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Means, and I think before this committee, and advocated the repeal of the amendment to title X, the 1950 amendment to title X.

Senator BENNETT. I have no further comment.
Senator DOUGLAS. I have no further questions.
Thank you very much.

Mr. MACCRACKEN. Thank you, gentlemen.

The CHAIRMAN. The next witness is Mr. Andrew Ziomek, of the National Licensed Beverage Association.

STATEMENT OF ANDREW ZIOMEK, IMMEDIATE PAST PRESIDENT, NATIONAL LICENSED BEVERAGE ASSOCIATION

Mr. ZIOMEK. Mr. Chairman and members of the committee, my name is Andrew Ziomek and I am the immediate past president of the National Licensed Beverage Association.

I am a restaurant and tavern operator in Clementon, N.J. I speak on behalf of the 40,000 members of my association, which is an organization composed of restaurant, tavern, bar-cafe, and cabaret owners located in 30 States and the District of Columbia.

We are small businessmen. Our members provide food, beverages, and sometimes entertainment for public and private gatherings. Most of our tavern and restaurant operators maintain employees who receive tips.

Let me bring to your attention today the problems we would encounter should section 9 of H.R. 1865 be enacted into law.

We are pleased to learn of the statement of one of the sponsors of the proposed legislation, which was as follows:

I believe that these workers have enough integrity and enlightened self-interest to make an accurate report of their tips. They are now required to pay income taxes on the amount of their tips. Most of them wish to have the law extended so that they and their dependents will be eligible for higher benefits under the law-benefits which they are anxious to purchase, knowing that this kind of prepaid insurance will provide security in their retirement.

This statement was made by Senator Keating on July 15, 1963. We were also pleased to learn that the proposed legislation was the product of study dating back to 1958 by joint committee of the interested Federal agencies. It came as a disappointment to see that the solution involved in the bill was nothing more, after this long labor than the tried-and-true method, the lazy way, of imposing the burden of new coverage effective on the employer.

We have been told, of course, that this is not a significant imposition in that no real responsibility will attach to the employer, except to the extent that the employees report income from tips to him.

We are also informed that any difficulties that we have will be cleared up by the regulations of the Internal Revenue Service.

We disagree that this is so. Past experience on travel and entertainment expense hearings have proved this. We submit to this committee that as a small businessman these assurances of lack of difficulty will not eliminate the fundamental objections which we have to this approach.

To add any additional obligation on the part of the employer in the complexity of the Internal Revenue Code, which we as laymen cannot hope to comprehend, requires that we obtain professional advice from

lawyers and accountants. We must have from them not only what is actually expected of us initially, but thereafter in the day-to-day attempt to comply with these requirements as long as we remain in business.

We submit that a small business, family business, as many of our members operate, cannot afford additional expenses of this type.

I might say that in a family business, we do manage to raise some of our own unskilled help, such as maybe a daughter might go back behind the bar and help you wash the glasses or something like that, but a lawyer and an accountant in the same family is not a likely coincidence.

A whole new area of book and record keeping and clerical burden of reporting is added to our problems which are not connected with the conduct of our businesses. There must be a limit to the extension of these problems.

We do not like to appear before the committee and speak in generalities of an increased burden. However, we do feel that the drafters of the law and regulations in this field all too frequently adopt the easy solution of adding to our troubles and avoiding theirs. They seem to operate under the assumption that we will procure whatever competent advice we need and that somehow we will be able to absorb the cost.

We suggest that this burden should be avoided by having the Government create a structure for the collection of this tax in which the burden of collection and enforcement are not delegated, or I should say, thrust upon the private employer without regard to his size or his ability to perform.

Another factor which is not realistic in this approach to this commendable extension of fuller social security coverage to some of our employees is that the employer will now be compelled for the first time to inquire into and, in effect, monitor the transactions between the waiter, for example, and the customer for the Internal Revenue Service.

Heretofore, this was essentially a matter of a waiter operating as an independent contractor. If he performs his work well, he may be rewarded with a handsome gratuity. If his personal attention to the customer is not up to the expected standard, he may receive nothing. If section 9 should become law, employers become a deeply interested party in the transactions between customers and employees.

We strongly urge upon the committee that this treatment of the waiter, waitress, or busboy in this area as an employee rather than as an independent contractor is unrealistic and will create many problems, as we will hereinafter set forth.

From the standpoint of effective operation of the business, this type of legislation (and I believe it is safe to assume regulations thereunder) will undoubtedly create personal complications and difficulties between employer and employee.

We hope that the committee will carefully consider the questions which occur to us on the practical basis which we cannot readily answer from the language of the proposed legislation:

1. What does the employer do if half of his employees willingly file statements while the remainder do not?

2. What does the employer do if he has reason to suspect that one or more of his employees are either understating or overstating the amount of their tip income?

3. Will it not be virtually necessary for the employer to insist upon compliance or discharge the employee, who may otherwise be a valuable asset to the business, simply to avoid complications in his reports?

4. What assurance does the employer have that he will not be emboiled in the inevitable controversies between IRS and his employees over the propriety or accuracy of their returns.

5. What protection is there against later claims by employees that the reports of the employer did not properly reflect the amounts reported or the moneys paid to the employer for the purpose of this law?

These are but a few of the questions which may or may not be answerable within the framework of the bill as it is before the committee, or by committee direction which will influence the preparation of regulations on the subject.

However, we cannot help but speculate on them and sincerely ask that the committee give careful attention to the potential problems in making its determination as to the advisability of the acceptance of section 9 as a solution to this problem.

We, therefore, suggest to the committee that an imperfect solution to the problem should not be adopted and perhaps permanently engrafted on the law. Other possibilities suggest themselves.

