House Ways & Means Report on 1935 Legislation

Shortly after the 74th Congress convened in January 1935, President Roosevelt sent his Social Security legislation to Capitol Hill. The Administration proposal was transmitted to the Congress on January 17, 1935 and it was introduced that same day in the Senate by Senator Robert Wagner (D-NY) and in the House by Congressman Robert Doughton (D-NC) and David Lewis (D-MD). The bill was referred to the Senate Finance Committee and the House Ways & Means Committee.

During Ways & Means Committee consideration of the Administration's bill (H.R. 4120) the Committee made several changes in the draft legislation. Among other changes, the Committee deleted the Administration's proposal for a system of voluntary annuities and it proposed creating a Social Security Board as an independent agency to administer most of the programs of the legislation.

This Report is the result of the Ways & Means Committee's modification of H.R. 4120. It has been renamed H.R. 7260 and is being reported to the full House of Representatives for its consideration. The bill, H.R. 7260, passed the House, without major change, on April 19, 1935. Subsequently, the Senate Finance Committee reported out a somewhat different version of the legislation.

74TH CONGRESS
HOUSE OF REPRESENTATIVES

1st Session

Report  No. 615

THE SOCIAL SECURITY BILL

APRIL 5, 1935

Committed to the Committee of the Whole House
on the state of the Union
and ordered to be printed

Mr. DOUGHTON, from the Committee on Ways and Means, submitted the following

REPORT

[To accompany H. R. 7260]

---

The Committee on Ways and Means, to whom was referred the bill (H R 7260) to provide for the general welfare by establishing a system of Federal old- age benefits, and by enabling the several States to make more adequate provision for aged persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws, to establish a Social Security Board, to raise revenue, and for other purposes, having had the same under consideration, report it back to the House without amendment and recommend that the bill do pass.

PART I. GENERAL STATEMENT

CONTENTS OF BILL

This bill provides for various grants-in-aid to the States; establishes a Federal old-age benefit system and a Social Security Board; and imposes certain taxes, hereinafter described.

Title I: Grants-in-aid are to be made to the States for old-age pensions to persons who have reached the age of 65. In making these grants the Federal Government will match what the States put up, within certain limits.

Title II: A system of Federal old-age benefits, payable to people who have reached the age of 65, will begin in 1942. These benefits are to be measured by wages, and are payable wholly regardless of the need of the recipient.

Title III: Grants-in-aid are made to the States, to pay the administrative costs of State unemployment compensation systems. The amounts authorized should be sufficient to meet these costs, and no matching is required.

Title IV: Grants-in-aid are to be made to the States to assist them in giving aid to dependent children. In making these grants, the Federal Government will, within certain limits, put up one third of the total amount paid in the State for aid to dependent children.

Title V: Grants-in-aid are made to the States for aid in their services relating to maternal and child welfare, the care of crippled children, and vocational rehabilitation. Most of these grants are to be made on an equal matching basis.

Title VI: Grants-in-aid are to be made to the States for developing their public health services, and authorization is made for the Public Health Service to carry on its investigatory work.

Title VII: A Social Security Board, which is to be an independent agency in the executive branch of the Government, is established. The board is to have three members, holding office for 6 year terms.

Title VIII: An income tax, measured by a certain percentage of wages (beginning with 1 percent in 1937 and increasing to 3 percent by 1949), is levied on most wage earners, with certain large groups, such as domestic servants and agricultural laborers, exempted. An excise tax, measured at the same rates on wages paid, is levied on employers, with similar exemptions. These taxes first take effect on January 1, 1937.

Title IX: An excise tax is levied on employers of 10 or more persons (with certain exemptions), measured by 1 percent of wages payable for 1936 and increasing to 3 percent by 1938. This tax goes into effect on January 1, 1936, and is first payable a year later. Credits against the tax are allowed for contributions which the taxpayer may have made to State unemployment funds under State unemployment compensation laws.

Title X: This title contains general definitions and miscellaneous provisions applying to the whole act.

HISTORY OF LEGISLATION

Legislation on the subject of social security was promised the country in a Presidential message of June 8, 1934, in which he said:

Our task of reconstruction does not require the creation of new and strange values. It is rather the finding of the way once more to known, but to some degree forgotten, ideals and values. If the means and details are in some instances new, the objectives are as permanent as human nature.

Among our objectives I place the security of the men, women, and children of the Nation first.

This security for the individual and for the family concerns itself primarily with three factors. People want decent homes to live in; they want to locate them where they can engage in productive work; and they want some safeguard against misfortunes which cannot be wholly eliminated in this man made world of ours.

Subsequently, the President (by Executive order) created the Committee on Economic Security, composed of the Secretary of Labor (chairman), the Secretary of the Treasury, the Attorney General, the Secretary of Agriculture, and the Federal Emergency Relief Administrator, instructing the committee to study the entire problem and to make recommendations which might serve as the basis for consideration of legislation by the present Congress.

The Committee on Economic Security devoted 6 months to this study in which it was assisted by a staff of specialists and by 14 advisory groups, representative of every interest concerned with the problems of economic security, including capital, labor, and the general public. For personnel of advisory committees, see the appendix of this report. The committee made a unanimous report to the President in January of this year, which the President transmitted to both Houses of the Congress, with his endorsement of the legislation recommended therein, in a special message on January 17, 1935, the concluding paragraphs of which were as follows:

The establishment of sound means toward a greater future economic security of the American people is dictated by a prudent consideration of the hazards involved in our national life. No one can guarantee this country against the dangers of future depressions but we can reduce these dangers. We can eliminate many of the factors that cause economic depressions, and we can provide the means of mitigating their results. This plan for economic security is at once a measure of prevention and a method of alleviation.

We pay now for the dreadful consequence of economic insecurity and dearly. This plan presents a more equitable and infinitely less expensive means of meeting these costs. We cannot afford to neglect the plain duty before us. I strongly recommend action to attain the objectives sought in this report.

These recommendations were incorporated in H. R. 4120 on which this committee held extended hearings from January 21 to February 12, at which more than 1,000 pages of testimony were taken. Since the conclusion of the hearings the measure has received the constant attention of the committee until the present moment, and numerous changes in the content and form were agreed upon. These changes involved a complete revision resulting in the drafting and introduction of H. R. 7260, herewith recommended for passage.

PURPOSE AND SCOPE

The need for legislation on the subject of social security is apparent at this time. On every hand the lack of such security is evidenced by human suffering, weakened morale, and increased public expenditures.

This situation necessitates two complementary courses of action: We must relieve the existing distress and should devise measures to reduce destitution and dependency in the future.

Thus far in the depression, we have merely attempted to relieve existing distress, but the time has come for a more comprehensive and constructive attack on insecurity. The foundations of such a program are laid in the present bill.

Work for the employable on relief is contemplated in the work­relief bill; a second vital part of the program for security is presented in this bill. The bill is designed to aid the States in taking care of the dependent members of their population, and to make a beginning in the development of measures which will reduce dependency m the future. It deals with four major subjects: Old age security, unemployment compensation, security for children, and public health. These subjects are all closely related, all being concerned with major causes of dependency. Together they constitute an important step in a well rounded, unified, long range program for social security.

OLD AGE SECURITY

There are now approximately 7,500,000 men and women over 65 years of age in the United States, and for decades the number and percentage of old people in the population have been increasing. This tendency is almost certain to continue throughout the century. Statisticians, estimate that by 1970 there will be 15,000,000 people over 65 years of age and by the end of the century, about 19,000,000. In contrast with less than 6 percent of the entire population now over 65, more than 10 percent will fall in this age group in 1970, and above 12 percent by the end of the century.

These, moreover, are minimum estimates, which may be greatly exceeded if cures are discovered for the major causes of death among old people.

TABLE I. Actual and estimated number of persons aged 65 and over compared to total population, 1860 to 2000
Year	Total population	Number aged 65 and over	Percent aged 65 and over
1860	31,443,000	849,000	2.7
1870	38,558,000	1,154,000	3.0
1880	50,156,000	1,723,000	3.4
1890	62,622,000	2, 424,000	3.9
1900	75,995,000	3,089,000	4.1
1910	91,972,000	3,958,000	4.3
1920	105,711,000	4,940,000	4.7
1930	122,775,000	6,634,000	5.4
1940	132,000,000	8,311,000	6.3
1950	141,000,000	10,863,000	7.7
1960	146,000,000	13,590,000	9.3
1970	149,000,000	15,066,000	10.1
1980	150,000,000	17,001,000	11.3
1990	151,000,000	19,102,000	12.6
2000	151,000,000	19,338,000	12.7
Source: Data for years 1880 to 1930 from the United States censuses.

Approximately 1,000,000 men and women over 65 years of age are dependent upon the public for support, the great majority of them on relief. This number is certain to increase in the future due to (1) the rapid increase of persons over 65 years of age, (2) the fact that many of the older workers now unemployed will never be steadily employed again, (3) the disappearance during the depression of the lifetime savings of many families approaching old age, and (4) the lessened ability of children to support their parents. The social problem of old age dependency, great as it is today, is certain to become more acute in the future unless adequate measures are taken now.

Experience, both in this country and in other lands, has demonstrated that the best way to provide for old people who are dependent upon the public for support is through old age assistance grants, more commonly called "old age pensions." Twenty nine States and the Territories of Alaska and Hawaii have old age pension laws. Approximately 200,000 old people are now in receipt of old age assistance under these laws, and while the grants are often inadequate, the lot of the pensioners is distinctly less hard than that of old people on relief. But due in part to restrictive provisions in the State laws, and still more to the financial embarrassment of many State and local governments, the old age pension laws are limited in their application and do not provide adequately for all old people who are dependent upon the public for support.

To encourage States to adopt old age pension laws and to help them carry the burden of providing support for their aged dependents, this bill proposes that the Federal government shall match the expenditures of the State and local governments for old age pensions, except that the Federal share is not to exceed $15 per month per individual. A few standards are prescribed which the States must meet to entitle them to Federal aid, but these impose only reasonable conditions and leave the States free of arbitrary interference from Washington.

