Annual Earnings and the Taxable Maximum for OASDHI

WHEX THE Committee on Economic Security, in 1031, was drawing up its recommendations for a national social security program for the United States, ;I commo~i lAteri in many of the existing social insuri\nw systenls was to corer only manual workers and clerical and white-c~ollar workers earning less thaii it specified amount. The great del)ression of the thirties had made clear, however, that the threat of economic insecurity in a modern society extends to almost ereryone. Furthermore, the absence of :I fixed class structure and the extent of indiridunl mobility in the I’nited States argued against esclusiou from coverage of persons earning above any specified amount in il prticulal year. From the beginning the I-nited States social security sgstenl embodied the princil)le of umiversal coverage-now generally accepted throughout the world as the appropriate goal. Because Congress and the Ihecutive recognizecl tile magnitude of the :Itliiiiliistrntive task of setting up a new n:ttional system, actual coverage was at first limited to wage ancl salary workers in industry and commerce, but from the beginning nll employees in sucll covered employnlents were brought under the system, no matter how liigli their earnings. Since it seemed desirable to limit the size of the benefits paid and the extent of replacement of earnings under a co~~ipulsory system, an upper limit was placed on the amount of ~nnunl earnings creclitable toward social security benefits and correspondingly on the :umount taxable. The ur~pei limit on the tax was designed to assure that no one contributed directly more than the value of the protection lie received. The original limit on taxable and creditable e:trnings was $3,000. About 97 percent of all corered workers earned less than this amount in 1937 and 1938 and hence had their total earnings credited towards future benefits. About 93 percent of aggregate earnings in covered employment s were twxable. Iii a dynamic .economy, where productivity is increasing nncl earnings levels rising, any fixed dollar amount comes to