Role of the Contribution Ceiling in Social Security Programs: Comparison of Five Countries

PERENNIALLY the subject of a maximum on taxable earnings has been discussed in congressional hearings on the improvement of the social security system. An international comparison of bonthe taxable ceiling functions in certain other countries should be of interest in evaluating the United States maximum, particularly where there are features successful to some extent in coping with similar problems. This study is concerned with old-age pension programs predominantly financed through payroll taxation and using a ceiling on taxable earnings. The 1965 Report of the Advisory Council on Social Security proposed three standards for a study of the [hited States system: the proportion of total earnings subject to tax, the proportion of all workers whose entire earnings are subject to tax, and the proportion of regularly employed men whose entire earnings are taxable.’ An attempt has been made to adapt the first two measures for use in this comparison. Application of the third, however, is not currently possible because of the lack of data. The study also covers the general principles involved in the use of a ceiling, the relationship of the ceiling and average earnings, and the mechanism for adjusting the ceiling to inflation and increasing productivity.