TABLE II. Operation of old age pension laws of the United States, 1934
State	Type of law	Number of pensioners	Number of eligible age, 1930	Percentage of pensioners to number of eligible age	Average pension	Yearly cost
Alaska	Mandatory	446	3,437	11.1	$20.82	$95,705
Arizona	do	1,974	9,118	21.6	9.01	200,927
California	do	19,300	210,379	9.2	21.16	3,502,000
Colorado	do	8,705	61,787	14.1	8.59	172,481
Delaware	do	1,610	16,678	9.7	9.79	188,740
Hawaii	Optional	[1]	[1]	[1]	[1]	[1]
Idaho	Mandatory	1,275	22,310	5.7	8.85	114,521
Indiana	do	23,418	138,426	16.9	6.13	1,254,169
Iowa	do	3,000	184,239	1.6	13.50	475,500
Kentucky	Optional	[ 2]	[ 2]	[ 2]	[ 2]	[ 2]
Maine	Mandatory	[3]	[3]	[3]	[3]	[3]
Maryland	Optional	141	92,972	.2	29.90	50,217
Massachusetts	Mandatory	20,023	156,590	12.8	24.35	5,411,723
Michigan	do	2,660	148,853	1.8	9.59	306,096
Minnesota	Optional	2,655	94,401	2.8	13.20	420,536
Montana	do	1,781	14,377	12.4	7.28	155,525
Nebraska	Mandatory	[4]	[4]	[4]	[4]	[4]
Nevada	Optional	23	4,814	.5	15.00	3,320
New Hampshire	Mandatory	1,423	25,714	5.5	19.06	298,722
New Jersey	do	10,560	112,594	9.4	12.72	1,375,693
New York	do	51,228	373,878	13.7	22.16	13,592,080
North Dakota	do	[5]	[5]	[5]	[5]	[5]
Ohio	do	24,000	414,836	5.8	13.99	3,000,000
Oregon	do	[6]	[6]	[6]	[6]	[6]
Pennsylvania	do	[7]	[7]	[7]	[7]	[7]
Utah	do	930	22,665	4.1	8.56	95,599
Washington	do	2,239	101,503	2.2	[1]	[1]
West Virginia	Optional	[5]	[5]	[5]	[5]	[5]
Wisconsin	do	1,969	112,112	1.8	16.75	395,707
Wyoming	Mandatory	643	8,707	7.4	10.79	83,231
Total		180,003	2,330,390		16.48	31,192,992
1 No information available or not computed. 2 Not in operation. 3 Not yet in effect. 4 Not much being done due to lack of funds. 5 No pensions paid now. 6 Administered by counties; no information available for State. 7 Law just being put into effect. Source: Data collected by the Committee on Economic Security.

The provisions for Federal aid, included in title I, are designed for the support of people now old and dependent. They do not, however, furnish a completely satisfactory solution of the problem of old age support, considered from a long time point of view. If no other provisions are made, the cost of gratuitous old age pensions is bound to increase very rapidly, due to the growing number of the aged and the probable increasing rate of dependency. Unless a Federal benefit system is provided, the cost of old age pensions under title I shared equally by the Federal Government and the States, would by 1960 amount annually to more than $2,000,000,000 and by 1980 to nearly $2 600,000,000, on the basis of an average monthly pension of $25.

To keep the cost of Federal aided State pensions under title I from becoming extremely burdensome in future years, and to assure support for the aged as a right rather than as public charity, and in amounts which will insure not merely subsistence but some of the comforts of life, title II of the bill establishes a system of old age benefits, paid out of the Federal Treasury, and administered directly by the Federal Government. The benefits provided for workers who have been employed during substantially all their working life, will probably be considerably larger than any Federal aided State pensions could be. The benefits to be paid are related to the wages earned, but there are adjustments favoring the lower paid employees and those approaching old age. The minimum monthly benefit payable is $10, and the maximum is $85. An employee whose total wages, as defined in the act, prior to the age of 65 amount to less than $2,000 will not qualify for benefits, but he will receive 31/2 percent of his wages in a lump sum at the age of 65. He may be eligible also for a Federal aided State pension under title I.

TABLE III. Illustrative monthly Federal old age benefits under title II.
Average monthly salary	Years of employment
	5	10	15	20	25	30	35	40	45
$25	(1)	$15.00	$16.25	$17.50	$18.75	$20.00	$21.25	$22.50	$23.75
50	$15.00	17.50	20.00	22.50	25.00	27.50	30.00	32.50	35.00
75	16.25	20.00	23.75	27.50	31.25	35.00	38.75	42.50	46.25
100	17.50	22.50	27.50	32.50	37.50	42.50	47.50	51.25	53.75
125	18.75	25.00	31.25	37.50	43.75	50.00	53.13	56.25	59.38
150	20.00	27.50	35.00	42.50	50.00	53.75	57.50	81.25	65.00
175	21.25	30.00	38.75	47.50	53.13	57.50	61.88	66.25	70.63
200	22.50	32.50	42.50	51.25	56.25	61.25	66.25	71.25	76.23
225	23.75	35.00	46.25	53.75	59.38	65.00	70.83	78.25	81.88
250	25.00	37.50	50.00	56.25	62.50	68.75	75.00	81.25	85.00
1 Lump sum payment of $52.50.

The establishment of the Federal old age benefit system will materially reduce the cost of Federal and State pensions under title I in future years. It will not entirely replace that system, because not all persons will be under the Federal old age benefit plan. It will operate, however, to reduce the total cost of old age pensions under title I to the Federal and State Governments in the future by more than $1,000,000,000 annually.

TABLE IV. Estimated appropriations, benefit payments, and reserves under title II                 [In millions of dollars]
Fiscal year ending June 30	Appropriation	Interest on reserve	Benefit payments	Amount carried forward to reserve	Reserve
1937	255.5	0. 0	1.8	253. 6	253.6
1938	513.5	7.6	7.2	514.0	767.8
1939	518. 5	23.0	14.4	526.9	1,294.5
1940	662.2	38.8	22.0	679.1	1,973.6
1941	807.2	59. 2	29.7	836.7	2,810.3
1942	814.8	84.4	60.4	838.7	3,649.0
1943	970.0	109.5	114.2	965.3	4,614.3
1944	1,126.6	138.5	173.1	1,091.9	5,706.2
1945	1,137.0	171.2	231.4	1,076.4	6,782.6
1946	1,291.0	203.5	302.0	1,192.9	7,975.5
1947	1,447.1	239.3	381.2	1,305.2	9,280.7
1948	1,460.1	278.5	457.5	1, 281.1	10, 561.8
1949	1,621.0	316.8	535.8	1,402.1	11, 963.9
1950	1,783.3	358.9	612.8	1,529.6	13,493.5
1955	1,861.3	579.3	1,076.0	1, 364.5	20,672.6
1960	1,939.1	765.6	1,672.7	1,032.0	26, 551.8
1965	2, 016.9	896.0	2,235.1	677.8	30,543.8
1970	2, 094.8	975.2	2,792.1	277.9	32,782.9

UNEMPLOYMENT COMPENSATION

Unemployment is an even more prevalent cause of dependency than old age; in fact, it is the most serious of all hazards confronting industrial workers. During the years 1922 to 1929 an average of 8 percent of the industrial workers in this country were unemployed, and in the four depression years, 1930 to 1933, the unemployment rate was above 25 percent. Of all urban families now on relief, more than four fifths are destitute because of unemployment.

Unemployment is due to many causes and there is no one safeguard that is all sufficient. It can be dealt with in a reasonably adequate fashion only through a two-fold approach, similar to that recommended for dealing with the old age problem. Provisions must be made for the relief of those now unemployed, and there should also be devised a method for dealing with the unemployment problem in a less costly and more intelligent way in future years. It should be clearly understood that State unemployment compensation plans made possible by this bill cannot take care of the present problem of unemployment. They will be designed rather to afford security against the large bulk of unemployment in the future.

For those now unemployed the best measure of protection is to give them employment, as is contemplated in the work relief bill. To provide something better than relief on a needs basis for the unemployed of the future, the establishment by the States of unemployment compensation systems is urgently to be desired. Titles III and IX seek to encourage States to set up such systems and to keep them from being handicapped if they do so.

The essential idea in unemployment compensation, more commonly but less accurately called "unemployment insurance" is the accumulation of reserves in times of employment from which partial compensation may be paid to workers who become unemployed and are unable to find other work. Unemployment insurance cannot give complete and unlimited compensation to all who are unemployed. Any attempt to make it do so confuses unemployment insurance with relief, which it is designed to replace in large part. It can give compensation only for a limited period and for a percentage of the wage loss.

Unemployment compensation, nevertheless, is of real value to the industrial workers who are brought under its protection. In normal times it will enable most workers who lose their jobs to tide themselves over, until they get back to their old work or find other employment, without having to resort to relief. Even in depressions it will cover a considerable part of all unemployment and will be all that many workers will need. Unemployed workmen who cannot find other employment within reasonable periods will have to be cared for through work relief or other forms of assistance, but unemployment compensation will greatly reduce the necessity for such assistance. Unemployment compensation is greatly preferable to relief because it is given without any means test. It is in many respects comparable to workmen's compensation, except that it is designed to meet a different and greater hazard.

Unemployment compensation is valuable to the public as well as to the industrial workers themselves. It is a measure tending to maintain purchasing power, upon which business and industry are dependent. Had there been a system of unemployment compensation throughout the country in the years from 1922 on, with a 3 percent contribution rate, not only would practically all unemployment of the prosperity period have been compensated, but it is estimated that $2,500,000,000 would have been available for payment of benefits with the beginning of the depression in 1929. Such an amount paid to unemployed workmen at that time would unquestionably have had a most wholesome, stabilizing effect upon business.

Unemployment compensation has behind it an extensive European experience. No country which has experimented with unemployment insurance has ever abandoned it. In this country it has been endorsed by numerous Federal and State commissions and committees, but prior to this year only one State enacted such a law, and this came into operation less than a year ago.

The failure of the States to enact unemployment insurance laws is due largely to the fact that to do so would handicap their industries in competition with the industries of other States. The States have been unwilling to place this extra financial burden upon their industries. A uniform, Nation-wide tax upon industry, thus removing this principal obstacle in the way of unemployment insurance, is necessary before the States can go ahead. Such a tax should make it possible for the States to enact this socially desirable legislation.

This is one of the purposes of title IX of this bill. In this title a tax is imposed upon employers throughout the country against which a credit is allowed of up to 90 percent of the tax for contributions made by employers to unemployment compensation funds established pursuant to State law.

That this tax is imposed on employers is indicative of the conviction that employers should bear at least a part of the cost of unemployment compensation, just as they bear the cost of workmen's compensation. Each State is, of course, free to assess not only employers but employees; and in this connection it may be noted that in European countries, and under the law recently passed by the State of Washington, employees are required to contribute.

The amount of benefits payable for unemployment from contributions amounting to 3 percent of pay roll would vary from State to State. The maximum period for which benefits may be paid depends not only upon the rate of unemployment, but also upon the percentage of wages paid as benefits, the length of the required waiting period, the ratio of weeks of employment to weeks of benefits, and other provisions. The scale of benefits which States will be able to pay from a 3 percent rate of contributions on pay rolls will carry the great majority of unemployed workers through normal years until they are able to secure employment again. While the Federal tax is limited to 3 percent (1 percent in 1936 and 2 percent in 1937), some States will probably increase the benefits payable by requiring also contributions from the employees or the State government. Under a reasonable scale of benefits, reserves would accumulate in normal years to carry the fund through minor depressions or the first years of a major depression.

The bill permits the States wide discretion with respect to the unemployment compensation laws they may wish to enact. The standards prescribed in this bill, which are described in part II of this report, are designed merely to insure that employers will receive credit against the Federal pay roll tax only for payments made under genuine unemployment compensation laws.

