and employees, and would raise the taxable wage base from $4,800 to $5,200 yearly. Assuming an employee earning $5,200 yearly, this would mean that instead of an employer having to pay (as would otherwise be the case) $174 in social security tax for the employee in 1965, the employer would have to pay $201.50-an increase of $27.50, and this per employee.

Now, let's take the case of an employer who is a corporation with five employees, and with a taxable income of $15,000. The tax reduction bill now before the Congress would save him $1,200. But under the medicare bill now before your committee he would immediately have to turn back more than 10 percent of these savings to Government in increased social security taxes. If he desired to use $1,200 for purchase of some new equipment, he would have to either dig into other reserves or borrow $137.50, at a minimum 6-percent interest which would increase his cost by almost $10. If he desired to lay the $1,200 away for future purchase, he would lose 4-percent interest on $137.50 of the total.

The foregoing is bad enough, but the fact is that some studies would indicate that the proposed wage base raise and tax increase are unrealistically low in terms of accomplishing the objectives of the medicare bill, and that much greater increases might in fact be needed. No one knows just where this would end, certainly not our members.

Of course, increased consumption based on greater purchasing power is a vital part of the cycle involved in promoting economic growth through business activity expansion. The tax reduction bill now before the Congress recognizes this fact. With this in mind, let's consider the effect on the worker with a wife and two children, earning $5,200 a year.

The tax reduction bill would save him perhaps $137 a year. However, enactment of the medicare bill would immediately deprive him of 20 percent of this saving. If the proposed social security tax increases were unrealistically low, then he would be deprived of an even greater share of this tax saving. What then, of the needed increase in consumer purchasing power?

Finally, if the tax reduction bill now before the Congress is vital to economic growth, business expansion, purchasing power-and we agree with our President that it is—if it is necessary to small business sounder opportunities-and we agree that it is-then by enacting the medicare bill Congress would be working against itself, and certainly not assisting small business, business in general, and consumers. That much, we believe, is plain. We know it is to our members judging by their reactions to medicaré proposals.

We thank you for your attention.

BATON ROUGE, LA., November 25, 1963.

Re H.R. 3920, "Hospital insurance bill of 1963."
To the Chairman, Hon. Wilbur D. Mills, and Members of the Committee on Ways
and Means, U.S. House of Representatives, New House Office Building,
Washington, D.C.

Gentlemen: Respectfully submitted is the position of Louisiana Business, coordinated and endorsed by the business and trade associations named herein, regarding H.R. 3920, "Hospital insurance bill of 1963."

Louisiana Business is of the conviction that the proposal of Federal hospital insurance, as contained in H.R. 3920, is detrimental to the general good, the free enterprise system, and the economic security of the Nation.

This conclusion was reached by Louisiana Business for reasons completely unrelated to and apart from any private or published views, problems, or arguments of any other National or State group. These reasons are:

(1) The proposal reserves to the Federal Secretary of Health, Education, and Welfare the indisputable right to effect any regulations he desires and to fix prices for services as he sees fit.

(2) "Medicare of 1963" proposes to expropriate from the income of free enterprise and the earnings of its workers, unknown, unpredictable, but certainly potentially unlimited funds.

(3) Once adopted, a medicare program for those aged 65 and over, fundamentally and irrevocably commits the Congress eventually and shortly to extend such program currently to every worker under social security.

(4) Although the initial cost estimated by the planners appears low, it is self-evident that the potential is unlimited.

(5) The financing proposed includes aloltments from existing taxes imposed for basic current social security programs, when the reserves for those plans are steadily decreasing while liabilities are increasing.

(6) The insurance principle of benefits proportionate to taxed earnings and taxes paid has been completely abandoned. Everyone would be entitled to exactly the same benefit, with no relationship whatsoever to earnings. The cost to one would be little or nothing. Others would pay large sums indefinitely with no guarantee of any return.

(7) Once enacted, it would appear to be politically impossible to resist the argument that medical insurance be quickly extended to cover the worker who currently pays part of the bill.

(8) Medicare adopts a policy that the income maintenance programs for nonworkers must be supplemented, to pay for medical and other expenses, at the cost of the current worker and his employer. Once accepted, that argument would be used to justify legislation obliging the employer to supplement wages to pay for medical and other expenses of the worker.

(9) For many years the State of Louisiana has budgeted annually and continues to provide from general taxation, many millions of dollars to provide extensive medical care for anyone and at any age who cannot pay for those services. Louisiana Business has again examined the medical care services now available to citizens of Louisiana and to citizens of foreign countries. It is of the studied and definite conviction that there does not exist anywhere else a better system of available medical care, under freedom than is now available here.

(10) Louisiana Business believes that the strength of any nation and its citizens is in direct proportion to the capacity of those citizens to take care of their own needs.

H.R. 3920-HOSPITAL INSURANCE BILL OF 1963

On February 21, 1963, there was introduced in the U.S. House of Representatives, and referred to your committee, H.R. 3920 "hospital insurance bill of 1963." Although numbered and labeled differently than its predecessor, H.R. 4222, and containing word changes, it appears more objectionable than before. Louisiana Business is acutely aware of the tremendous political pressure heretofore exerted, and now being increased, on the members of the Committee on Ways and Means, to release or to contain this proposal. Certainly, it commends the conscientious stand of members who are determined to judge the measure on its own merit, without regard to political expediency.

Medicare H.R. 3920, hospital insurance bill of 1963, differs from medicare H.R. 4222, health insurance benefits bill of 1961, by a few word variations and section transitions. Sponsors of the revision appear to have endeavored to pacify the medical, dental, registered professional nurses, and hospital association groups.

Still, throughout the bill, there is reserved to the Federal Secretary of Health, Education, and Welfare the indisputable right to effect any regulation he desires, regardless of the wishes of those groups.

Despite the proclamation of freedom of action, appearing in the revised bill, there is scarcely any free choice that cannot be legislated or regulated away. As an example, the per diem rate for inpatient hospital services is fixed by law: "Such average per diem rate shall be $37."-No more, no less, it shall be $37.

The real issue of utmost importance to every citizen of the Nation is that "medicare of 1963" seeks to expropriate from free enterprise and its workers, unknown, unpredictable, but certainly potentially unlimited funds from their earnings, to remove the individual's moral responsibility for his well-being, and to place that responsibility upon central government.

Merging of all social security funds directly into one fund is not proposed this time. However, the Secretary of Health, Education, and Welfare is directly authorized to shift funds collected for a specified purpose to other uses, such as medicare thus officially admitting at the outset that what it will cost, or where it will stop, nobody knows. This would dangerously jeopardize the

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