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Form *\ K. 131
BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
Jo

Chairman Eccles

From __J^_y??*

Date _ January Jjy, 1937Subject: ^PropogLed^amendments ±
Security Act to bring member banks
thereunder*

Federal Reserve banks, national banks, and State member banks
are not subject to the existing provisions of the Social Security Act,
because they have been held to be "instrumentalities of the United States11
-which are expressly exempted from the provisions of that Act, but nonmember
State banks are subject to its provisions, as they are not instrumentalities
of the United States*
There are attached copies of proposed amendments to the Social
Security Act which have been prepared by the Social Security Board in collaboration with representatives of the American Bankers Association* Mr*
Emerson, of the Social Security Board, explained the proposed amendments to
Mr* Ransom, Mr* Dreibelbis, and myself this morning*
Under the proposed amendments, instrumentalities of the United
States would not be exempt from the Social Security Act unless they are (1)
wholly owned, directly or indirectly, by the United States, or (2) exempt
from the taxes imposed by the Social Security Act by virtue of any other
Act of Congress• This means that (a) national banks goad State member banks
would be subject to the provisions of the Act; (b) corporations such as the
Reconstruction Finance Corporation, being wholly owned by the United States,
would continue to be exempt from the Act; and (c) corporations such as the
Federal Reserve banks* which are exempt from Federal, State and local taxation except taxes upon real estate, would also continue to be exempt from
the provisions of the Act* The proposed amendments contain the necessary
technical changes to accomplish these objects*
Mr* Emerson left copies of the proposed amendments with us with
the understanding that we would call him tomorrow to let him know whether
we had any suggestions with regard to the amendments* At Mr* Ransom's
suggestion, therefore, this memorandum is being addressed to you in order
that you may have an opportunity to consider the amendments if you so desire*
If no suggestions are received before lunch time tomorrow, January 14, I
will call Mr* Emerson in the afternoon and state that we have no suggestions
to offer concerning the amendments.




Respectfully,

George B. Vest,
Assistant General Counsel*

1-11-37

Section

. Sections 210(b)(5), 811(b)(6) and 907(c)(5)

of said Act are amended, respectively, to read as follows*
"Service performed in the employ of the
United States Government, or of an instrumentality
of the United States which is either (1) -wholly
owned, directly or indirectly, by the United States,
or (2) exempt from the taxes imposed by this Act by
virtue of any other Act of Congress•"

Section

. Sections 210(b)(6), 811(b)(7) and 907(c)(6)

of said Act are amended, respectively, to read as follows:




"Service performed in the employ of a State, a
political subdivision thereof, or an instrumentality
of one or more States or political subdivisions which
is either (1) wholly owned, directly or indirectly, by
one or more States or political subdivisions, or (2)
wholly exempt from the taxes imposed by this Act by
virtue of the Constitution of the United States.w

1-11-37

Section

• Section 906 of said Act is amended by inserting the

letter "(a)* after *See* 9O6*11 and by adding at the end of said section the
following*
*(b) The legislature of each State may require any instrumentality of the United States (except such as are either (l) wholly
owned, directly or indirectly, by the United States, or (2) exempt
from the taxes imposed by this Act by virtue of any other Act of
Congress), and the individuals in its employ, to make payments to
an unemployment fund under a State unemployment compensation lair
approved by the Board under section 903 and (except as provided in
sections 5240 and 5241 of the Revised Statutes, as amended, and
as modified by subsection (c) of this section) to comply otherwise
with such law; provided,, that the permission granted in this subsection shall apply only to the extent that no discrimination is
made against any such instrumentality, so that if the rate of contribution is uniform upon all other persons subject to such law
on account of having individuals in their employ, and upon all
employees of such persons, respectively, the contributions required of such instrumentality or the individuals in its employ
shall not be at a greater rate than is required of such other
persons and such employees, and if the rates are determined separately for different persons or classes of persons having individuals in their employ or for different classes of employees, the
determination shall be based solely upon unemployment experience
and other factors bearing a direct relation to unemployment risk;
provided further, that the permission granted in this subsection
shall apply only if such State law makes provision for the refund
of any payments required under such law from an instrumentality
of the United States or its employees for any year in the event
said State is not certified by the Board under section 903 with
respect to such year*




tt

(c) Nothing contained in section 5240 or 5241 of the
Revised Statutes, as amended, shall prevent any State from requiring any national banking association to render returns and
reports relative to the associations employees, their remuneration
and services, to the same extent that other persons are required to
render like returns and reports under a State law requiring payments to be made into an unemployment fund* The Comptroller of the
Currency shall, upon receipt of a copy of any such return or report
of a national banking association from, and upon request of, any
duly authorized official, body, or commission of a State, cause an
examination of the correctness of such return dr report to be made
at the time of the next succeeding examination of such association,
and shall thereupon transmit to such official, body, or commission
a complete statement of his findings respecting the accuracy of
such return or reports*




1/11/37

Section

. Paragraph (5) of subsection (a) of section

303 is amended to read as follows:
n

(5) Expenditure of all money requisitioned
by the State agency from the Unemployment Trust Fund in
the payment of unemployment compensation (exclusive of
expenses of administration) and for refunds to such
persons as may be legally entitled thereto; and11

Section

• Paragraph (4) of subsection (a) of section

903 is amended to read as follows:
w

(4) All money withdrawn from the Unemployment
Trust Fund by the State agency shall be used solely in
the payment of compensation (exclusive of expenses of
administration) and for refunds to such persons as may
be legally entitled thereto;11