Chapter 25 -- Federal payroll taxes: Pensions and health care

Abstract

This chapter discusses the retirement decision, the old-age, survivors, and disability insurance programs, and the medicare program. In 1908, the federal government enacted workers’ compensation provisions covering federal civilian employees engaged in hazardous jobs. The federal provisions provided for a tax offset as an inducement to the states to enact unemployment insurance programs. In order to understand the influence of social security on the decision to retire, it is important to understand the substitution and income effects. Higher wages make greater incomes possible, however, and the income effect may induce workers to want more leisure time to enjoy their income. In 1990, state and local government employees not under a state or local pension were brought into the system. As a long-term old-age pension system, because of legal, economic, and institutional constraints, social security can provide an average annual rate of return of no more than the real rate of economic growth in the economy.