Yet the Federal Government, under this bill, has important functions to perform in order to make it possible for the States to have unemployment insurance laws and to facilitate their operation. It equalizes competitive conditions through the imposition of the employment excise tax provided for in title IX. The bill further provides that the Social Security Board, which is created in title VII to administer all parts of the social security program other than aids coming within the scope of operation of existing bureaus, shall have the duty of studying and making recommendations with respect to the broad problems of economic security. This Board will be able to render important actuarial and scientific services to the States in connection with their unemployment insurance systems. In title III financial aid is given the States by the Federal Government to defray their costs in administering unemployment insurance. Finally, the Federal Government is to handle all unemployment reserve funds, in a trust account in the United States Treasury for the benefit of the States to which they belong.

This last provision will not only afford maximum safety for these funds but is very essential to insure that they will operate to promote the stability of business rather than the reverse. Unemployment reserve funds have the peculiarity that the demands upon them fluctuate considerably, being heaviest when business slackens. If, in such times, the securities in which these funds are invested are thrown upon the market for liquidation, the net effect is likely to be increased deflation. Such a result is avoided in this bill through the provision that all reserve funds are to be held by the United States Treasury, to be invested and liquidated by the Secretary of the Treasury in a manner calculated to promote business stability. When business conditions are such that investment in securities purchased on the open market is unwise, the Secretary of the Treasury may issue special nonnegotiable obligations exclusively to the unemployment trust fund. When a reverse situation exists and heavy drains are made upon the fund for payment of unemployment benefits, the Treasury does not have to dispose of the securities belonging to the fund in open market but may assume them itself. With such a method of handling the reserve funds, it is believed that this bill will solve the problem often raised in discussions of unemployment compensation, regarding the possibility of transferring purchasing power from boom periods to depression periods. It will in fact operate to sustain purchasing power at the onset of a depression without having any counteracting deflationary tendencies.

SECURITY FOR CHILDREN

Titles IV and V of the bill deal with another important aspect of economic security, that of security for children. Children are, perhaps, the most tragic victims of the depression. More than 40 percent of all persons on relief--approximately 9,000,000 individuals­-are children under 16, in contrast to 28 percent of the entire population falling in this age group. In less than a generation these children will constitute a large part of the adults who must carry the burdens of our social system and the responsibilities of our Government. As was well stated by the Committee on Economic Security, "the core of any social plan must be the child." And with so many children now growing up under the abnormal conditions involved in relief and the many hardships created through the depression, it is imperative that everything possible be done to offset the demoralizing and deteriorating effects of the great disaster that has befallen this country.

DEPENDENT CHILDREN

One clearly distinguishable group of children, now cared for through emergency relief, for whom better provision should be made, are those in families lacking a father's support. Nearly 10 percent of all families on relief are without a potential breadwinner other than a mother whose time might best be devoted to the care of her young children. Last fall it was estimated that there were above 350,000 families on relief the head of which was a widowed, separated, or divorced mother and whose other members were children under 16. Above 700,000 children under 16 belong to such families, and, with the increase in relief lists since then, this number has probably increased proportionately.

It has long been recognized in this country that the best provision that can be made for families of this description is public aid with respect to dependent children in their own homes. Forty five States now have laws providing such aid, but in many of these States the laws are only partially operative or not at all so. With the financial exhaustion of State and local governments a situation has developed in which there are more than three times as many families eligible for such aid as are actually in receipt of it, and they are now being supported by emergency relief.

TABLE V. Estimated number of families and children receiving aid with respect to dependent children under State laws and estimated expenditures for this purpose [Based on figures available Nov. 15, 1934]
State	Number of families receiving aid	Number of children benefiting from aid	Estimated present annual expenditures for aid, local and State
			Total	Local	State
Total	109,038	280,565	$37,487,479	$31,621,957	$5,885,522
Alabama (1)
Arizona	106	379	20,940		20,940
Arkansas (2)
California	7,058	17,642	2,133,999	224,252	1,909,747
Colorado	552	1,435	149,688	149,688
Connecticut	1,271	3,276	734,627	489,752	244,875
Delaware	348	855	93,000	46,500	40,500
District of Columbia	209	720	143,997	143,997
Florida	2,564	6,164	222,286	222,286
Georgia (1)
Idaho	230	619	36,315	36,815
Illinois	6,217	14,802	1,837,012	1,533,217	303,795
Indiana	1,332	3,856	352,224	352,224
Iowa	3,527	9,170	719,772	719,772
Kansas	768	1,997	75,721	75,721
Kentucky	137	356	62,889	62,889
Louisiana	88	229	9,312	9,312
Maine	817	2,124	310,000	155,000	155,000
Maryland	267	694	117,459	117,459
Massachusetts	3,939	11,817	2,450,000	1,400,000	1,050,000
Michigan	6,938	18,039	2,448,962	2,448,962
Minnesota	3,597	9,152	1,138,176	1,138,176
Mississippi (2)
Missouri	336	874	93,440	93,440
Montana	839	1,969	213,623	213,623
Nebraska	1,654	4,300	272,036	272,036
Nevada	200	520	44,035		44,035
New Hampshire	260	761	82,440		82,440
New Jersey	7,711	18,789	2,445,564	2,445,564
New Mexico (2)
New York	23,493	56,524	11,731,176	11,731,176
North Carolina	314	947	58,706	29,353	29,353
North Dakota	978	2,844	238,314	238,314
Ohio	8,923	24,470	2,116,908	2,116,908
Oklahoma	1,898	5,166	123,314	123,314
Oregon	1,040	2,259	247,140	247,140
Pennsylvania	7,700	22,587	3,197,640	1,598,820	1,598,820
Rhode Island	513	1,666	267,252	133,626	133,626
South Carolina (1)
South Dakota	1,290	3,324	285,986	285,986
Tennessee	241	627	71,328	71,328
Texas	332	863	43,987	43,987
Utah	622	1,617	78,651	78,651
Vermont	206	461	46,976	23,488	23,488
Virginia	136	545	33,876	16,938	16,938
Washington	3,013	7,834	519,538	519,538
West Virginia	108	281	16,086	16,086
Wisconsin	7,173	17,932	2,180,790	1,930,790	250,000
Wyoming	95	279	22,294	22,294
1 No State law. 2 Law not in operation. Source: The U. S. Children's Bureau.

TABLE VI. Extent to which aid to dependent children is provided: Per capita expenditures and percentages of counties granting aid
State	Percentage of counties granting aid	Per-capita expenditures
Alabama	No mothers' aid law
Alaska	(1)	(1)
Arizona	State wide	$0.05
Arkansas	Mothers' aid discontinued
California	State wide	.35
Colorado	54	.14
Connecticut	State wide	.46
Delaware	DO	.39
District of Columbia		.30
Florida	67	.15
Georgia	No mothers' aid law
Hawaii	(1)	(1)
Idaho	75	.10
Illinois	81	.20
Indiana	75	.11
Iowa	98	.29
Kansas	36	.04
Kentucky	(2)	.02
Louisiana	5	.004
Maine	State-wide	.39
Maryland	33	.07
Massachusetts	State-wide	.58
Michigan	43	.51
Minnesota	91	.44
Mississippi	Mothers' aid discontinued
Missouri	10  (3)	.03
Montana	82  (3)	.46
Nebraska	86	.20
Nevada	71	.41
New Hampshire	State-wide	.18
New Jersey	DO	.61
New Mexico	Law not in operation
New York	81	.93
North Carolina	74	.02
North Dakota	77	.39
Ohio	96	.31
Oklahoma	62 (3)	.05
Oregon	69	.26
Pennsylvania	85	.34
Puerto Rico	Law not in operation
Rhode Island	State wide	.39
South Carolina	No mothers' aid law
South Dakota	78	.47
Tennessee	4	.03
Texas	3	.008
Utah	48	.15
Vermont	State-wide	.13
Virginia	44	.01
Washington	92	.36
West Virginia	4	.007
Wisconsin	89	.74
Wyoming	43 (3)	.10
1. No report.  2. Less than 1 percent.  3 Based on number of counties granting aid June 30,1931.

For the welfare of the many young children involved, it is highly desirable that these families should be taken care of through public aid. This will not be possible, however, unless the Federal Goverment aids the States in carrying this burden. Such aid is proposed in title IV of this bill, under which the Federal Government will assume one third of the cost of aid to dependent children paid under State laws. This does not involve any larger expenditures than the Federal government has been making for the support of these families on relief, but will very materially aid the States in caring for this group of their unemployables, for whom they must now assume responsibility.

MATERNAL AND CHILD WELFARE

In title V it is proposed that aid be given the States for other services very essential to the security of children. The first of these is aid for maternity and infancy welfare, particularly in rural areas, and in areas suffering from severe economic distress. The need for such services has increased with the depression, and the fact that the maternal mortality rate in this country is much higher than in nearly all other progressive countries is certainly not to our credit.

In title V, Federal aid is also made available for the development of local child care services. These services are concerned with the 300,000 dependent and neglected children, the 200,000 children who annually come as delinquents before the courts, and the 70,000 illegitimate children born each year. These groups are in many respects the most unfortunate of all children, as their lives have already been impaired. To repair these damaged lives as far as possible, and to keep these children from becoming a permanent burden to society, child care services have been established in most urban centers, but in less populous areas they are exceedingly limited or nonexistent. As with other welfare services, there has been an actual retrogression in these child care services during the depression, although the need has greatly increased. To stimulate the development of such services in rural areas, where they are now almost totally nonexistent, a small appropriation is proposed in this bill, to be allotted to the States for payment of part of the expense of county and local child welfare services.

Federal aid is also given for hospitalization and aftercare of crippled children. There are between 300,000 and 500,000 physically handicapped children in this country, a large percentage of them, the victims of infantile paralysis. Through surgical and therapeutic treatment the physical condition of many of these children can be very materially improved, particularly if this cure is provided early enough. Eighteen States are now using public funds for this purpose and a number of private agencies are doing most notable work in this field. In proportion to the great need which exists, however, the provisions for crippled children are still very limited. To stimulate an expansion of such work the bill gives Federal aid to the States for this purpose. Such aid is amply justified by the fact that it should operate to reduce materially the number of dependents in future years.

VOCATIONAL REHABILITATION

Closely related to the appropriation for crippled children is the appropriation, also provided for in title V, for aid to the States for vocational rehabilitation. This concerns adults rather than children, but has a similar purpose of helping the physically handicapped to become self supporting rather than remaining a charge upon the public. The Federal Government has been giving aid to the States for this purpose since 1929, but under laws of limited duration; moreover, this aid was very much reduced 2 years ago. In this bill permanent authorization is made for Federal aid for vocational rehabilitation, in recognition of the importance of such work in a permanent program for economic security.

PUBLIC HEALTH SERVICES

In title VI provision is made for greater participation by the Federal Government in public health services. It has long been recognized that the Federal Government, as well as the State and local governments, has a responsibility for the preservation of the public health. Considerable amounts have been appropriated for health services in combating epidemics and in other emergencies and some aid has been given regularly during more than a decade for building up State and local public health services.

