Evening star., 1939-05-05


This does not mean a paper cut
such as was announced few weeks
ago, when administration leaders de-
termined not to increase the pay
roll taxes due next January, but
dollars and cents cut affecting the
pay roll taxes which businesses are
now paying. 1t comes about through
the decision of the Ways and Means
Committee, which doubtless will be
translated into law by both Houses
of Congress, to permit the States to
reduce the present 3 per cent tax
which employers now pay on unem-
ployment insurance. The reduction,
however, may take place only when
States have built up what are con-
sidered by the Federal Government
to be adequate reserves and when
States have met the minimum
standards set up by the Social Sc
curity Board here.
Another important change rec
commended by the Ways and Means
Committee and which Is likely to
become law, would enable the sew
eral States to set up rating systems
for individual employers so that
businesses with good employment
record would pay lower tax than
employers with poor record. In
other words, a company which has
been paying pay roll taxes in suffl-
cient amounts to constitute an ade-
quate reserve against the usual
hazards of unemployment will not
be asked to continue to pay beyond
that point.
Sizable Saving Likely.
Just what the reduction may
amount to is difficult to estimate,
but some of the experts figure that
the unemployment insurance tax
may actually be lowered in some
States down to l per cent, which,
compared with the 3 per cent now
paid on pay rolls, is quite a sizable
saving for a business nowadays,
especially the ones in the red.
Now as soon as about eight States
begin to give these reductions, the
employers in other States will want
to do all they can to bring about
conditions which will enable them
to make similar savings. The States
which would appear to be qualified
already include New York and
Massachusetts,, as well as the Dis
trict of Columbia. The other States
said to be ready have not been an
nounced, but doubtless in each State
capital the status of the fund can
readily be ascertained from the local
authorities.
Another big saving which may
amount to $6O,OO0000 for the en-
ployers of the country and which
will affect all businesses in all
States, irrespective of the condition
of those States reserves, will be
derived from a change in the meth
cd of computing the tax. At pres
ent the employer pays 3 per cent
on his gross pay roll and he pays
tax on the total salary of an en-
ploye getting $4,000 a year or even
$4,000, when employees in that cate
CORY are supposed to be protected
by their own savings. On the new
plan, the employer would pay tax
for unemployment insurance only
on individual wages or salaries up
to $4,000 per individual.
Collections Surpass Needs.
All this comes about because the
Federal Government and the States
really have been collecting more
money than was needed to meet
social security requirements. The
persons who drafted the law hao
no way of knowing exactly what
sums would be derived, but now that
actual experience has been accumu-
lated, it is apparent that the re-
serves are being piled up more rap
Idly than they were needed. Thus
the annual collection on social Sc
curity taxes is now about $780,
100000 year, when the actual re-
quirements are about $400, 900 ,00G
No such extensive cushion is neces-
sary and hence the reduction plan
outlined above.
The imposition of these heavy
social security taxes has been a
severe drain on business. Indeed,
some economists have insisted that
the recession In business which
started in the summer of 1887 was
the direct consequence of the sud-
den jumping Of expenses to Amer
ican business in the field of pay roll
taxes. The def1ationary effect of
this tax load has been especially
noted because the taxes have not
been assessed on capacity to pay,
but on each and every business, ire
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