Question

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 $17,500 raise and then spends all of it on health insurance, will her tax liability change? no correct how much will she be able to spend on health insurance?

Answer 1

Answer:

The amount of taxes owed by Vanessa won't alter. She will be able to purchase health insurance for $5000. She won't favour HeadBook anymore while purchasing insurance.

Explanation:

Vanessa's taxable income won't change as a result of the fact that people can now deduct the expense of health insurance. As a result, she will still owe the same amount of income tax (so that her taxes paid will increase by zero dollars.) The cost of her health insurance will be $5000. As she can now afford just as much if HeadBook gives her the $5000 raise as if HeadBook spent the $5000 directly buying her health insurance, she will no longer prefer for HeadBook to purchase insurance for her.

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