But there is still a great need for the expansion of public health services--a greatly increased need at this time due to the depression. Only 528 of the more than 3,000 counties in the United States have full time health officers, and even in many of these counties the service is inadequate in relation to the population and the existing problems. In the depression State and local public health appropriations have been reduced by approximately 20 percent, while the need for such services has increased. For the first time in many years, the death rates in urban communities showed a rising tendency, despite the fact that this was a year free from serious epidemics in all parts of the country.

Preservation of health is a prime necessity for economic independence, sickness being one of the major causes of dependency. The logical point at which to begin coping with this serious economic hazard is the prevention of sickness insofar as possible. To this end it is very important that public health services be extended and strengthened and under existing conditions this can be done only through increased Federal participation. The proposed Federal aid is designed to permit the expansion of the existing work of the Public Health Service, and should not be confused with health insurance. This program of public health service was strongly recommended by persons representing the medical profession including Dr. Walter L. Bierring president American Medical Association, who testified before the committee.

APPROPRIATIONS AUTHORIZED

Aside from amounts authorized for administrative expenses (amounting to a sum in the neighborhood of $3,500,000), appropriations authorized under this act for grants to the States amount to $91,491,000 for the fiscal year 1936.

TABLE VII. Appropriations authorized for Grants-in-aid to the States (exclusive of title III) for the fiscal year ending June 30, 1936

Old age assistance $49,750,000 Aid to dependent children 24,750,000 Maternal and child health 3,800,000 Crippled children 2,850,000 Child welfare 1,500,000 Vocational rehabilitation 841,000 Public health 8,000,000 Total 91,491,000

NOTE: In future years the first two items will increase in accordance with the increasing cost of old age assistance and aid to dependent children.

In addition to these sums, there are authorized annual appropriations to the old age account, estimates for which are shown in table IV of this report. There is also authorized an appropriation of $4,000,000 for the fiscal year ending June 30, 1936, and $49,000,000 for each subsequent fiscal year to make the payments to States under title III for the cost of administering their unemployment insurance laws.

TAXES

There are three taxes imposed in the bill:

(1) An income tax on wage earners, beginning in the year 1937 at a rate of 1 percent of wages, and increasing to 3 percent in 1949. Large groups of wage earners are, for administrative reasons, excluded from the operation of this tax, but more than one half of the total number of gainful workers are covered.

TABLE VIII: Estimate of number of employees covered under the tax provided in title VIII (Based upon 1930 Census)

Total number of gainful workers 48,830,000 Total number of owners, operators, self employed (including the professions) 12,087,000 Total of workers excluded because of occupation (farm labor, domestics, teachers, and governmental and institutional workers) 9,389,000 Total number of workers in eligible occupations 27,354,000 Excluded: Casuals Over 65 Total 500,000 1,050,000 1,550,000 Estimated coverage 25,804,000

(2) An excise tax on employers, with certain exemptions, based on wages paid. This tax, like the income tax imposed in this title, will become operative in 1937 at 1 percent of wages, increasing thereafter; and again, for administrative reasons, there are numerous exemptions.

TABLET IX. Revenue estimates (from taxes on employees and employers imposed by title VIII, sections 801 a 804)1
Combined rate of tax	Fiscal year received into Treasury	Estimated fiscal year receipts
2%	1937	$278,800,000
2%	1938	560,200,000
2%	1939	565,600,000
3%	1940	714,600,000
3%	1941	864,800,000
3%	1942	873,000,000
4%	1943	1,028,800,000
4%	1944	1,185,900,000
4%	1945	1,196,900,000
5%	1946	1,359,400,000
5%	1947	1,523,300,000
5%	1948	1,536,900,000
6%	1949	1,706,300,000
6%	1950	1,877,200,000
1. Each of the two taxes is estimated to produce one half of the total receipts shown.

 

TABLE X. Estimate of number of employees covered under the tax provided in title IX                            (Based upon 1930 Census)

Total number of gainful workers 48,830,000 Total number of owners, operators, self employed (including the professions) 12,087,000 Total of workers excluded because of occupation (farm labor, domestics, teachers, and governmental and institutional workers) 9,389,000 Total number of workers in eligible occupations 27,354,000 Estimated number of workers attached to establishments with nine or less employees 5,400,000 Estimated number of workers attached to establishments of 10 and more employees (including unemployed) April 1930 21,954,000 Average 1936 (4 percent increase) 22,858,000 The actual number of employees covered by the tax would be considerably smaller than 22,858,000 due to unemployment. All workers employed during a part of the year, however, in establishments covered by the tax, would be covered with respect to that employment.

 

Table XI: Revenue estimates (from tax on employers of 10 or more under title IX, with no allowance for 90-percnet credit)
Calendar year with respect to which tax is levid	Fiscal year received into Treasury	Estimated receipts	Rate of tax
1936	1937	$228,000,000	1%
1937	1938	501,000,000	2
1938	1939	786,000,000	3
1939	1940	803,000,000	3
1940	1941	820,000,000	3
1942	1943	846,000,000	3
1945	1946	872,000,000	3
1950	1951	906,000,000	3
NOTE. The tax levied by title IX is subject to a credit of 90 percent of the amount of such tax for contributions into State unemployment funds. Therefore the minimum amount of revenue each year from this tax will be 10 percent of the above amounts. What part of the above estimates, greater than 10 percent of same, will be retained by the Treasury is problematical, being dependent on the number of States enacting unemployment insurance laws, and the rates and coverage thereof.

Practically no objections have been made to the imposition of the taxes levied in this bill. What objections have been offered overlook the fact that the initial rates are very low. The only tax in the year 1936 (which is not payable until 1937) is the 1 percent excise tax on employers of 10 or more employees against which a credit is allowed for payments made under State unemployment compensation laws. In 1937 the other taxes will also come into operation, but only at the rate of 1 percent upon employers.

Excise taxes measured by pay roll will normally be added to prices. But again, the effects are often exaggerated. The direct labor cost of all manufactured commodities represents on the average about 21 percent of the value of the product. Taxes of 1, 2, and 3 percent, and even the ultimate 6 percent (not reached until 1949) will, thus, increase the selling price not by these percentages, but by much less than these figures.

Taxes on pay rolls and wages are imposed in all unemployment compensation systems the world over. Taxes on pay rolls for this purpose are justified because unemployment compensation is a legitimate part of the costs of production, as has long been recognized in the case of workmen's compensation for industrial accidents (the costs of which are, likewise, always computed on a pay roll basis). Unemployment compensation belongs in the same category with wages, and it is no more than right that the consumers should bear this cost, as is the case with all other costs of production.

In this connection it must not be forgotten that employers and consumers must ultimately foot a large part of the bill for the relief of destitution. Federal, State, and local taxes and public indebtedness have been greatly increased by the tremendous problem of relief. This program will necessarily reduce this great load for public taxes now required for relief purposes. If the measures we propose will reduce dependency, as we expect, the burden upon employers and consumers may well be smaller than it is at present.

CONCLUSION

The proposals in this bill are forward looking. This bill is not to be considered a cure all, nor a complete measure for economic security. It will doubtless have to be supplemented in the course of time, as has been the history of all other major new legislation. But it makes a beginning toward economic security which has been long overdue.

This beginning is made along lines which are in accord with our American institutions and traditions. It is not class legislation, but a measure which will benefit the entire public. While humanely providing for those in distress, it does not proceed upon the destructive theory that the citizens should look to the Government for everything. On the contrary, it seeks to reduce dependency and to encourage thrift and self support.

From the governmental point of view this bill contemplates a united attack upon economic insecurity by the Federal and State Governments. It does not vest dictatorial powers in any Federal officials.

Of all major countries the United States is the last to give serious consideration to a comprehensive system of social insurance and related measures for economic security. The experience of this country in the trying years of the depression has amply demonstrated the need for making a sound beginning in the development of such a program. As the President recommended, this bill should by all means be enacted into law at this session.

PART II. EXPLANATION OF THE BILL

TITLE I. GRANTS TO STATES FOR OLD AGE ASSISTANCE

This title provides for Federal Grants-in-aid to States, for the payment of old age assistance to persons over 65. The grants are to be made on an equal matching (50 50) basis, except that in the case of no individual will the Federal Government's share exceed $15 per month.

APPROPRIATION

Section 1: $49,750,000 is authorized to be appropriated for the fiscal year 1936, and for each fiscal year thereafter sums sufficient to carry out the purposes of this title. The money is to be paid to States whose old age assistance plans have been approved by the Social Security Board, as complying with the requirements of section 2.

STATE OLD AGE ASSISTANCE PLANS

Section 2: To be approved, a State plan must meet certain requirements laid down in subsection (a), and must be sufficiently liberal in its eligibility requirements, in accordance with subsection (b).

(a): Requirements which must be met by the State law:

(1), (2), (3): The plan must be State wide in operation. If, as is the case at present in several States, it is to be administered by the counties, it must not be optional with each county whether or not it will give old age assistance, but rather must be mandatory upon all the counties. Whether the administration is in the hands of the counties or not, there must be some direct financial participation by the State itself, and some one State agency (whether already existing or newly established) must be charged with final administrative responsibility. This agency does not necessarily have to confine itself to old age assistance; it may have other functions.

(4): An individual who is denied old age assistance (for instance, by a county board) must be given the right to a fair hearing before the State agency. This does not affect the right of further appeal to the courts.

(5) and (6): The methods of administration of the State plan, insofar as they are found by the Social Security Board to be essential to the plan's efficient operation, must be approved by the Board, and reports must be made to the Board; but the State will not be impeded in the exercise of its full discretion in the matters of the selection, the tenure of office, and the compensation of State and local personnel.

(7): If the State, using Federal money granted to it under this title, pays pensions to aged persons, and later (for example, because those persons had been defrauding the State) collects back from their estates some or all of the money so paid, the State must pay one half the amount thus collected to the Federal Government. In other words the State must, roughly, reimburse the Federal Government for the amount of its share thus collected by the State.

(b): Liberality of certain eligibility requirements:

(1): A person shall not be denied assistance on the ground that he is not old enough to be eligible for it, if in fact he has reached the age of 65 years. Until 1940, however, a State may set the age limit as high as 70 years.

(2): A person shall not be denied assistance on the ground that he has not been a resident long enough; if in fact he has lived in the State for 1 year immediately preceding his application, and for any 5 years out of the 9 years immediately preceding his application. Thus, if the plan is administered by counties, it may impose. requirements as to county residence; but no county residence requirement may result in denying assistance to an otherwise qualified person who has resided in the State for the periods just mentioned. Even if the county residence requirements are stricter than those allowed under this section, such a person must be entitled to assistance under the plan, presumably directly from the State. (No State is required to give assistance to nonresidents of the State.)

(3): A person shall not be denied assistance on the ground that he has not been a United States citizen for a number of years, if in fact, when he receives assistance, he is a United States citizen. This means that a State may, if it wishes, assist only those who are citizens, but must not insist on their having been born citizens or on their having been naturalized citizens for a specified period of time.

