workers, have been taxed in order to provide a system of benefits that in most States have been adequate only for low wage workers. To the extent that the benefits provided all workers, when they are unemployed, are adequate, regardless of whether they are low wage or high wage workers, the entire economy benefits since purchasing power of the unemployed is better maintained.

Question 3. For nearly four decades we have had an unemployment compensation system that permits the States to respond to local needs and philosophies in prescribing conditions of eligibility, disqualification, benefit amounts, and duration period. Some States have dependency allowances, some States have formulae that provide minimum benefits and otherwise favor lower paid employees. In order to make the States pay specified amounts, won't you have to standardize virtually all of these aspects, or otherwise they could pay a higher benefit amount, but for a shorter duration, or make eligibility criteria more stringent, or change the disqualification rules? Even aside from this problem, won't the States that provide benefits beyond your standard, for a man with several dependents have an incentive to standardize the benefit formula to compensate for the additional costs the Federal standard will impose?

Answer. The thrust of this question goes to unemployment insurance proposals rather than the Trade Reform Act, which provides only supplementary or weekly payments in certain cases without any affect on the remainder of any State's unemployment insurance formula.

It must be emphasized that the proposed unemployment insurance benefit amount requirement would not specify the dollar amount to be paid by States. Up to the State maximum, each State would be required to pay an eligible individual a weekly benefit amount of at least half the individual's average weekly wage. States that wish to pay a weekly benefit amount greater than half the individual's wage to some categories of workers, such as low-wage workers or workers with dependents, or to all insured unemployed workers would continue to be free to do so. The maximum weekly benefit amount which the bill would require each State to provide is at least two-thirds of the State's average weekly wage in covered employment. Such a provision would gear each State's maximum weekly benefit amount to the State's wage level.

Nothing in the proposed benefit amount requirement would prevent any State from changing its present qualifying requirements for benefit eligibility, from revising its disqualification provisions within the limits now provided in the Federal Unemployment Tax Act (cf. sec. 3304(a) (5), (6), (7), (8), (9), and (10)), or from providing a different benefit duration formula or a lesser benefit duration maximum. The history of the unemployment insurance program over the years has reflected a general increase in the base period earnings required to qualify for benefits, reflective of the rise in wages over the years, greater restrictiveness of disqualification, and greater liberality in duration provisions. States have not, in the past, reduced duration when they increased their maximum weekly benefit amounts, and we don't expect them to do so in the future. It can be argued that the additional cost of a higher maximum weekly benefit amount provides an incentive for a State to make cost offsetting changes in its law such as reduction of duration or elimination of dependents' allowances. Other considerations enter the picture, however, when such changes are considered by a legislature. For example, reducing duration means increasing that number who use up their benefits and are still unemployed and are potential welfare cases. Similarly, in States with dependents' allowances it would seem highly questionable that improved benefit maximums would trigger the abandonment of such allowances. Only eleven States have any form of dependents' allowances. In some of these States, dependents' allowances may have been adopted as a substitute for adequate benefits for all eligible individuals. In others, dependents' allowances reflects a family-oriented social philosophy that is widespread in the State.

Question 4. In your statement you indicate that you believe the experience with our Federal/State unemployment compensation system over the last four decades has been healthy. State discretion to respond to local need has been, as I said above, an important part of this. When the Administration is emphasizing decentralization through revenue sharing, block credits, and other programs, isn't it anomalous to attempt to centralize decision making processes in a program that we both agree has proved its merit over four decades? What will this do to State and Federal cooperation in the employment security area?

Answer. The extent of Federal-State cooperation in the unemployment insurance program has indeed been remarkable. The Federal Government has been

responsible for assuring that the essentials were provided so that the system could be established and operate. The States have had responsibility for most decisions about the nature of the program and for its operation and administration. To the extent possible within that basic framework the Federal Government has left decision-making to the States.

However, no system for compensating for wages lost because of unemployment can be effective unless the compensation provided is adequate in amount. In his July 8, 1969 message on unemployment insurance, President Nixon said: "Up to now, the responsibility for determining benefit amounts has been the responsibility of the States. There are advantages in States having that Freedom. However, the overriding consideration is that the objective of adequate benefits be achieved. I call upon the States to act within the next two years to meet this goal, thereby averting the need for Federal action."

Since 1969, the improvements in State benefit maximums, while significant, have been insufficient to achieve benefit adequacy for the great majority of insured workers. Only four States provide a maximum weekly benefit amount actually or approximately equalling two-thirds of the State average weekly wage in covered employment. Three out of five covered workers are in States in which the benefit maximum is less than half of the State's average weekly wage. More than half of the benefit claimants in 1970 and 1971, and 44 percent of the benefit claimants in 1972 got weekly benefits of less than half their usual weekly wages. Thus the Administration has reluctantly concluded that Federal action is necessary in order to attain benefit adequacy in our unemployment insurance system.

We do not believe that Federal-State cooperation would be impaired by enactment of the proposed benefit amount requirement. The requirement is set in mathematical terms making its provisions precise and clear. No State will need to be in doubt as to whether it is in conformity. Consequently, no dispute should arise to create Federal-State frictions in the administration of the requirement. It has been our experience that when this is the case, Federal-State cooperation is most effective.

