The federal tax code allows businesses but not individuals to deduct the cost of health insurance premiums from their taxable income. Consider a company named HeadBook that could either spend $15,000 on an insurance policy for an employee named Vanessa or increase her annual salary by $15,000 instead. Instructions: Enter your answers as a whole number. a. As far as the tax code is concerned, HeadBook will increase its expenses by $15,000 in either case. If HeadBook pays for the policy, it incurs a $15,000 health care expense. If it raises Vanessa's salary by $15,000, it incurs $15,000 of salary expense. If HeadBook is profitable and pays corporate profit taxes at a marginal 30 percent rate, by how much will HeadBook's tax liability be reduced in either case? $ b. Suppose that Vanessa pays personal income tax at a marginal 15 percent rate. If HeadBook increases her salary by $15,000, how much of that increase will she have after paying taxes on that raise? $ If Vanessa can devote what remains after paying taxes on the $15,000 only to purchasing health insurance, how much will she be able to spend on health insurance for herself? $ c. If HeadBook spends the $15,000 on a health insurance policy for Vanessa instead of giving it to her as a raise, how many more dollars will HeadBook be able to spend on Vanessa's health insurance than if she had to purchase it herself after being given a $15,000 raise and paying taxes on that raise?
The federal tax code allows businesses but not individuals to deduct the cost of health insurance premiums from their taxable income. Consider a company named HeadBook that could either spend $15,000 on an insurance policy for an employee named Vanessa or increase her annual salary by $15,000 instead. Instructions: Enter your answers as a whole number. a. As far as the tax code is concerned, HeadBook will increase its expenses by $15,000 in either case. If HeadBook pays for the policy, it incurs a $15,000 health care expense. If it raises Vanessa's salary by $15,000, it incurs $15,000 of salary expense. If HeadBook is profitable and pays corporate profit taxes at a marginal 30 percent rate, by how much will HeadBook's tax liability be reduced in either case? $ b. Suppose that Vanessa pays personal income tax at a marginal 15 percent rate. If HeadBook increases her salary by $15,000, how much of that increase will she have after paying taxes on that raise? $ If Vanessa can devote what remains after paying taxes on the $15,000 only to purchasing health insurance, how much will she be able to spend on health insurance for herself? $ c. If HeadBook spends the $15,000 on a health insurance policy for Vanessa instead of giving it to her as a raise, how many more dollars will HeadBook be able to spend on Vanessa's health insurance than if she had to purchase it herself after being given a $15,000 raise and paying taxes on that raise?
Chapter7: The Market For Health Insurance
Section: Chapter Questions
Problem 11QAP
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