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will do better if we extend it to include all State and local government workers in the medicare program and ask that they pay the medicare payroll tax.

I believe we should make this change for three basic reasons. The first is that the great majority of such workers, including those who don't pay the tax, will receive benefits, either because they are married to someone who is eligible or they will become eligible due to other employment. In such cases, they will be receiving the same benefits that others receive who pay the tax for their entire working life, but these uncovered employees will not pay their fair share of the tax.

Second, I think it is important that we extend medicare benefits to the relatively small number of State and local government employees who are not now eligible for medicare on retirement. Clearly, from the start, there has been a belief that medicare should be a universal program. Making the change I am recommending would get us most of the way there.

A total of four million State and local government employees are not now paying the medicare tax. I don't know how many of them will not receive benefits unless the law is changed.

Finally, the revenue we will receive by making this change will ease the pressure on the medicare program and allow us to avoid benefit cuts that would be painful to all beneficiaries. It is not an incredibly large amount of money, but it is significant. Including all such workers in the program would raise $1.6 billion next year, $2.3 billion the following year and $2.5 billion the year after that.

This is an important step in the right direction. I hope my colleagues both here in committee and in the House generally will join me in supporting it.

I have attached a table showing estimated coverage by State in 1980.

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TABLE 2.—ESTIMATES OF SOCIAL SECURITY COVERAGE OF STATE AND LOCAL GOVERNMENT JOBS,

MARCH 1980
[Number in thousands)

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1. California
2. New York
3. Texas..
4. Illinois.
5. Ohio......
6. Pennsylvania.
7. Michigan..
8. Florida

9. New Jersey.
10. North Carolina...
11. Georgia
12. Massachusetts
13. Virginia
14. Wisconsin..
15. Indiana.
16. Minnesota
17. Missouri.
18. Maryland.
19. Tennessee
20. Washington.
21. Louisiana.
22. Alabama.
23. Oklahoma
24. Colorado.
25. Kentucky.
26. lowa..
27. South Carolina
28. Oregon..
29. Connecticut.
30. Arizona..
31. Kansas
32. Mississippi

1,421 1,097 812 638 602 572 559 528 435 359 356 339 316 311 306 275 270 262 257 252 249 226 188 187 187 185 184 175 165 164 164 150

573 1,025 435 243

0 552 511 449 435 329 272

0 316 257 267 188 204 241 221 248

39 226 159

44 126 178 176 158

93 140 147 150

40 93 54 38

0 97 91 85 100 92 76

0 100 82 87 68 76 92 86 98 16 100 85 24 68 96 96 90 57 85 90 100

TABLE 2.—ESTIMATES OF SOCIAL SECURITY COVERAGE OF STATE AND LOCAL GOVERNMENT JOBS,

MARCH 1980—Continued

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Chairman ROSTENKOWSKI. Thank you, Mr. Stark. Are there any questions of Mr. Stark?

Mr. CAMPBELL. Mr. Chairman.
Chairman ROSTENKOWSKI. Mr. Campbell will inquire.

Mr. CAMPBELL. Mr. Stark, the proposal of earmarking is a general departure from use of this type of tax.

Mr. STARK. This is not an earmarking, Mr. Campbell.
Mr. CAMPBELL. What would you say that it was?

Mr. STARK. We all pay-most employed people, including ourselves, pay 1.3 percent of our salary into the Medicare fund, but our employers pay the other side of that. There are certain small percentages of State and local employees who are not now required to do that. What we are saying, we would mandatorily include them in the Medicare system, and we did that 2 years ago with Federal employees, and it would seem to me

Mr. CAMPBELL. I missed your number. How many were there?

Mr. STARK. I think about 4 million employees in the country who are not now covered, most of whom end up getting the benefits. That was the same argument we had in the Federal employees. They find most of them end up being covered anyway and do not pay for it during their working career. So we are suggesting they should be covered and paid for.

Mr. CAMPBELL. Would you go back to the phase-in part that you mention there?