The limitations of subsection (b) do not prevent the State from imposing other eligibility requirenients (as to means, moral character, etc.) if they wish to do so. Nor do the limitations of subsection (b) mean that the States must adopt eligibility requirements just as strict as those enumerated. The States can be more lenient on all these points, if they wish to be so.

PAYMENT TO STATES

Section 3: The Federal Government will match what the States put up for old age assistance, by paying quarterly to each State one half of the total amount paid as assistance to people in the State who are at least 65 years old and who are not inmates of public institutions: (If the State wishes to pay pensions with respect to aged people over 65 in private institutions, the Federal Government will match those payments; but it will not match payments to persons less than 65, or to persons in public institutions.) Federal payments with respect to any person, however, will not be more than $15 per month. If the State gives a pension of $20 the Federal Government will pay half of it; of $30, the Federal Government will pay half of it; of $40, the Federal Government will match only the first $15 put up by the State, so that the Federal share will be $15 and the State will put up the other $25. Federal payments shall be made on a pre­payment basis, on the strength of estimates by the State and the Board, with later adjustments if the actual expenditures differ from the estimates. The Federal Government will also help the States to meet administrative costs, paying therefor an additional amount equal to 5 percent of the regular quarterly payment to the State. All these payments, and all other payments under this bill, are to be made without a prior audit by the General Accounting Office; but there will be a postaudit. It is understood by the committee that, in the case of grants to States, the General Accounting Office, in making this audit will seek to ascertain only (in the absence of fraud) whether the certifications were based on the findings which the Board is required to make prior to certifying, and whether payments were made in accordance with the certifications. It is not the practice to question the findings.

OPERATION OF STATE PLANS

Section 4: A State with an approved plan will not receive payments if the Board finds that the State is not substantially complying with its plan.

ADMINISTRATION

Section 5: $250,000 is authorized to be appropriated for the fiscal year 1936 to meet the administrative expenses of the Board under this title. There is no limit on appropriations for future years.

DEFINITION

Section 6: Old age assistance is confined to payments in cash.

TITLE II. FEDERAL OLD AGE BENEFITS

This title provides for the payment of cash benefits to every individual who has attained the age of 65 and has fulfilled certain qualifications. These benefits will be paid to him monthly as long as he lives in an amount proportionate to the total amount of wages received by him for employment before he attained the age of 65.

OLD AGE RESERVE ACCOUNT

Section 201: For the purpose of building up a reserve sufficient to supply the funds necessary to pay the benefits provided for in this title as such payments accrue, there is created in the Treasury of the United States an "old age reserve account", to which an annual appropriation, beginning with the fiscal year ending June 30, 1937, is authorized. The amounts of such appropriations will vary from year to year, but the amount appropriated for any year shall be that amount determined (in accordance with accepted actuarial principles, and on the basis of such mortality tables as the Secretary of the Treasury shall from time to time adopt, and of an interest rate of 3 percent per annum compounded annually), to be sufficient as the premium necessary for such year to build up the required reserve.

It shall be the duty of the Secretary of the Treasury to invest such portion of the amounts credited to the account as is not, in his judgment, required to meet current payments. Such investments shall be made in interest bearing obligations of the United States or in any obligations guaranteed as to both principal and interest by the United States.

All amounts credited to the account shall be available for making payment of the benefits provided for in this title.

OLD AGE BENEFIT PAYMENTS

Section 202: Every qualified individual (as defined in sec. 210) shall be entitled to receive, with respect to the period beginning on the date he attains the age of 65, or on January 1, 1942, whichever is later, and ending on the date of his death, an old age benefit. Payments of such benefits shall be made as nearly as possible at monthly intervals, but not necessarily on the first of each month. The rate of the payments will vary from $10 a month to $85 a month, depending upon the total amount of wages earned by the recipient after December 31, 1936, and before he attains the age of 65.

If, during the course of payments to any recipient, it is found that he has been overpaid or underpaid, adjustment shall be made in subsequent payments.

PAYMENTS UPON DEATH

Section 203: If any individual dies before receiving any payment of a benefit, there shall be paid to his estate 3.5 percent of the total wages earned by him after December 31, 1936, and before he attains the age of 65.

If any recipient dies before the total of the payments of benefits to him has equaled 3.5 percent of the total wages earned by him after December 31, 1936, and before he attains the age of 65, the remainder shall be paid to his estate.

If any recipient has, through error or otherwise, been underpaid and has died before adjustment has been made, the amount of the underpayment shall be paid to his estate.

PAYMENTS TO AGED INDIVIDUALS NOT QUALIFIED FOR BENEFITS

Section 204: If any individual, upon attaining the age of 65, is not qualified to receive benefits, an amount equal to 3.5 percent of the wages earned by him after December 31, 1936, and before he attains the age of 65, shall be paid to him (or, if he has died before receiving such payments, to his estate).

AMOUNTS OF $500 OR LESS PAYABLE TO ESTATES

Section 205: If the amount payable to an estate under section, 203 or 204 is $500 or less, the Social Security Board may pay it directly to the persons it determines to be entitled thereto under the law of the State in which the deceased was domiciled.

OVERPAYMENTS DURING LIFE

Section 206: If any recipient, through error or otherwise, has received benefit payments in excess of the amount to which he is entitled, and dies before such overpayments have been adjusted, there shall be repaid to the United States by his estate the amount of such overpayments; except that if the amount to which he was entitled was less than 3.5 percent of the total wages earned by him after December 31, 1936, and before he attained the age of 65, the amount of the repayment shall be merely the difference between the amount received by him and such 3.5 percent.

METHOD OF MAKING PAYMENTS

Section 207: The Social Security Board shall from time to time (presumably monthly) certify to the Secretary of the Treasury the name and address of every individual entitled to receive payment under this title, the amount of such payment, and the time at which 'it should be made, and the Secretary of the Treasury shall make payment in accordance with such certification.

ASSIGNMENT

Section 208: The right of any individual to receive any payment under this title shall not be transferable or assigned, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.

PENALTIES

Section 209: Whoever, in any application for any payment under this title, makes any false statement as to any material fact, knowing such statement to be false, shall be fined not more than $1,000 or imprisoned for not more than 1 year, or both.

DEFINITIONS

Section 210. (a): This subsection defines " wages." Wages include not only the cash payments made to the employee for work done, but also compensation for services in any other form, such as room and board; etc. The term "wages" does not necessarily apply to the total remuneration received from the employer by the employee; the term includes only the first $3,000 of wages received by an employee from his employer with respect to employment during the calendar year. The following example will illustrate how the rule applies: Employer A pays employee B a salary of $500 a month beginning with the calendar year 1937. At the end of the sixth month B has received from his employer $3,000. The balance of his salary for 1937 is not included as part of the wages. However, this is only the case where the employee continues in the employment of the same employer throughout the year. If the employee leaves the service of employer A on June 30, 1937 and enters the service of employer C on that date and continues with employer C at the same salary throughout the remainder of the year, the remuneration received by employee B during the remaining portion of the calendar year 1937 will be included in his wages.

Section 210 (b): This subsection defines the term "employment" as any service of whatever nature performed within the United States by an employee for his employer. It should be noted in this connection that section 1001 (a) (6) includes in the definition of "employee" an officer of a corporation. Services performed by aliens, whether resident or nonresident, within the United States are included; but services performed outside the United States, whether by a citizen or an alien, are not included. The term "United States" is defined in section 1001 (a) (2) to include the States, Alaska, Hawaii, and the District of Columbia. The following services are excluded even though performed within the United States: (1) Agricultural labor; (2) domestic service in a private home; (3) casual labor not in the course of the employer's trade or business. This would not exclude casual labor performed in the course of an employer's trade or business. For instance, if a department store employed emergency help during the rush season in connection with its trade or business, the services performed by such help would not be excluded under this title. (4) Services performed by an officer or a member of a crew on a vessel documented under the laws of the United States or of any foreign country are also excluded. The administrative difficulty of following the wages of officers and seamen of crews was regarded as almost insurmountable. For instance, unless this exclusion were made, it would be necessary to keep track of the wages of Chinese coolies working on American ships.

Services performed by Federal and State or political subdivision employees are also excluded.

Services performed in the employ of religious, charitable, scientific literary, or educational institutions, no part of the net earnings of which inures to the benefit of any private shareholder or individual, are also excluded. For the purpose of determining whether services for such an organization are excluded, the use to which the income is applied is the ultimate test of the exclusion rather than the source from which the income is derived. For instance, if a church owns an apartment building from which it derives income which is devoted to religious, charitable, educational, or scientific purposes, services for it are still excluded. The organizations, services for which will be excluded, are churches, schools, colleges, and other educational institutions not operated for private profit, the Y.M.C.A., the Y.W.C.A., the Y.M.H.A., the Salvation Army, and other organizations which are exempt from income tax under section 101 (6) of the Revenue Act of 1932.

Section 210 (c): The term "qualified individual" is defined to mean an individual who is at least 65 years of age, and who has received in wages for employment after December 31, 1936, and before he attained the age of 65, not less than $2,000, some part of which employment was performed in each of at least 5 different calendar years.

TITLE III. GRANTS TO STATES FOR UNEMPLOYMENT COMPENSATION ADMINISTRATION

This title provides for Federal Grants-in-aid to States, for meeting the administrative costs of their unemployment compensation systems. The money is not to be used for compensation itself, but only for expenses of administration. There is no requirement of matching by the States.

APPROPRIATION

Section 301: $4,000,000 is authorized to be appropriated for the fiscal year 1936, and $49,000;000 for each year thereafter, to be granted to the States for meeting the proper administrative costs of the State unemployment compensation laws.

PAYMENTS TO STATES

Section 302: Payments shall be made from time to time to each State with an unemployment compensation plan which is found by the Board to comply with this title, in amounts determined by the Board to be necessary for the proper administration of the State law. In deciding how much to pay to a State, the Board shall take into account the population of the State, and the estimated number of persons covered by the State law, as well as other relevant factors.

PROVISIONS OF STATE LAWS

Section 303 (a): The State will receive aid under this title only if its law was approved by the Board under title IX, and only if in addition to the provisions necessary for it to obtain such appropriation, it also includes provision for administrative methods, other than those relating to personnel, approved by the Board as reasonably calculated to insure full payment of compensation when due; opportunity for a fair hearing for persons denied compensation; the making of reports to the Board; and cooperation with any Federal agency concerned with public employment which seeks to obtain information, relating to employment, about persons who are receiving compensation or who have finished their period of compensation and are available for work.

(b): A State will not receive grants under this title if the Board finds that it is not substantially complying with its law.

TITLE IV. GRANTS TO STATES FOR AID TO DEPENDENT CHILDREN

This title provides for Federal Grants-in-aid to States, for carrymg out State plans for aid to dependent children, often inaccurately called "mothers' pension" laws. The grants are to be made on a one-third matching basis, the Federal Government putting up $1 for every $2 provided by the State, except that in no case will the Federal Government's share, with respect to any single dependent child, exceed $6 per month, or, with respect to any other dependent child in the same home, exceed $4 per month.

