The plant union is negotiating with the Eagle Company, which is on the verge of bankruptcy. Eagle has offered to pay for the employees' hospitalization insurance in exchange for a wage reduction. The employees each currently pay premiums of $4,000 a year for their insurance.
a. If an employee's wages are reduced by $6,000 and the employee is in the 35% marginal tax bracket, the employee would benefit from the offer.
b. If an employee's wages are reduced by $5,000 and the employee is in the 28% marginal tax bracket, the employee would benefit from the offer.
c. If an employee's wages are reduced by $4,000 and the employee is in the 15% marginal tax bracket, the employee would benefit from the offer.
d. "If an employee's wages are reduced by $5,000 and the employee is in the 28% marginal tax bracket, the employee would benefit from the offer", "If an employee's wages are reduced by $4,000 and the employee is in the 15% marginal tax bracket, the employee would benefit from the offer", and "If an employee's wages are reduced by $6,000 and the employee is in the 35% marginal tax bracket, the employee would benefit from the offer".
e. None of these choices are correct.
Answer: d. "If an employee's wages are reduced by $5,000 and the employee is in the 28% marginal tax bracket, the employee would benefit from the offer", "If an employee's wages are reduced by $4,000 and the employee is in the 15% marginal tax bracket, the employee would benefit from the offer", and "If an employee's wages are reduced by $6,000 and the employee is in the 35% marginal tax bracket, the employee would benefit from the offer".