The existing readjustment program under the Trade Expansion Act of 1962 can be described as a principal-agent relationship between the Federal Government and the States in which the Federal Government furnishes the funds and the States pay the adjustment assistance. Thus, trade programs must be distinguished from the Federal-State partnership arrangements which characterize unemployment insurance. By moving towards merger of assistance to trade impacted workers with the general unemployment insurance program, the Administration is promoting the cooperative concept.

Question 5. I would like information about the additional costs associated with the new Federal bencfit standard. The President's message indicated that "The new requirement would result in an average increase of 15 percent in costs to State pooled unemployment insurance funds." In the Labor Department's explanation of the new bill, you indicate that $61⁄2 billion was paid out in unemployment insurance benefits in 1972. It would appear to me that, given a similar incidence of unemployment, the new program would impose something in the order of a billion dollars in additional payroll taxes.

What is your estimate as to the increased costs and the amount by which States would have to increase taxes on their employers to meet these new benefits the Federal Government is requiring?

Answer. The $62 billion unemployment benefit expenditure of 1972 reflected an atypically high level of unemployment which we trust will not soon be repeated. Assuming somewhat more normal levels of insured unemployment over the next four year, it has been our estimate that adoption of the unemployment benefit amount requirement as it appears is the Administration's proposed Job Security Assistance Act would result in an average annual increase in State benefits payments of approximately $700 million. As you have indicated, this would represent about 15 percent of the unemployment benefits that would otherwise be paid by the States under the existing provisions of their laws.

That 15 percent is an estimated national average. State by State, the percentages of benefit cost increase would vary substantially. The States that already provide maximum weekly benefit amounts equal to two-thirds of the State average weekly wage-Arkansas, District of Columbia, and Hawaii-would have no benefit cost increase. Utah, whose benefit maximum is 65 percent of the State average is in virtually the same position. Another half dozen States have benefit maximums that are in the 60-65 percent bracket, as compared with the State

average weekly wage. In these States the benefit cost increases would be relatively small, substantially less than the national average. By contrast, those States whose maximum weekly benefit amounts are substantially less than half of the State's average wage level would probably have cost increases in excess of the national average of 15 percent.

The hazards of estimating the benefit cost impact of increasing a State's benefit maximum must be stressed. If all the claimants in a State were high wage workers who are getting the present benefit maximum and, under the revised provision, would get the higher maximum, the increased cost would be the dollar difference between the present and the proposed maximum for all those claimants' compensable weeks. By contrast, if all of a State's claimants were low wage workers, none of whom qualify for the present maximum, increasing that maximum by law would not add a dollar of benefit cost. The reality will, of course, lie somewhere between these two poles, depending on the mix of high wage and low wage claimants. That mix varies among the States and, within a State's experience, it varies from period to period.

No reasonable estimate is possible as to the impact of the proposed benefit amount on employer taxes. Although every State will have to meet the benefit cost increase that may be involved out of its State unemployment fund and all the State unemployment funds derive from employer taxes, the State funds vary considerably in size and adequacy, and those variations can be expected to persist. In some States, fund levels are so high that no tax schedule adjustment may be needed for a substantial period. In others, the fund is already at a level that requires revision of restructuring of the tax schedules to yield adequate revenue. An additional complicating factor in considering the tax impact in a State of an increased benefit maximum is the operation of the State's experience rating system. Experience rating provisions in State laws work to increase the tax rate of those employers whose workers most often become unemployed and draw benefits and to lower the tax rate of employers whose workers seldom or never experience unemployment. To the extent that claims at the increased benefit maximum level are filed by the workers of employers with low tax rates, the increased cost involved in a higher maximum will be met out of the taxes of the indivdual employers involved without affecting the tax rate level of all of the State's employers.

Mr. BURKE. Mr. Burleson ?

Mr. BURLESON. No questions.

Mr. BURKE. Mr. Corman?

Mr. CORMAN. Mr. Secretary, I wonder if you have had a chance to reflect on my question. Maybe you can tell me something about the

answer.

Secretary BRENNAN. Yes, sir; you asked what the comparison was of the Burke-Hartke bill with the administration's trade bill with respect to the protection for workers. We can submit to you a more complete comparison for the record than I am able to give you at this moment but I think I can hit some of the major points.

The main difference in the Burke-Hartke bill is that it imposes mandatory import quotas and sweeping taxation for foreign source income. The administration bill permits the President to impose quotas only after finding serious injury and provides less sweeping tax penalties.

Also we find that as for the adjustment assistance provisions in Burke-Hartke and the Trade Reform Act, Burke-Hartke keeps the same investigative system while our bill combines the investigative system and certification process in the Department of Labor. Consequently, we think the delivery of benefits will be faster under the administration bill. Our bill provides priority access to manpower and training programs and the Burke-Hartke bill does not. Our bill vides possible job search grants and Burke-Hartke does not. The Burke-Hartke bill provides higher benefit levels for some workers. This is true. Anything else we will be glad to supply to you for the record.