APPROPRIATION

Section 401: $24,750,000 is authorized to be appropriated for the fiscal year 1936, and for each fiscal year thereafter sums sufficient to carry out the purposes of this title. The money is to be paid to States whose plans for aid to dependent children have been approved by the Social Security Board, as complying with the requirements of section 402.

STATE PLANS FOR AID TO DEPENDENT CHILDREN

Section 402: To be approved, a State plan must meet certain requirements laid down in subsection (a), and must have a sufficiently liberal residence requirement, in accordance with subsection (b).

(a) Requirements which must be met by the State law:

(1), (2), (3): The plan must be State wide in operation. If, as is the case at present in several States, it is to be administered by the counties, it must not be optional with each county whether or not it will give aid to dependent children, but rather must be mandatory upon all the counties. Whether the administration is in the hands of the counties or not, there must be some direct financial participation by the State itself, and some one State agency (whether already existing, or newly established) must be charged with final administrative responsibility. This agency does not necessarily have to confine itself to aid to dependent children; it may have other functions.

(4): An individual whose claim for aid is denied (for instance by a county board) must be given the right to a fair hearing before the State agency. This does not affect the right of further appeal to the courts.

(5) and (6): The methods of administration of the State plan insofar as they are found by the Social Security Board to be essential to the plan's efficient operation, must be approved by the Board, and reports must be made to the Board; but the State will not be impeded in the exercise of its full discretion in the matters of the selection, the tenure of office, and the compensation of State, and local personnel.

(b) Liberality of residence requirement: No residence requirement shall be imposed which results m the denial of aid with respect to an otherwise eligible child, if the child was born in the State within the year, or has resided in the State for at least a year immediately preceding the application for aid. The State may be more lenient than this, if it wishes. It may, furthermore, impose such other eligibility requirements as to means moral character, etc. as it sees fit. No State is required to give aid to nonresidents.

PAYMENT TO STATES

Section 403: Payments to the States are to be made quarterly, in a method similar to that described in connection with section 3, except that under this title the Federal Government will bear only one-third of the total cost instead of one-half. Furthermore, the money paid by the Federal Government will be used to carry out the purposes of the State plan without any distinction being drawn between the actual payments of aid and the administrative costs of the State plan. The amount of the Federal share, with respect to any dependent child, shall not exceed $6 if 1 dependent child is in the home, and shall not exceed $6 for 1 dependent child, and $4 for each other dependent child if there is more than 1 dependent child in the home. Thus, the Federal Government will pay one-third of a monthly payment of $18 for one child. If the State wishes to have such child receive more than $18 per month, the State will have to pay the excess.

OPERATION OF STATE PLANS

Section 404: A State with an approved plan will not receive payments if the Board finds that the State is not substantially complying with its plan.

ADMINISTRATION

Section 405: $250,000 is authorized to be appropriated for the fiscal year 1936 for the administrative expenses of the Board under this title. There is no limit on appropriations for future years.

DEFINITIONS

Section 406: "Dependent child" is confined to children less than 16 years old, living with a near relative in a residence (house, room, or other place of abode) maintained by such relative as his own home. "Aid to dependent children" is confined to payments in cash.

TITLE V. GRANTS TO STATES FOR MATERNAL AND CHILD WELFARE

Part 1. Maternal and Child Health Services

This part provides for Federal Grants-in-aid to States, to help them extend and. improve their services for promoting the health of mothers and children. Some of the available money is to be allotted equally among the States, some on the basis of the number of live births in each State, some on the basis of need. All the money except that allotted on the basis of need is to be granted on an equal matching (50-50) basis.

APPROPRIATION

Section 501: $3,800,000 is authorized to be appropriated for the fiscal year 1936, and for each fiscal year thereafter.

ALLOTMENTS TO STATES

Section 502 (a): $20,000 is to be allotted by the Secretary of Labor to each State, and $1,800,000 is to be divided among all the States, on the basis of the number of live births in each State in proportion to the total number of live births in the United States.

(b): The remaining $980,000 shall be allotted by the Secretary of Labor according to the financial need of each State for assistance in carrying out the State plan. In making this allotment, and in determining such need, the Secretary of Labor shall take into consideration the number of live births in the State.

(c): An allotment made under subsection (a) shall be available for payment to the State for 2 fiscal years after the fiscal year for which the allotment is made.

APPROVAL OF STATE PLANS

Section 503 (a): Requirements which must be met:

(1) and (2): The State plan must provide for direct financial participation by the State; and the State health agency, whatever State department is charged with the responsibility for health conditions and public health work, must be charged with final administrative responsibility.

3): The methods of administration of the State plan, insofar as they are found by the Chief of the Children's Bureau to be essential to the plan's efficient operation, must be approved by the Chief of the Children's Bureau; but the State will not be impeded in the exercise of its full discretion in the matters of selection, the tenure of office, and the compensation of State and local personnel.

(4): Reports are to be made to the Secretary of Labor.

(5), (6), and (7): The State plan must also provide for the extension and improvement of local services; cooperation with medical, nursing, and welfare organizations demonstration services in areas which lack financial resources and among groups in need of such special services.

(b) Approval of State plan: The Chief of the Children's Bureau is charged with passing on the State plan, and if it is approved the Secretary of Labor and the State health agency concerned are to be notified.

PAYMENT TO STATES

Section 504 (a) and (b): From the allotments made under section 502 (a) payments will be made to the States on an equal matching (50-50) basis, on the strength of estimates made by the State and the Secretary of Labor.

(c): From the allotments made from the $980,000 available under section 502 (b) payments shall be made in accordance with certifications by the Secretary of Labor in amounts and at times specified by the Secretary of Labor. These payments need not be matched. In meeting the matching requirements under subsections (a) and (b) of this section money paid to a State under subsection (c) out of the $980,000 will be considered part of the State's money.

OPERATION OF STATE PLANS

Section 505: A State with an a proved plan will not receive payments if the Secretary of Labor finds that the State is not substantially complying with its plan.

Part 2. Services for Crippled Children

This part provides for Federal Grants-in-aid to States to help them extend and improve their services for discovering crippled children and for providing such children with medical, surgical, corrective, and other services and care in connection with their physical disability. Some of the available money is to be allotted equally among the States, and some on the basis of need. All of the money is to be granted on an equal matching (50-50) basis.

APPROPRIATION

Section 511: $2,850,000 is authorized to be appropriated for the fiscal year 1936, and for each fiscal year thereafter.

ALLOTMENTS TO STATES

Section 512 (a): $20,000 is to be allotted by the Secretary of Labor to each State, and the remaining amount available is to be divided among all the States on the basis of need, as determined by the Secretary of Labor after taking into consideration the number of crippled children in the State, and the cost of furnishing services to them.

(b): An allotment made under this section shall be available for payment to the State for 2 fiscal years after the fiscal year for which the allotment is made.

APPROVAL OF STATE PLANS

Section 513 (a): Requirements which must be met:

(1), (2), (3), and (4): A State plan must include provisions relating to financial participation, administration, methods of administration approved by the Chief of the Children's Bureau, and reports to the Secretary of Labor, these requirements being similar to those under section 503, except that here the bill does not mention any particular State agency.

(5): A State plan must provide for carrying out the purposes of part 2, mentioned above.

(6): The State plan must provide for cooperation with medical, health, nursing and welfare, groups, and also with any agency in the State which is charged with administering the State law providing for vocational rehabilitation of physically handicapped children.

(b): The Chief of the Children's Bureau is charged with passing on the State plan, and if it is approved, the Secretary of Labor and the State agency concerned are to be notified.

PAYMENT TO STATES

Section 514: From the allotments made under section 512, payments will be made to the States on an equal matching (50-50) basis on the strength of estimates made by the State and the Secretary of Labor.

OPERATION OF STATE PLAN

Section 515: A State with an approved plan will not receive pay­ments if the Secretary of Labor finds that the State is not substantially complying with its plan.

Part 3. Child Welfare Services

Section 521: This section, which constitutes part 3 of this title, authorizes the sum of $1,500,000 to be appropriated for each fiscal year, to enable the United States, through the Children's Bureau, to cooperate with State public welfare agencies in the work of establishing and extending public welfare services for the protection and care of dependent, homeless, and neglected children, and children in danger of becoming delinquent. The services with which the Children's Bureau is thus authorized to cooperate are limited to those carried on in rural areas. From the money made available under this section, $10,000 is to be allotted to each State, and the rest to be divided among the States in the proportion which the rural population bears to the total rural population of the United States. An allotment to a State shall be available for payment to the State for 2 fiscal years after the fiscal year for which the allotment is made.

Part 4. Vocational Rehabilitation

Section 531: This section, which constitutes part 4 of this title, has the effect of increasing the present authorization for grants to States for vocational rehabilitation of the physically disabled, under the act of June 2, 1920, as amended (U.S.C., title 29, ch. 4; U.S.C., Supp. VII, title 29, secs. 31, 32, 34, 35, 37, 39, and 40).

(a): For the fiscal years 1936 and 1937, the present authorization of $1,097,000 is increased by $841,000, and there is an authorization for each fiscal year thereafter of a similar total sum, namely $1,938,000. These sums are to be apportioned among the States and Hawaii in accordance with existing law. It should be noted that under the existing law, grants are not made to Alaska or to the District of Columbia.

(b): The Federal agency authorized by existing law likewise is given an increased authorization for 1936 and 1937. For 1936 and 1937 the present authorization of $80,000 is increased by $22,000 and for each fiscal year thereafter the total amount, namely, $102,000 is authorized.

Part 5. Administration

Section 541: $425,000 is authorized for the year 1936, for the expenses of the Children's Bureau in administering parts 1, 2, and 3 of this title; and the Children's Bureau is authorized to make studies and investigations relative to the efficient administration of those parts. There is no limit on appropriations for future years. The Secretary of Labor is directed to include a full account of the administration of parts 1, 2, and 3 in his annual report to Congress.

TITLE VI. PUBLIC HEALTH WORK

This title provides for Federal Grants-in-aid to States to assist them and their political subdivisions in establishing and maintaining adequate public health services, and also provides for the investigation of disease and problems of sanitation by the Public Health Service.

APPROPRIATION

Section 601: There is authorized an annual appropriation of $8,000,000 to be allotted as provided in section 602.

STATE AND LOCAL PUBLIC HEALTH SERVICES

Section 602: The Surgeon General of the Public Health Service, with the approval of the Secretary of the Treasury, shall, at the beginning of each fiscal year, allot to the States the amount appropriated for such year pursuant to section 601, together with any balances of any allotments for the preceding fiscal year remaining unpaid at the end of such year. The amounts of such allotments shall be determined on the basis of (1) the population; (2) the special health problems; and (3) the financial need; of the respective States.

Quarterly payments shall be made to each State from the sum allotted to it in amounts to be determined by the Surgeon General in accordance with rules and regulations prescribed by him after consultation with a conference of the State and territorial health authorities.

