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I will take up no more of your valuable time. I thank you very much for the privilege of appearing here today. You gentlemen have urgent matters to consider, and I have patients to take care of.

Thank you very much.

Senator BENNETT. I appreciate your presence here, Dr. Phelps, and I am sure that the other members of the committee do.

It seems I have now reached the magic age of 65. I particularly appreciated what you said in the middle of your statement against the idea that those of us who have reached this point should automatically become subject to being put on a shelf. Fortunately in the Senate we are elected for a definite term, so I cannot be suddenly sawed off just because my 65th birthday has passed.

Well, thank you very much.

Dr. PHELPS. May I say a word about a question you asksd the last doctor?

Senator BENNETT. Yes.

Dr. PHELPS. Since I have been rather active in the American Medical Association, and one witness testified that there was no place for a minority report, I assure you, sir, if he made that statement he has never been to the house of delegates or any of our meetings because I have been one of those who have filed minority reports on many occasions, and I have always been heard, and any doctor can be heard.

Senator BENNETT. I appreciate that comment. I have been sitting in on hearings like this now for 14 years, and I have discovered that some of my colleagues, whenever a representative of an association appears to testify in opposition to their position, they immediately challenge the legality of the testimony on the ground that he cannot possibly be speaking for every member of the association.

I think if the situation were reversed and these men were hearing testimony that they wanted, they would never raise that particular question.

Dr. PHELPS. I am sure they would not.

Senator BENNETT. Ladies and gentlemen, this brings us to the end of the scheduled hearings.

The committee will attempt to begin its study of the bill next Monday, so it will be impossible for us to accept any statements after the close of these hearings.

We hope to have the printed record of the hearings for the use of the committee by Monday or Tuesday, so unless there is anyone present who has a statement to offer for the record, we will call the hearings adjourned, the record closed, and we thank you for your interest.

(By direction of the chairman, the following is made a part of the record :)

STATEMENT OF D. P. LOOMIS, PRESIDENT OF THE ASSOCIATION OF AMERICAN

RAILROADS

Mr. Chairman and members of the committee, my name is Daniel P. Loomis, I appear here on behalf of the Association of American Railroads, which is an unincorporated association of substantially all of the class I railroads of the United States. It is a voluntary, nonprofit organization. Its members operate more than 95 percent of the total railroad mileage in the United States and have operating revenues of approximately 98 percent of the total railroad operating revenues of all railroads in the United States.

The Association of American Railroads is opposed to amendment 1213 to H.R. 11865. That amendment was offered by Senator Douglas, of Illinois, on August 11, 1964. The amendment is one of a long series of measures supported by the railway labor organizations which, rather than promoting the soundness

of the railroad retirement system, add to the annual deficit in the railroad retirement account. The railroad retirement system is now running at an annual deficit of about $19 million and the Douglas amendment would add about $6.5 million a year to that deficit, leaving the system in a substantially poorer financial situation than it is at the present time. The railroads oppose any measure providing for such deficit financing of the railroad retirement system in which, of course, they are vitally interested.

The financial condition of the railroad retirement system has, for a long period of time, been of concern not only to the railroads but to others. Over the years the labor organizations have repeatedly sponsored and supported legislation that would have resulted in benefit payments under the system exceeding tax income, both benefits and taxes being calculated on a level cost basis, and some of such legislation has been enacted. As a result of the passage of a number of such measures the deficit in the railroad retirement account grew and grew until in 1961 it had reached the staggering total of more than $70 million a year. It was at this point that the President of the United States entered the picture. On September 22, 1961, he signed S. 2395, a bill amending the Railroad Retirement Act to permit early retirement on a reduced annuity by male railroad workers. In his statement with respect to S. 2395, the President pointed out that the bill added a relatively small but significant additional burden on the system, the sum of $2 million a year, on top of the existing deficit. He said that the railroad retirement system was already in serious financial trouble and that since 1959 the actuarial deficit of that system had risen to $73 million a year. He then urged the Congress to take appropriate action in its next session to restore the retirement system to healthy financial self-sufficiency. As I have said, the railroads have always been vitally interested in maintaining the railroad retirement system in a sound financial condition. At the instance of the carriers, representatives of the railroads and of the standard railway organizations had a number of conferences aimed at substantially reducing the retirement system's actuarial deficit, which by 1963 had risen to $77 million a year. Management and labor were finally able to agree on a bill that made a number of amendments to the retirement system. That bill was introduced on both the House and Senate sides, was passed by both Houses and signed by the President on October 5, to become effective November 1, 1963, as Public Law 88133.

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This new 1963 law increased the tax income of the system, half of which is paid by the employers and half by the employees, by $71 million. Of that amount $40 million goes to pay increased benefits by reason of the fact that the creditable compensation base from $400 to $450 a month was increased. other words, the employers' taxes amounted to $35.5 million a year on a level cost basis, and the employees taxes were the same. The employees' additional benefits, also on a level cost basis, amounted to $40 million, or something more than their additional tax contributions. Other changes in the law further reduced the deficit until, as has been stated above, it is now running at about $19 million a year.

