High-Income Households Carry the Bulk of the Burden

The income thresholds for social security contributions create a degressive tax burden not only for individuals but also for households with market incomes above these thresholds. Nevertheless, survey data from 2006 show that the top 30 percent of these households pay more than half of the total social security revenues.

Three-quarter of the revenues comes from the upper half of households. Raising the income threshold and extending the liability to pay into them to civil servants and self-employed would have offered households with average incomes only a small tax relief. Both reforms together, however, would have increased the share of total contribution revenues paid by the upper 20 percent of households to 40.1 percent, a plus of 3.3 percentage points. Whether or not these households would, in fact, carry a bigger share of the burden remains doubtful though since expenditures for private insurances would be canceled if the whole labor force were included in the social security system. Nonetheless, the reforms would affect those households most which already contribute the bulk to the social security system and have the highest labor market participation rate.