Taxes.—The taxes for old-age and survivors insurance are based on the wages of insured employees. The rates for employer and employee are the same. In the act of 1935, these were fixed at I% for the first three years, beginning in 1937, with a 'A% increase every three years until they reached the maximum of 3% for the employer and 3% for the employee in 5949. Wages in excess of $3,000 received in one year from any one employer were excepted. The amendments of 1939 eliminated the JA% increase in the tax rate for the years 1940-42. They also provide that an employee having more than one employer may, upon request, receive a refund of the employee's tax paid in his behalf on any amount above the first $3,000 of his total yearly earnings.
Financing.—Under the act of 1935, an Old-Age Reserve Account was established in the United States Treasury. The Congress was charged with the duty of yearly appropriating to this account an amount sufficient as an annual premium to provide for the payments required under the old-age insurance system, the amount to be de termined on a reserve basis in accordance with accepted actuarial principles. The act specified that reserve funds in the account must be invested in Government obligations or Government-guaranteed obligations bearing 3% interest.
The amendments of 1939 substituted for this reserve account a Federal Old-Age and Survivors Insurance Trust Fund to be supervised by a board of trustees consisting of the secretary of the Treasury, the Secretary of Labor, and the Chairman of the Social Security Board. All funds collected from the old-age and survivors insurance taxes are to be appropriated to this trust fund. The fund will earn interest at the current average rate paid on obligations comprising the public debt. The board of trustees is required to report annually to the Congress, or at any time that the fund becomes unduly small or ex ceeds three times the highest annual expenditure anticipated in the ensuing five years.
The benefit schedule provided by the amendments of 1939 will eliminate possibility of the large reserve which would have accumulated under the provisions of the act of 1935. The revised system of benefits will result in increased costs during the early years of benefit pay ments and decreased costs during the later years. However, it is estimated that under the amendments of 1939 the average annual cost during the next 4o years will about equal that provided in the act of Unemployment provisions of the Social Security Act relating to unemployment insurance were designed to stimulate adoption of State systems which would insure employees against total loss of income during periods of unavoidable unemploy ment. Because of the wide variation in local conditions this appeared
preferable to a Federal system of unemployment insurance. In a number of State legislatures unemployment insurance bills had already been presented before Congressional consideration of the social security bill in 1935. But the disadvantage in interstate competition had deterred State action in all except one State. By levying a Federal tax on all employers with eight or more employees and then allowing credit against the tax for contributions to a State unemployment fund, the Federal act removed the interstate competitive factor, and by June 30, 1937 all States had enacted unemployment insurance laws.
Under the terms of the act, wide latitude was allowed the States in adopting unemployment insurance systems, to meet local economic and social needs. However, the State laws follow certain general trends.
Taxes.—The unemployment insurance provisions of the Federal act levy a pay roll tax on employers with eight or more employees, certain types of employment being excepted. The rate of this tax was set at 1% of wages payable in 1936, 2% in 1937, and 3% in 1938 and thereafter. Against this Federal tax, employers are allowed credit for the amounts thsy contribute to unemployment funds under a State law approved by the Social Security Board. The maximum credit allowed is 90% of the amount of the Federal tax. The cost of administering State laws is paid by the Federal Government. The amendments of 1939 changed the basis of the unemployment insurance tax from wages "payable" to wages "paid" and limited the tax to the first $3,000 of annual wages paid to each employee. This served to bring the basis of this tax more nearly into conformity with that for old-age insurance, and resulted in simplification of reporting pro cedures for employers. In practically every State the rate of em ployers' contributions to the State unemployment fund is 2.7% of pay rolls ; this, of course, equals 90% of the rate of the Federal tax— the amount allowable as credit against that tax. A few State laws provide for contributions by employees also ; but two of these States have already eliminated this requirement.