Mr. CORMAN. I think if you can stay flexible on that last point, you may find yourself negotiating before they finish this bill.

As I understand it although the Burke-Hartke makes trade restrictions mandatory under certain circumstances. the administrations bill permits the President to reach the same conclusion under the same facts. If that is not correct, please correct me. What I am trying to do is set the parameters of the discretion of the President.

Secretary DENT. The Burke-Hartke bill establishes quotas on the basis of the average imports during the year 1965 through 1969. One authority which the President has under the safeguard provisions is to establish quotas. There is no automatic rollback involved in it. Mr. BURKE. Will the gentleman yield there?

Mr. CORMAN. Yes.

Mr. BURKE. What is involved in the President's powers of setting quotas? How far back can he go? As I read his bill he can go back

to 1930.

Secretary DENT. On quotas.

Mr. BURKE. He can set any quota he wants to, any figure or level and at any tariff rate back to 1930. I think that might shock some of the audience but that is what the facts are.

Secretary DENT. The authority is selective in the trade bill of 1973. The other is mandatory.

Mr. CORMAN. Yes. My point, though, is that quotas are subject to congressional veto, but the parameter of his capacity within that quota structure enables the President to go at least as far as Burke-Hartke does go; isn't that correct? If he makes a decision that it is in the national interest that we have quotas there are no restraints on his suggesting quotas that are more restrictive than Burke-Hartke, of course, on the condition that he submit them to the Congress for a potential

veto.

Secretary DENT. Under the act of 1973 the Tariff Commission has got to make an affirmative finding that conditions prevail whereunder the authority of the act the President can then take action.

Mr. CORMAN. Under the proposed legislation?

Secretary DENT. Yes. Before the President can take any action whatsoever, the Tariff Commission has got to find that serious injury or threat thereof is being incurred by the industry which is making the appeal.

Mr. CORMAN. The President has no authority to go beyond the recommendation of the Tariff Commission?

Secretary DENT. The Tariff Commission first investigates it and finds that serious injury or threat thereof exists. Then the determination of what action should be taken is at the Presidential level.

Mr. CORMAN. Let's take, for instance, a subject we sometimes heard about, let's take shoes. Let's assume the Tariff Commission makes a finding that there is damage to American labor because of the importation of shoes. Now, the degree of relief in the form of quotas given by the President doesn't have any relationship to the degree of damage proven to the Commission; does it?

In order words, we leave it to this discretion to ascertain what is sound?

Secretary DENT. That is correct. He has discretion as to the relief which will be accorded which is reported to the Congress in the President's annual report on the trade agreements program.

Mr. CORMAN. Now, is it always necessarily a first step that the Tariff Commission find injury before the President has any authority to impose quotas?

Secretary DENT. Yes. That is the first step in the safeguard procedure, that the industry, company, appeals to the Tariff Commission for a finding that injury exists or the threat thereof exists.

Mr. CORMAN. How long does that determination take under normal circumstances?

Secretary DENT. In round figures, usually about 6 months. But under the proposed legislation, 3 months. Then the President, if he receives an affirmative finding from the Tariff Commission has 60 days within which to make his decision. If it is a split decision on the part of the Tariff Commission he has 120 days.

Mr. CORMAN. If the Tariff Commission ascertains there is no injury, does the President have any authority from that point on to grant relief?

Secretary DENT. No; an affirmative finding has to come to him from the Tariff Commission.

Mr. CORMAN. Then I suppose the difference in this bill and BurkeHartke is that we would be making a legislative decision concerning injury whereas under the administration's bill the Tariff Commission will make that decision.

Secretary DENT. That is correct.

Mr. CORMAN. Assuming the Tariff Commission finds that injury, the President has broad latitude in the way of establishment of quotas or whatever else he determines to be a proper remedy on the quotas, subject to the lack of congressional veto.

Secretary DENT. Part of your question also related to the tax impact of this?

Mr. CORMAN. Yes.

Secretary DENT. Now, the act of 1973 as submitted by the President does not contain tax action, but the Burke-Hartke Act would impose a current tax on all earnings offshore so that in effect our companies would be bearing a double burden. This is totally contrary to the practice of all of our offshore trading partners.

And in all probability, the taxation of earnings on a current basis would be contrary to the practice of all of our trading partners. It would put American offshore industries at a great disadvantage compared with their competition, and furthermore in my judgment would violate the general American philosophy of equal tax sharing.

Mr. CORMAN. As I understand, when the Tariff Commission reaches this initial decision which they must reach before we can have any kind of relief, there does not have to be shown that it is because of a concession granted at negotiations that the injury occurred.

Secretary DENT. That is correct. The 1962 act required an escape clause action to be based upon an earlier concession reducing tariffs. That was one of the main stumbling blocks to getting favorable decisions from the Tariff Commission. This was eliminated in the Trade Reform Act of 1973.

Mr. CORMAN. If the Tariff Commission finds, for instance, that 30 percent of the reason for trouble in an industry was from imports and then the other causes were all listed, but each of them less than 30 percent, they would have to certify that the industry was entitled to relief?

96-006-73-pt. 2- -17