A mandatory health insurance plan costs $4,000. One worker earns $24,500 in employment income and $500 in investment income. Another worker earns $48,000 in employment income and $2,000 in investment income. A third worker earns $68,000 in employment income and $7,000 in investment income. A premium-based system would cost each worker $4,000. A wage tax–based system would cost each worker 8.5 percent of wages. An income tax–based system would cost each worker 8 percent of income. For each worker, calculate the cost of the insurance as a share of total income. E = Employment income I = Investment income P = Premium cost of insurance Premium as a percentage of income = P/(E + I) W = Wage tax cost of insurance = 0.085 × E Wage tax cost as a percentage of income = W/(E + I) T = Income tax cost of insurance = 0.080 × (E + I) Income tax cost as a percentage of income = T/(E + I) 1.4 Which of the plans in exercise 1.3 would impose the larger burden on those with incomes under $25,000: a mandatory insurance plan financed via premiums, via the income tax, or via a payroll tax? 1.5 Which of the plans in exercise 1.3 would be fairest?
1.3 A mandatory health insurance plan costs $4,000. One worker earns $24,500 in employment income and $500 in investment income. Another worker earns $48,000 in employment income and $2,000 in investment income. A third worker earns $68,000 in employment income and $7,000 in investment income. A premium-based system would cost each worker $4,000. A wage tax–based system would cost each worker 8.5 percent of wages. An income tax–based system would cost each worker 8 percent of income. For each worker, calculate the cost of the insurance as a share of total income.
E = Employment income
I = Investment income
P = Premium cost of insurance
Premium as a percentage of income = P/(E + I)
W = Wage tax cost of insurance = 0.085 × E
Wage tax cost as a percentage of income = W/(E + I)
T = Income tax cost of insurance = 0.080 × (E + I)
Income tax cost as a percentage of income = T/(E + I)
1.4 Which of the plans in exercise 1.3 would impose the larger burden on those with incomes under $25,000: a mandatory insurance plan financed via premiums, via the income tax, or via a payroll tax?
1.5 Which of the plans in exercise 1.3 would be fairest?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