Mr. STARK. The maximum would be to cover everybody immediately with the full 2.6, both the Federal and self-employed. If they are employers, you can't mandate a State or city pay, but we can mandate the employee has to pay as a self-employed worker would. That is the heaviest burden on them.

One would assume that the pressure of the workers on the governmental body involved would push that governmental body to pick up their half, shame them into it perhaps. You could go any. where from there. You could make them pay only their share and phase in the State and local side's share, as you moved ahead. That would be somewhat unfair to the localities who already pay. You could require them-only new hires—to pay 2.3 or their half. There is any combination of those procedures that you want to use.

Mr. CAMPBELL. Would this—by taking this group and putting that tax on, which would go to the Medicare trust fund, would this be a move on your part to essentially shame or force State and local governments to move into the whole Social Security system?

Mr. STARK. I don't have any jurisdiction over the Social Security system. That may very well be something-

Mr. CAMPBELL. This is kind of a first step?

Mr. STARK. If you are asking my opinion, I think we should do it. In other words, I think we shouldn't let a few groups of employees out of the Social Security-we went through that ourselves, with our staff, with our Federal employees. It wasn't pleasant all the time, but I think we all thought it was the right thing to do, and I think universal coverage in Social Security and Medicare is proper. I don't think we should let people opt out of either system.

But in the budget bill which will come, and my reason for wanting to have this on the record today is that what we will be dealing with is only Medicare, and the question of Social Security would more properly be in the province of the gentleman from Oklahoma.

Mr. CAMPBELL. I wanted to see where the first step might lead. Thank you.

Chairman ROSTENKOWSKI. Mr. Matsui will inquire.

Mr. Matsui. In terms of the revenues raised by taxes, these 4 million people or so, you would use that money in terms of the budget reconciliation process, is that correct? In other words, if in fact the Budget Committee suggests or the budget process suggests we have to make cuts in the Medicare Program, that money would be used for that purpose? Is that my understanding?

Mr. STARK. It is my understanding, if we survive the conference, that the House budget resolution did allow this committee to use certain revenues in meeting its reconciliation goals. I would gladly take the money and use it for indigent care or medical education or any one of a series of other good things, but I have a hunch it will be used just to meet our budget goal.

Mr. MATSUI. From an equitable point of view, you were suggesting, if I understand you correctly, that many of the local and State government employees that don't currently pay into the Medicare trust fund essentially will be covered by Medicare anyway because after their life in public service, either State or local government, they eventually will go to the private sector, pay the 1.35—

Mr. STARK. Previous, or their spouse may be covered, in which case they are covered.

Mr. Matsui. From an equitable point of view, those in State service that don't pay into it that eventually get coverage through their spouse or other private employment work are not contributing their fair share. Is that what you are saying?

Mr. STARK. The gentleman is correct.

There is another point to it. In a sense it is like requiring seatbelts. I hate to bring it up, it is something good for them. When they get to be 65, they really can't buy anything approaching Medicare for the price they would pay by being covered during their working lives, and so in a sense although nobody likes to shell out a little extra money out of their paycheck, they in fact will be getting a worthwhile benefit.

Mr. MATSUI. Thank you.
Chairman ROSTENKOWSKI. Mr. Pickle will inquire.

Mr. PICKLE. How many people, State and local, do you estimate are not covered under the Medicare Program now?

Mr. STARK. I think it is about 4 million.

Mr. PICKLE. What would be the revenue intake if this extension was made?

Mr. STARK. If we collected the full 2.6 percent from the beginning in 19–in the next fiscal year, it would be $1.6 billion, and in fiscal year 1987, $2.3 billion, and $2.5 billion in 1988.

Mr. PICKLE. Have we looked into the question of constitutionality since the Supreme Court has made its ruling? Has any effort been made to have some kind of declaratory judgment or effort to determine whether the court's implied ruling-ruling would apply?

Mr. STARK. The only intellectual and academic survey that I have seen, and I am sure the gentleman, as a lawyer, may not consider this a binding opinion, was in the Washington Post. I would say

Mr. PICKLE. Have you had any contact with the mayors or the county judges or the Governors of the States? There is only one or two States completely covered under Medicare. Have you had any contact to see what reaction they would have?