Such payments shall be made by the Division of Disbursement of the Treasury Department. The moneys so paid to a State must be expended in carrying out the purposes specified in section 601, and in accordance with plans presented by the health authorities of the State and approved by the Surgeon General.

Any money allotted to a State for a fiscal year and not paid to such State in that year remains available for allotment to States in the succeeding fiscal year, in addition to the amount appropriated for that purpose for that year.

INVESTIGATIONS AND ADMINISTRATION

Section 603: There is authorized an appropriation of $2,000,000 for each fiscal year for expenditure by the Public Health Service in investigating disease and problems of sanitation, and in cooperating with the health authorities of the States. It is provided that the personnel of the Public Health Service shall be detailed to cooperate with the health authorities of a State only upon the request of the State for such cooperation.

TITLE VII. SOCIAL SECURITY BOARD

ESTABLISHMENT

Section 701: This section establishes the Social Security Board as a wholly independent Bureau in the executive branch of the Government. The Board is to be composed of three members who are to be appointed by the President, by and with the advice and consent of the Senate. Each member's salary is to be $10,000 a year and the terms of office shall be 6 years, except that for the first 3 members appointed, 1 will hold office for 2 years, 1 for 4 years, and 1 for 6 years. The President is to designate one of the members as chairman of the Board.

DUTIES OF SOCIAL SECURITY BOARD

Section 702: The Board's duties shall include those imposed upon it by this act (under titles I, II, III, IV, and IX), and the Board is also to study and make recommendations concerning the possibility of furthering economic security through social insurance, and as to legislation and matters of administrative policy concerning social insurance, and various other subjects relating to the present bill.

EXPENSES OF THE BOARD

Section 703: The Board is authorized to appoint employees and fix their compensation, subject to the civil service laws and Classification Act, and to make necessary expenditures.

REPORTS

Section 704: The Board is to make a regular annual report to Congress.

TITLE VIII. TAXES WITH RESPECT TO EMPLOYMENT

This title levies two taxes. The first is an income tax on employees and the second an excise tax on employers.

INCOME TAX ON EMPLOYEES

Section 801: This section imposes a tax upon the income of every individual measured by the wages received by him with respect to employment after December 31, 1936. The tax does not apply to all wages but only applies to wages as defined in section 811 of the bill. Likewise section 811 restricts the application of the tax to employment as therein defined. The rates of tax are as follows:

                                                                                    Percent

For the calendar years 1937, 1938, and 1939---------------- 1
For the calendar years 1940, 1941, and 1942---------------- 1 1/2
For the calendar years 1943, 1944, and 194------------------ 2
For the calendar years 1946, 1947, and 1948---------------- 2 1/2
For the calendar year 1949 and subsequent calendar years ----3

DEDUCTION OP TAX FROM WAGES

Section 802 (a): This subsection requires the employees' tax to be collected at the source by requiring the employer to deduct the tax from the employee's wages at the time they are paid. To insure collection of the tax, the employer is made personally liable for it. His liability attaches to the correct amount of tax which he is required to deduct from the employee's wages, regardless of the amount actually deducted. To protect the employer, he is indemnified against any claims and demands with respect to that part of the wages of the employee which he withheld, up to the correct amount withheld and paid to the United States.

Section 802 (b): In case the tax is underpaid or overpaid, adjustments are permitted to be made in connection with subsequent wage payments made by the employer to the employee. For instance, if the employee receives a salary of $100 per month for the calendar year 1937 and the employer by a mistake deducts 80 cents instead of $1, assuming this to be the correct amount of the tax, the tax to be deducted from the next wage payment of the employee will be $1.20 instead of $1. On the other hand, if the employer deducts from the first wage payment in the same example $1.20 instead of $1 the tax to be deducted from the next wage payment will be 80 cents instead of $1. Such adjustments are to be made in accordance with regulations to be prescribed under this title.

DEDUCTIBILITY FROM INCOME TAX

Section 803: Under section 23 (c) of the Revenue Act of 1934 Federal income taxes are not allowed as a deduction in computing the income tax imposed by that act. Since the tax on employees is a Federal income tax, this section makes it clear that such a tax is not deductible in computing the income tax imposed by the Revenue Act of 1934 or in computing a corresponding income tax imposed under any subsequent revenue act.

EXCISE TAX ON EMPLOYERS

Section 804: This section imposes an excise tax upon every employer for the privilege of having individuals in his employ. The tax is measured by the wages paid to employees after December 31, 1936, with respect to employment after that date. As in the case of the tax on employees, the rate of tax on employers is as follows:

                                       Percent

For the calendar years 1937, 1938, and 1939---------------- 1
For the calendar years 1940, 1941, and 1942---------------- 1 1/2
For the calendar years 1943, 1944, and 194------------------ 2
For the calendar years 1946, 1947, and 1948---------------- 2 1/2
For the calendar year 1949 and subsequent calendar years ----3

Like the tax on employees under section 801, this tax does not apply to all wages or employment but only to those defined as such in section 811.

ADJUSTMENTS IN CASE OF MISTAKE BY EMPLOYER

Section 805: This section permits the employer to correct errors in the tax reported in connection with any wage payment made to his employees by making proper adjustments in connection with subsequent wage payments. It is similar in principle to section 802 (b) and the adjustments are to be made under regulations to be prescribed under this title.

REFUNDS AND DEFICIENCIES

Section 806: This section relates to the tax imposed with respect to both employers and employees. If any part of the employer's or employee's tax is underpaid or overpaid and the error cannot be adjusted in connection with subsequent payments, the underpayment is to be collected or the overpayment refunded under regulations prescribed under this title. Situations of this character will usually arise when an employee leaves the service of the employer so that it is impossible to make adjustments in subsequent wage payments.

COLLECTION AND PAYMENT OF TAXES

Section 807 (a): This subsection requires the tax due from employers and employees to be collected by the Bureau of Internal Revenue and to be deposited in the Treasury as internal revenue collections.

Section 807 (b): This subsection gives the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, authority to collect the taxes imposed with respect both to employers and employees by stamps, coupons, tickets, books, or other devices, or by requiring the making and filing of returns. The administrative provisions relating to the tax on pistols and revolvers imposed by section 600 of the Revenue Act of 1926, as well as the provisions relating to the stamp taxes imposed by section 800 of that act, are also applicable to the taxes provided under this title with respect to both employers and employees. The administrative provisions are, therefore, not confined to those contained in sections 600 and 800 of the Revenue Act of 1926, but embrace all administrative provisions not otherwise inconsistent, applicable to the taxes imposed by such sections. For instance, the periods of limitation upon assessment and collection set forth under section 1109 of the Revenue Act of 1926; as amended, also apply to the taxes levied under this title. Likewise the periods of limitation upon refunds and credits prescribed in section 3228 of the Revised Statutes will apply to the taxes under this title. If the tax or any part thereof is not paid when due, the unpaid portion will bear interest at the rate of 1 percent per month from the time the tax became due until paid. The Board of Tax Appeals has no jurisdiction over these taxes. If they are not paid when due, they may be collected by distraint as provided in section 3187 of the Revised Statutes, leaving the taxpayer to his remedy by way of claim and suit for refund. In order that the employer, who collects and withholds the tax due from the employee, may be treated as a trustee or proceeded against by distraint provisions of section 607 of the Revenue Act of 1934 are also made to apply to this title. Section 607 of the Revenue Act of 1934 impresses the amount of taxes withheld or collected with a trust and makes applicable for the enforcement of the Government's claim the administrative provisions for assessing and collecting taxes.

For administrative reasons, a fractional part of a cent is disregarded unless it amounts to one-half cent or more, in which event it is treated as 1 cent. This corresponds to a similar provision appearing in the revenue acts.

RULES AND REGULATIONS

Section 808: This section gives the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, authority to make and publish rules and regulations for the enforcement of this title.

SALE OF STAMPS BY POSTMASTERS

Section 809: This section authorizes the sale of stamps, coupons, or other devices prescribed for the collection or payment of the taxes under this title by the various postmasters of the United States. The postmasters are required to deposit the receipts from such sales with the Postmaster General and render accounts to him at such time and in such form as he shall prescribe. The Postmaster General is given authority to require a bond from the various postmasters receiving such stamps or other devices in such increased amount as he may find necessary to protect the interests of the Government. The Postmaster General is required to transfer the receipts from the sale of such stamps or other devices monthly to the Treasury as internal revenue collections.

PENALTIES

Section 810 (a): This subsection imposes a fine of $10,000, or imprisonment for not more than 6 months, or both, for using, transferring, exchanging, or pledging any stamp or other device prescribed by the Commissioner of Internal Revenue for the collection or payment of the taxes under this title in any manner except as authorized by law or regulations made thereunder.

Section 810 (b): This subsection imposes a fine of $5,000, or imprisonment for not more than 5 years, or both, in the following cases where there is an intent to defraud: (1) Altering, forging, or counterfeiting any stamp or other device prescribed by the Commissioner of Internal Revenue for the collection or payment of taxes due under this title; (2) using, selling, lending, or having in possession any such altered, forged, or counterfeited stamp or other device; and (3) making, using, selling or having possession of any material in imitation of the material used in the manufacture of such stamp or other device.

DEFINITIONS

Section 811 (a): This subsection defines "wages." Wages include not only the cash payments made to the employee for work done, but also compensation for services in any other form, such as room, board, etc. The term : "wages" does not necessarily apply to the total remuneration received from the employer by the employee; the term includes only the first $3,000 of wages received by an employee from his employer with respect to employment during the calendar year. The following example will illustrate how the rule applies: Employer A pays employee B a salary of $500 a month beginning with the calendar year 1937. At the end of the sixth month he has received from his employer $3,000. The balance of his salary for 1937 is not subject to taxation either with respect to the employer's tax or the employee's tax. However, this is only the case where the employee continues in the employment of the same employer throughout the year. If the employee leaves the service of employer A on June 30,1937, and enters the service of employer C on that date and continues with employer C at the same salary throughout the remainder of the year, both employer C and employee B will be liable for the tax in respect of the wages received during the remaining portion of the calendar year 1937.

Section 811 (b): This subsection defines the term "employment" as any service of whatever nature performed within the United States by an employee for his employer. It should be noted in this connection that section 1001 (a) (6) includes in the definition of "employee" an officer of a corporation. For instance, resident and nonresident aliens performing services within the United States are subject to the tax under this title. On the other hand, service performed outside the United States, whether by a citizen of the United States or by a nonresident alien, is not subject to the tax. The term "United States" is defined in section 1001 (a) (2) to include the States, Alaska, Hawaii, and the District of Columbia. Due to the difficulties in collecting the tax in the case of certain kinds of employment, the following services are exempt from taxation even though performed within the United States: (1) Agricultural labor; (2) domestic service in a private home; (3) casual labor not in the course of the employer's trade or business. This would not exempt casual labor performed in the course of an employer's trade or business. For instance, if a department store employed emergency help during the rush season in connection with its trade or business, the services performed by such help would not be exempt from taxation under this title; (4) services performed by an officer or a member of a crew on a vessel documented under the laws of the United States or of any foreign country are also exempt from the taxes imposed by this title. The administrative difficulty of following the wages of officers and seamen of crews was regarded as almost insurmountable. For instance, unless this exemption were granted, it would be necessary to keep track of the wages of Chinese coolies working on American ships.