In line with the above quoted statement of a sponsor that most of the employees are anxious to purchase the coverage, knowing that this kind of prepaid insurance will provide security in their retirement, the law should make such purchase possible.

This could be accompanied by intensified effort by the Government agencies concerned to educate the employees with respect to the advantages available to them as self-employed persons for this type

of income.

This could be done without involving the employer in all of the problems which we have indicated are inherent in the bill proposed. It would then be unnecessary to create a fictional relationship between the employer and the tips which a waiter or waitress may receive in the eyes of the law.

With the increased use of computers, the proper correlation of employees' reports for income tax purposes and full enforcement by IRS of the requirements that such taxes be paid, it seems to us that this problem could be resolved without this additional straw on the already overburdened camelback of the small businessman.

We appreciate the opportunity to appear before the committee and are grateful for its courtesy and attention. We have full confidence that the committee will carefully study the problems inherent in section 9 of the bill.

Thank you.

Gentlemen, may I in addition make one remark that I have been thinking over this morning, that to permit the young element who do not have to go to their employers until possibly the age of 60 to start making these returns to them, this is the greatest hoax that is being perpetrated upon the people who daily go, and are wage earners and

daily through their payrolls are paying social security while these people who are getting tips in their old age go in and get the last eight quarters paid and collect social security.

I don't think this is fair for the young people of this Nation, and with that I close.

I thank you.

Senator MCCARTHY. Were you present this morning when I suggested to the representatives of the restaurant association that one solution might be that you take for social security purposes the quarterly tax report filed with Internal Revenue by the employee who gets tips?

Mr. ZIOMEK. I was, Senator, and I was greatly appreciative of your remarks in that direction.

Senator MCCARTHY. Thank you very much.

Senator BENNETT. Before the witness leaves, I am raising this because I was very much interested in the chairman's suggestion this morning, but it raised a question in my mind what do you do with the employee who works for 10 or 12 employers, to whom does he make his quarterly stataement, and which employer is going to be responsible.

Mr. ZIOMEK. Well, I don't think that the solution is that he makes this report to the employer. I think it should be on the estimated tax returns as we do as businessmen on a quarterly report, as the Senator says, a quarterly report, not a monthly report.

Senator DOUGLAS. The difficulty, though, is that the employer contribution would be due from a number of different employers; there is the greatest weakness in the plan.

Mr. ZIOMEK. And by the same token, I don't think that I as an employer if he should return at the end of the month and work for five different people and turn around and pay for the other four people.

Senator DOUGLAS. This is correct.
Senator BENNETT. That is the risk.

Senator DOUGLAS. This is the problem.

Mr. ZIOMEK. That is the problem, Senator, and we as small people, and I am not speaking of the big operations in the business.

Senator DOUGLAS. I understand.

Mr. ZIOMEK. We have over 300,000 licensees in these United States who are mom-and-pop licensees, if you understand what I mean, who have maybe one or two employees.

Senator DOUGLAS. I understand.

Senator BENNETT. What would you do if the man came and presented you with a statement that he had been paid $150 in tips and your records showed he had worked for you 1 night?

Mr. ZIOMEK. Well, Senator, may I tell you somebody shows me $150 in tips, you know what I would say, I would want his job.

I had that little talk before-these waiters are cute, you know, and some of these bartenders, and I know of instances in going around this country where bartenders pay for jobs, just to get the tips. They bid for jobs. They tell the owner how much they are going to pay, and that is so.

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Senator BENNETT. I am sure it may well be so.

Mr. ZIOMEK. Of course, those are not the kinds of people that I would say the NLBA represents. Those fellows don't need an association. They always tell they are too big for an association and they can buy the legislation, which we get for them for nothing. Senator BENNETT. Yes.

Senator DOUGLAS. Thank you very much.

Mr. ZIOMEK. Thank you, sir.

Senator DOUGLAS. Our final witness this afternoon is Mr. C. T. Anderson representing the International Union of Hotel Restaurant Employees and Bartenders.

Mr. Anderson is an old friend of mine. We are glad to have you. STATEMENT OF C. T. ANDERSON, WASHINGTON LEGISLATIVE ADVISER, INTERNATIONAL UNION OF HOTEL RESTAURANT EMPLOYEES AND BARTENDERS

Mr. ANDERSON. My name is Cyrus Anderson. I am the Washington legislative adviser to the Hotel Restaurant and Bartenders International Union. I do not have a prepared statement. I thought I could best utilize the short period of time allocated me in trying to give the committee some of the background of the reasons why this particular section is in this bill.

Some 3 years ago when I agreed to represent the hotel restaurant employees in Washington, they told me that the biggest problem that confronted their union was the tremendous gap between actual income on the part of their people and the social security base on which they are compelled to retire under present conditions.

They told me further that for 25 years they had been working with agencies of the Government in an effort to do something, work out some methodology to correct this problem.

At this point one thing occurred to me, and I should like to impress this on this committee, that organized society through the medium of the U.S. Government took very little time in figuring out a way to require these people to pay their income taxes on this very earning base we are talking about.

There is a procedure by which these people pay at least a major portion of the income tax liability on these tips that we now are discussing.

This procedure is not usual; this is a highly unusual procedure. There are standards used by the Internal Revenue Service, a more or less arbitrary assessment, dependent upon the type of room or the type of business or the type of establishment the man may be working at.

In fairness to the Service I must say this, I think they are understated. I don't think they are unfair to our people, and our union has not complained about this methodology used in arriving at the income tax liability.

My first step in trying to get at this problem was to seek meetings with people at the Social Security Board in Baltimore, at the Treasury Department in Washington, and at the Internal Revenue Service

here.

After a long series of meetings with these people, I presented to them my concept of how we ought to proceed. I suggested that we take the employee's income tax liability at the end of the calendar year, and

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