How much will she be able to spend on health insurance?

The federal tax code allows businesses but not individuals to deduct the cost of health insurance pr Show more 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 $17500 on an insurance policy for an employee named Vanessa or increase her annual salary by $17500 instead. Instructions: Enter your answers as whole numbers. a. As far as the tax code is concerned HeadBook will increase its expenses by $17500 in either case. If it pays for the policy it incurs a $17500 health care expense. If it raises Vanessas salary by $17500 it incurs $17500 of salary expense. If HeadBook is profitable and pays corporate profit taxes at a marginal 30 percent rate by how much will HeadBooks 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 $17500 how much of that increase will she have after paying taxes on that raise? $___________ If Vanessa can only devote what remains after paying taxes on the $17500 to purchasing health insurance how much will she be able to spend on health insurance for herself? $___________ c. If HeadBook spends the $17500 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 Vanessas health insurance than if she had to purchase it herself after being given a $17500 raise and paying taxes on that raise? $____________ d. Would Vanessa prefer to have the raise or to have HeadBook purchase insurance for her? Vanessa would prefer a raise in her annual salary-Vanessa would prefer to have HeadBook purchase insurance for her. Would HeadBook have any profit motive for denying Vanessa her preference? No e. Suppose the government changes the tax law so that individuals can now deduct the cost of health insurance from their personal incomes. If Vanessa gets the $17500 raise and then spends all of it on health insurance will her tax liability change? No How much will she be able to spend on health insurance? $__________ Will she now have a preference for HeadBook to buy insurance on her behalf? No Show less

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