Mr. STARK. The only contact was very similar-very recently from my own district-is very similar to the types of comments I had when the gentleman was trying to cover State and local employees under the Social Security reform bill. Obviously, for those localities that are not now bearing this expense, they will object. It is like a parking ticket, nobody likes to pay it.

So I would anticipate that those governmental bodies that are not now paying the tax and/or their employees who aren't covered will initially object.

Mr. PICKLE. I wouldn't contend what you suggest would be inequitable, and it might be fair in many respects. Mr. STARK. It is not going to win a popularity contest.

Mr. PICKLE. In order to get revenue, do we take away from the cities, counties and States those benefits that they have been receiving, now that there is less appropriations for various programs? Elimination of revenue sharing, it becomes a political problem more than a budget problem, doesn't it?

Mr. STARK. I would suggest because New York is over 90 percent covered, and the distinguished gentleman in his absence, Mr. Downey, would probably be willing to trade my State and local coverage under Medicare for deductibility of State and local taxes, but that hasn't been offered yet.

Mr. PICKLE. Since Mr. Downey is not here, that is not a direct offer

Chairman ROSTENKOWSKI. Are there any further questions? If not, thank you very much, Mr. Stark.

Our next witnesses will be Roger Mentz of the Treasury Department. If you will assume the witness chair, the committee looks forward to your testimony.

STATEMENT OF J. ROGER MENTZ, DEPUTY ASSISTANT SECRETARY FOR TAX POLICY, DEPARTMENT OF THE TREASURY

Mr. MENTZ. Good morning, Mr. Chairman, and members of the committee. It is a pleasure to be here this morning, along with other administration officials, to discuss the revenue initiatives included in the President's fiscal year 1986 budget proposals.

I will present the views of the Treasury on the issue of whether the temporary increase in the cigarette excise tax should be extended, and the other administration witnesses will deal specifically with the user fees that are contained in the President's budget.

Very briefly, Mr. Chairman, the Tax Equity and Fiscal Responsibility Act of 1982 increased the Federal excise tax on cigarettes from 8 cents a pack to 16 cents a pack. That was effective January 1, 1983. It is set to be reduced back to 8 cents on October 1, 1985. There is no provision in the administration's budget for changing that, nor is there any provision in either budget resolution of the Senate or the House. In other words, under current law and under those budget resolutions, the excise tax would drop down to 8 cents a pack beginning October 1, 1985.

The administration, because it is generally opposed to any form of tax increase, finds that acceptable and would not support any increase in the cigarette excise tax above 8 cents a pack beginning October 1, 1985.

The rest of the testimony this morning deals with user fees, and user fees are distinguished from taxes in that they are fees paid to the Federal Government for use of property or services, and our position, as will be explained by the other witnesses, is that it is appropriate to have user fees charged where property or services are provided by the Government and that is to be distinguished from tax increases which the administration generally opposes.

At this point, Mr. Chairman, I would be glad to take questions or turn it over to the other witnesses who will discuss the user fees.

[The prepared statement follows:

STATEMENT OF J. ROGER MENTZ, DEPUTY ASSISTANT SECRETARY (Tax POLICY),

DEPARTMENT OF THE TREASURY Mr. Chairman and members of the committee, it is my pleasure to be here today along with other Administration representatives to discuss the revenue initiatives included in the President's fiscal year 1986 budget proposal. I will present the views of the Treasury Department on the issue of whether the temporary increase in the cigarette excise tax should be extended. Other administration officials will discuss specifically the user fees proposed in the President's budget.

The current tax rate of 16 cents per pack of 20 cigarettes is schedu to duced to 8 cents per pack on October 1, 1985. Our position is that the excise should be allowed to decline to 8 cents per pack on October 1 in accordance with current law.

The Administration generally is opposed to any form of Federal tax increase at this time. Fees imposed for the use of Federal Government property or services, however, are an appropriate means of compensating the Federal Government for the expenses incurred in making such property or services available to the public, and thus other Administration witnesses will be testifying this morning in support of certain user fees.

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