When Senator Douglas introduced his amendment on the floor of the Senate on August 11, he pointed out that his amendment would increase taxes by $11.2 million, this again would be equally divided by the employers and the employees, and that the benefit expenditures resulting from his bill would amount to $21.7 million. In other words, under Senator Douglas' amendment, benefits would exceed taxes by about $10.5 million a year. Passage of this type of legislation, and on more than one occasion, led eventually to the staggering deficit in effect in 1961 and prompted the President of the United States to express his deep concern over the financial condition of the retirement system. Enactment of Senator Douglas' amendment 1213 would very definitely be a step in the wrong direction.

Mr. Leighty, in his statement, admits that the amendment proposed by Senator Douglas would increase the existing deficit in the railroad retirement account. He fails to point out that if H.R. 11865 is enacted in the form in which it has been referred to your committee the financial condition of the railroad retirement system would be improved to the extent of $4.1 million a year. I shall explain how this would come about. As Mr. Leighty says in his statement, section 5 (k) (2) of the Railroad Retirement Act provides that the social security trust funds are to remain in the same financial condition in which they would have been had railroad employees been covered by the social security system rather than the railroad retirement system. The financial interchange provision between the two systems works in the following way: The railroad retirement account is charged with the taxes that would have been paid by railroad

employers and employees to support the social security system if such employers and employees had been covered by that system and such taxes are paid over to the Social Security Administration. In addition, and this is important, the benefits that would have been paid from the social security funds had railroads and their workers been covered under the social security system, are in turn paid by the Social Security Administration to the Railroad Retirement Board. The necessary transfers between the Railroad Retirement Board and the Social Security Administration, in order to carry out this provision, are made annually. Mr. Leighty points out that H.R. 11865, while increasing the social security tax rates, would not increase the railroad retirement tax rates and that the majority of the Board (the member representing the public and the member representing the labor organizations), and presumably Mr. Leighty, are of the view that this would have a "serious adverse effect" on the railroad retirement system because of this financial interchange provision. Mr. Leighty would be correct in his contention if H.R. 11865 only provided for social security tax increases but did not provide for an increase in social security benefits. Of course, the bill does provide for substantial increases in benefits under the social security system. The actuary of the Railroad Retirement Board has estimated that if H.R. 11865 is passed without amendment the railroads will have to pay to the Social Security Administration $42.4 million a year, this resulting from the additional social security taxes provided in the bill. On the other hand, by reason of the increased social security benefits provided in H.R. 11865, the Social Security Administration will have to pay the Railroad Retirement Board $52.5 million annualy, or slightly in excess of $10 million more than the Board will pay it. The result is that, from the standpoint of financial interchange, rather than having the "serious adverse effect" on the railroad retirement system referred to by Mr. Leighty, H.R. 11865, without amendment, would have a very beneficial affect on the railroad system.

In dealing with the need for additional benefits for railroad members, Mr. Leighty calls attention to the provision of the existing Railroad Retirement Act that provides that if a beneficiary, under that act, is entitled only to the minimum benefits provided in the act, that beneficiary is entitled to 110 percent of the social security minimum. He then states that in order to maintain this relationship it is essential to amend H.R. 11865 by adding amendments to the Railroad Retirement Act that retain the 110 percent ratio. It is true that if the Railroad Retirement Act changes proposed in Senator Douglas' amendment are not enacted, the railroad retirement beneficiary, whose annuity is based on the minimum provisions of the Social Security Act, will not receive 110 percent of the social security minimum. He will, however, continue to receive more than the social security minimum; that is, 105 percent rather than 110 percent of that amount.

The railroad retirement system provides much more generous benefits than does the social security system. This will continue to be the case even if H.R. 11865 is enacted without the increased benefits suggested by Senator Douglas' amendment. In addition, the taxes paid by the railroad employers and employees are very substantially greater than those paid by social security employers and employees and will continue to be so even if H.R. 11865 is enacted without the Douglas amendment. At the present time, the social security tax rate paid by employers and employees is 3.625 percent on $4,800 a year, and is scheduled to reach 4.625 on that same amount in 1971. H.R. 11865 would increase the present social security tax rate to 3.8 percent on $5,400 a year and eventually, in 1971, the rate would go to 4.8 percent on that amount. Without any change in the tax rates, the railroad rate, now at 8.125, paid each by employers and employees on $450 a month ($5,400 a year) is scheduled to reach 9.125 percent on that amount in 1971. The Douglas amendment would further increase the taxes imposed on railroad employers and employees.

Railroad employees have much more generous benefits than social security employees and the taxes paid under the railroad system are substantially greater than the social security taxes paid either at the present time or as proposed under H.R. 11865. Additionally the railroads see no occasion to increase railroad taxes and benefits: (1) since railroad taxes and benefits were greatly increased less than a year ago and (2) the Douglas amendment would add to the existing deficit in the railroad retirement account.

(Whereupon, at 2:40 p.m., the committee was adjourned, to reconvene subject to call of the Chair.)

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