Exemption from taxation under this title is also granted in the case of Federal and State or political subdivision employees.

Services performed in the employ of religious, charitable, scientific, literary, or educational institutions, no part of the net earnings of which inures to the benefit of any private shareholder or individual, are also exempt from the tax imposed by this title. For the purpose of determining whether such an organization is exempt, the use to which the income is applied is the ultimate test of the exemption rather than the source from which the income is derived. For instance, if a church owns an apartment building from which it derives income which is devoted to religious, charitable, educational, or scientific purposes, it will not be denied the exemption. The organizations which will be exempt from such taxes are churches, schools, colleges, and other educational institutions not operated for private profit, the Y.M.C.A., the Y.W.C.A., the Y.M.H.A., the Salvation Army, and other organizations which are exempt from income tax under section 101 (6) of the Revenue Act of 1932.

Exemption is likewise granted from taxation under this title in the case of individuals who have attained the age of 65 years.

TITLE IX. TAX ON EMPLOYERS OF TEN OR MORE

This title levies upon employers an excise tax payable annually, measured by wages, and allows each taxpayer to credit against his tax the amount of contributions he has paid under State unemployment compensation laws.

IMPOSITION OF TAX

Section 901: An annual excise tax is imposed on each employer (as defined in sec. 907) on the privilege of having individuals in his employ. His tax, payable annually, will be at a rate of 1 percent of the total wages payable by him with respect to employment (as defined in sec. 907) in the calendar year 1936. This means that the tax is measured by wages which are payable as remuneration for services performed during that calendar year, regardless of the time when the actual payment is made.

The rate of tax, after being 1 percent for the year 1936, shall increase to 2 percent for 1937, and 3 percent thereafter.

CREDIT AGAINST TAX

Section 902: A taxpayer may credit against his tax the total amount of contributions he has paid to State unemployment compensation funds in accordance with State unemployment compensation laws. The credit against the tax measured by wages payable with respect to employment in a calendar year will be allowed only for contributions which themselves are paid (before the date for filing the tax return under this title for such year) with respect to employment in such year.

The total credit which a taxpayer may claim against his tax for any year shall not be more than 90 percent of the tax. Thus if the tax is $100 the total credit which may be claimed cannot be more than $90, even though the total amount of contributions may be greater than that.

CERTIFICATION OF STATE LAWS

Section 903 (a): Credit shall be allowed only for contributions made under the laws of States certified for the taxable year under section 903. (b): If any State law, submitted to the Social Security Board, fulfills the conditions enumerated in this section, the Board shall within 30 days approve the law, and shall notify the State Governor of its action. On December 31 of each year, each State which has an approved law shall be certified by the Board to the Secretary of the Treasury; unless in the meantime the Board finds that the State has changed its law in some material respect, or has failed substantially to fill any of the enumerated conditions. The Board is under the duty to warn the Governor of the State whenever it has reason to believe that in spite of having an approved law a State may not be certified at the end of the year.

A State law to be approved must provide that:

(1): All unemployment compensation is to be paid through public employment offices in the State.

(2): No compensation shall be payable with respect to any day of unemployment occurring before the expiration of 2 years after the first day of the first period with respect to which contributions are required. For example, if March 15, 1936, is the beginning of the first period with respect to which contributions are required under the State law, then no compensation may be paid for any day of unemployment occurring before March 15, 1938.

(3): All the money paid into the State unemployment fund (whether paid as contributions for employers or paid by employees or contributed by the State itself) shall promptly be paid over to the Secretary of the Treasury to the credit of the unemployment trust fund established by section 904.

(4): All the money withdrawn from the unemployment trust fund by the State agency shall be used solely in the payment of compensation; none of it may be used to meet administrative costs:

(5): A person otherwise eligible for compensation shall not be denied it on the ground that he has refused to take a new job when his denial is due to the fact that the position offered to him is vacant directly to a strike, lockout, or other labor dispute, or is due to the fact that the wages, hours, or other conditions of the work offered are substantially less favorable than those prevailing for similar work in the locality, or that, as a condition of taking or retaining the new lob, he would have to join a company union, or would have to resign from a labor organization, or would have to agree not to join a labor organization.

(6): The State law must contain a provision indicating that any rights, privileges or immunities conferred under it may be taken away by the subsequent amendment or repeal of the law.

UNEMPLOYMENT TRUST FUND

Section 904: Subsection (a) of this section establishes in the Treasury of the United States a trust fund with the Secretary of the Treasury as trustee and with the respective State Agencies, administering the State unemployment compensation laws, as beneficiaries of the trust. The Secretary of the Treasury is directed to receive and hold in such fund all moneys deposited with him or with any Federal Reserve bank or member bank of the Federal Reserve System designated by him to receive such deposits, by such State agencies.

Under subsection (b) it is the duty of the Secretary of the Treasury to invest the fund (except such part as is, in his opinion, required to meet current withdrawals) in interest bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States. In order to provide suitable investments for this purpose, authority is given for the issuance of special obligations to the fund from time to time as required. Such obligations shall bear an interest rate equal to the average rate of interest, computed as of the end of the calendar month next preceding the date of such issue, borne by all interest bearing obligations of the United States then forming part of the public debt; except that where such average rate is not a multiple of one eighth of 1 percent, the rate of interest shall be the multiple of one eighth of 1 percent next lower than such average rate. In addition to such special obligations, outstanding obligations may be purchased at the market price, and original issues may be acquired at par, if the yield thereupon will be not less than the yield which would be required in the case of special obligations. Such special obligations (under the provisions of sub­section (c)) may be redeemed at par plus accrued interest, while all other obligations may be sold at the market price.

Subsections (d) and (e) provide that the fund shall be invested as a single fund, but that the Secretary of the Treasury shall maintain a separate book account for each State agency and shall credit quarterly to each such account a proportionate part of the earnings of the fund for such quarter.

The Secretary of the Treasury (under subsection (f)) is directed to pay out of the amount to the credit of a State agency such amounts as the State agency shall duly requisition, not to exceed the amount standing to the credit of such State agency.

ADMINISTRATION, REFUNDS, AND PENALTIES

Section 905: Subsection (a) of this section provides that the tax shall be collected by the Bureau of Internal Revenue and shall be paid into the Treasury as internal revenue collections.

Subsection (b) requires returns of the tax to be made by each employer not later than January 31 of each year in respect to employment in the preceding calendar year.

Subsection (c) makes the returns filed under this title open to inspection according to the rules laid down for income tax returns under the Revenue Act of 1926.

Subsection (d) allows the taxpayer to pay his tax in equal quarterly installments as is the case with the Federal income tax.

Subsection (e) gives the Commissioner the right to give extensions of time for the payment of tax or installments thereof, and subsection (f) provides that in the payment of tax a fractional part of a cent shall not be counted unless it amounts to one half cent or more, in which case it shall be counted as 1 cent.

INTERSTATE COMMERCE

Section 906: This section provides that no person required under a State law to make payments to an unemployment fund shall be relieved from compliance therewith on the ground that he is engaged in interstate commerce, or that the State law does not distinguish between employees engaged in interstate commerce and those engaged in intrastate commerce.

                                         

DEFINITIONS

Section 907: The definitions set up by this section are important in connection with the application and scope of the entire title. They are as follows:

(a) Employer: The term "employer" includes only those persons who, in each of at least 20 weeks in the year, have a total number of 10 or more employees. This means that if on 1 day a week for 20 weeks (which need not be consecutive) there are 10 employees, the employer is covered. The employees (who need not necessarily be the same people) need not all be employed at the same moment; it is enough if during the day the total number is at least 10. The employees are not counted unless they are employed in "employment" as defined in this section.

(b) Wages: The term "wages" is defined to mean all remuneration for employment, including the cash value of all remuneration paid in any other medium than cash. That is, in addition to money payments, it includes payments in kind, rent, food, lodging, etc.

(c) The term "employment" is defined to mean any service performed within the United States by an employee for his employer with the following exceptions:

(1) Agricultural labor.

(2) Domestic service in a private home.

(3) Service performed as an officer or member of the crew of a vessel on the navigable waters of the United States. (This does not exempt the services of longshoremen and others who work in connection with loading vessels.)

(4) Service performed by an individual in the employ of his son, daughter, or spouse, and service performed by a child under 21 in the employ of his parent.

(5) Service performed in the employ of the United States Government or of an instrumentality of the United States.

(6) Service performed in the employ of a State, or political subdivision thereof, or an instrumentality of one or more States or political subdivisions.

(7) Service performed in the employ of corporations or organizations organized exclusively for religious, charitable, scientific, literary, or educational purposes, no part of the net earnings of which accrue to any private individual or shareholder.

If the service is within the excepted classes, the employer is exempt from tax on the wages payable with respect to such service.               

(d) The term "State agency" is defined to mean any State officer, board, or other authority, designated under a State law to administer the State unemployment fund.

(e) The term "unemployment fund" is defined to mean a special fund, established by State law and administered by a State agency, for the payment of unemployment compensation. It is required that the assets of the fund be mingled and undivided, and that no separate account be maintained with respect to any person.

(f) The term "contributions" is defined to mean payments required to be made by an employer under a State law into an unemployment fund, except that any payments which have been or may be deducted from the wages of the individuals in his employ are not to be considered as contributions under the definition.

(g) The term "compensation" is defined to mean cash benefits payable to individuals with respect to their unemployment.

RULES AND REGULATIONS

Section 908: This section authorizes and directs the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, to make and publish such rules and regulations for the enforcement of this title as are necessary. The exception is made however, that the "authorization and direction above noted do not apply to section 903, relating to certification of State laws, and to section 904, relating to the unemployment trust fund.

TITLE X. GENERAL PROVISIONS

DEFINITIONS

Section 1001 contains definitions of "State," "United States", “Person”, ”corporation”, “shareholder”, and “employee”.

Section 1001 (d) provides that nothing in this act shall be construed as authorizing any Federal official in carrying out the provisions of this act to take charge, in violation of the law of a State, of any child over the objection of the parents.

RULES AND REGULATIONS

Section 1002 provides for the making of regulations by the Secretary of the Treasury, the Secretary of Labor, and the Social Security Board, respectively, for carrying out the functions with which each is charged.

SEPARABILITY

Section 1003 is the usual separability clause.

RESERVATION OF POWER

Section 1004 reserves to Congress the right to alter, amend, or repeal any portion of the act.

SHORT TITLE

Section 1005 provides that the act may be cited as the "Social Security Act."

APPENDIX:
LIST OF COMMITTEES ADVISORY TO THE COMMITTEE ON ECONOMIC SECURITY

MINORITY VIEWS