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Why deliberately set up a system that does away with uniform unemployment eligibility standards and benefits and substitute fifty sets of eligibility standards and fifty schedules of benefits?

Why risk the political consequences of angering 1,500,000 voters by doing away with a system that both rail management and rail employees support and for which employers and employees pay 100 percent of the costs?

Will a paper saving of $.2 billion in 1983 (there is no real saving but only increased costs) and a RIFing of 1,500 employees (at no dollar saving to the Federal government but at a very considerable RIFing cost) outweigh the risks and consequences described?

I think not. At this state, I consider that the proposal put forward by certain people at OMB is not feasible.

(Mr. Chamberlain) Answer: The railroad unemployment and sickness insurance system has been financed entirely by the railroad industry and in its more than 40 years of existence it has not received funds from the Federal government. It provides uniform unemployment benefits for railroad employees throughout the nation, and it also provides sickness benefits for those who are unable to work due to illness or injury. By way of contrast, many of the State unemployment insurance systems are financially troubled and have received millions of dollars in Federal subsidies. They provide varying levels and schemes of unemployment benefits and only a handful provide any sickness benefits whatever. In view of these factors, we are at a loss to determine why anyone would propose the abolition of the railroad unemployment and sickness insurance system. Transfer of railroad employees to the various state systems would be disadvantageous to most employees and to the Federal government as well since the government could very well end up subsidizing the state systems for the costs of picking up railroad employees.

TAXING RAILROAD RETIREMENT BENEFITS

Question 48: How much would be saved if all but the Social Security component of railroad retirement benefits were subject to Federal income tax?

Answer: Information is not available at this time to determine the amount of savings.

Question 49: Are there any other pension plans for private sector workers that offer annuitants retirement incomes that are essentially tax free?

Answer: We are not aware of any other pension plans for private sector workers that provide tax free benefits.

Question 50: ment benefits?

What are the pros and cons of taxing railroad retire

Answer: The considerations in favor of taxing railroad retirement benefits are those set forth in the recent study released by the Congressional Budget Office entitled "The Railroad Retirement System: Benefits and Financing." These most significant of these considerations is that such taxation would produce additional revenue for the Federal government. In our view, however, it would

appear anomalous to consider increasing the taxes imposed on retired and disabled individuals, their dependents, and their survivors at a time when the general policy is to reduce the Federal tax burden on private businesses and individuals.

Since the enactment of the Railroad Retirement Act in the mid-1930's it has been the policy of the Congress that the benefits payable under the Act should be exempt from taxation just as it has been the policy that benefits payable under the Social Security Act, the other social insurance system administered by the Federal government, should be exempt from taxation. This long standing policy was specifically reaffirmed by legislation in 1955 after it appeared that the enactment of the Internal Revenue Code of 1954 might have inadvertently removed the exemption with respect to railroad retirement benefits. It is true, of course, that railroad retirement benefits exceed those payable under the Social Security Act. But it is equally true that railroad employees have paid in the past and are paying today employment taxes at a higher rate than they would have paid if their work had been covered under the Social Security Act. Furthermore, railroad employees have also paid income taxes on the amounts used to pay these higher employment taxes. Having paid these higher taxes and having paid income taxes on these employment taxes, it would, in our view, be inequitable to now tax the retirement benefits derived from the higher employment taxes paid by the railroad community.

REIMBURSEMENTS TO RECIPIENTS OF WINDFALL BENEFITS

Question 51: How did you handle the retroactive payment of windfall benefits, when Congress increased the annual funding level to $379.2 million in December, from the earlier fiscal 1982 level of $350 million?

Answer: When Congress increased the annual funding level for windfall benefits, the Board increased payment from 79 percent of the windfall to 85 percent of the windfall effective with the January 2, 1982 check (payment for the month of December 1981). A mechanical adjustment was made to pay the additional six percent of the windfall that was payable for September, October, and November 1981.

The retroactive payment was made on February 16, 1982. Windfall accruals that could not be made mechanically will be handled manually as soon as possible.

COST OF WINDFALL

Question 53: What do you estimate will be the annual cost of paying windfall benefits for each of the next ten years?

Answer: Our estimate of the cost is given in the table below, assuming that windfall is fully funded.

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Question 54:

How many people who do not now receive benefits under railroad retirement would begin receiving benefits under the Administration's proposal (i.e., if tier I is switched to social security)?

Answer: It is estimated that about 58,000 people would receive direct benefits under social security who do not receive the same benefits under the railroad retirement system. These are mostly children of annuitants, spouses of disability annuitants and parents. However, this figure is misleading, since all but about 4,000 of these beneficiaries are covered under the Overall Minimum provision. This provision guarantees that an employee and his family receive in total benefits at least as much as they would receive under the Social Security Act (SSA). If the Overall Minimum applies, the benefits for the persons ineligible under the Railroad Retirement Act are paid to the employee and his spouse. Currently, there are about 3,300 families receiving benefits under this provision. For the remaining families, the total Railroad Retirement Act benefits, including the tier II, windfall, and supplemental annuity exceed the Overall Minimum amounts. From a certain point of view, it could be said that the tier II amounts include the social security equivalent be benefit for these eineligibles; and these benefits should be taken away from the tier II amounts if benefits are paid under social security.

Question 55:

How much more in benefits would be paid out?

Answer: We estimate that, for calendar year 1981, the additional amounts paid out by social security would have been $58 million. However, if only the 4,000 uncovered beneficiaries are considered, the amount would have been $10 million.

ACTION

STATEMENT OF THOMAS W. PAUKEN, DIRECTOR

ACCOMPANIED BY:

WINIFRED PIZZANO, DEPUTY DIRECTOR

MARK BLITZ, DIRECTOR OF POLICY PLANNING AND EVALUATION
MARVIN WHITEHEAD, BUDGET DIRECTOR

SUBCOMMITTEE PROCEDURE

Senator BURDICK. We will now hear testimony on the operation of the ACTION agency. Mr. Thomas Pauken, Director of ACTION, is the lead witness.

Please introduce your colleagues and proceed with a summary of your statement. Due to the time constraints, I hope you can summarize. Mr. PAUKEN. I will try to expedite it, Senator.

INTRODUCTION OF ASSOCIATES

I first would like to introduce, to my immediate left, the Deputy Director of our agency, Winifred Pizzano; to Ms. Pizzano's left is Mark Blitz, who is the Assistant Director for Policy and Planning at the ACTION agency; and to my immediate right is Marvin Whitehead, the Budget Director of ACTION.

We have provided written budget testimony to the subcommittee.

PREPARED STATEMENT

Senator BURDICK. Your prepared statement will be entered in the record at this point.

[The statement follows:]

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