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Register now and save up to $200 Available with Beat the GMAT members only code • 1 Hour Free BEAT THE GMAT EXCLUSIVE Available with Beat the GMAT members only code • Free Practice Test & Review How would you score if you took the GMAT Available with Beat the GMAT members only code • 5 Day FREE Trial Study Smarter, Not Harder Available with Beat the GMAT members only code • Free Trial & Practice Exam BEAT THE GMAT EXCLUSIVE Available with Beat the GMAT members only code ## Official guide CR Toughy When people evade income taxes tagged by: richachampion This topic has 2 expert replies and 1 member reply ### Top Member richachampion Legendary Member Joined 21 Jul 2015 Posted: 697 messages Followed by: 25 members Upvotes: 32 Test Date: âˆž â†’ Target GMAT Score: 760 GMAT Score: 740 #### Official guide CR Toughy When people evade income taxes Fri Aug 18, 2017 1:45 pm When people evade income taxes by not declaring taxable income,a vicious cycle results.Tax evasion forces lawmakers to raise income tax rates,which causes the tax burden on nonevading taxpayers to become heavier.This,in turn,encourages even more taxpayers to evade income taxes by hiding taxable income. The vicious cycle described above could not result unless which of the following were true ? A) An increase in tax rates function as an incentive for taxpayers to try to increase their pretax incomes. B) Some methods for detecting tax evaders, and thus recovering tax revenue lost through evasion, bring in more than they cost, but their success rate varies year to year. C) When lawmakers establish income tax rates in order to generate a certain level of revenue, they do not allow adequately for revenue that will be lost through evasion. D) No one who routinely hides some taxable income can be induced by a lowering of tax rates to stop hiding such income unless fines for evaders are raised at the same time. E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade taxes. _________________ R I C H A, My GMAT Journey: 470 â†’ 720 â†’ 740 Target Score: 760+ richacrunch2@gmail.com 1. Press thanks if you like my solution. 2. Contact me if you are not improving. (No Free Lunch!) Last edited by richachampion on Fri Aug 18, 2017 1:49 pm; edited 1 time in total Need free GMAT or MBA advice from an expert? Register for Beat The GMAT now and post your question in these forums! ### GMAT/MBA Expert GMATGuruNY GMAT Instructor Joined 25 May 2010 Posted: 13608 messages Followed by: 1796 members Upvotes: 13060 GMAT Score: 790 Top Reply Mon Aug 21, 2017 2:19 am Quote: When people evade income taxes by not declaring taxable income, a vicious cycle results. Tax evasion forces lawmakers to raise income tax rates, which causes the tax burden on nonevading taxpayers to become heavier. This, in turn, encourages even more taxpayers to evade income taxes by hiding taxable income. The vicious cycle described above could not result unless which of the following were true? (A) An increase in tax rates tends to function as an incentive for taxpayers to try to increase their pretax incomes. (B) Some methods for detecting tax evaders, and thus recovering some tax revenue lost through evasion, bring in more than they cost, but their success rate varies from year to year. (C) When lawmakers establish income tax rates in order to generate a certain level of revenue, they do not allow adequately for revenue that will be lost through evasion. (D) No one who routinely hides some taxable income can be induced by a lowering of tax rates to stop hiding such income unless fines of evaders are raised at the same time. (E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade taxes. The question asks for WHAT MUST BE TRUE -- in other words, for the ASSUMPTION. Premises are FACTS. Only one fact is given in the passage: When people evade income taxes. The rest of the passage offers PREDICTIONS. Predictions are not facts. The first connection made by the passage involves a language shift. The premise is about X: People EVADE income taxes. The conclusion is about Y: Lawmakers WILL RAISE income tax rates. The passage assumes that X is linked to Y: that if people EVADE income taxes, lawmakers WILL RAISE income tax rates. What must be true for this connection to be valid? Answer choice C: IT MUST BE TRUE that when lawmakers establish income tax rates, they do not allow adequately for revenue that will be lost through evasion. C provides the necessary ASSUMPTION: in order to conclude that the lawmakers will RAISE income tax rates, it must be true that -- when the lawmakers establish the initial rates -- they do not allow adequately for the revenue that will be lost through EVASION. The correct answer is C. _________________ Mitch Hunt GMAT Private Tutor GMATGuruNY@gmail.com If you find one of my posts helpful, please take a moment to click on the "Thank" icon. Available for tutoring in NYC and long-distance. For more information, please email me at GMATGuruNY@gmail.com. Free GMAT Practice Test How can you improve your test score if you don't know your baseline score? Take a free online practice exam. Get started on achieving your dream score today! Sign up now. ### GMAT/MBA Expert DavidG@VeritasPrep Legendary Member Joined 14 Jan 2015 Posted: 2459 messages Followed by: 115 members Upvotes: 1153 GMAT Score: 770 Top Reply Sun Aug 20, 2017 11:41 am richachampion wrote: When people evade income taxes by not declaring taxable income,a vicious cycle results.Tax evasion forces lawmakers to raise income tax rates,which causes the tax burden on nonevading taxpayers to become heavier.This,in turn,encourages even more taxpayers to evade income taxes by hiding taxable income. The vicious cycle described above could not result unless which of the following were true ? A) An increase in tax rates function as an incentive for taxpayers to try to increase their pretax incomes. B) Some methods for detecting tax evaders, and thus recovering tax revenue lost through evasion, bring in more than they cost, but their success rate varies year to year. C) When lawmakers establish income tax rates in order to generate a certain level of revenue, they do not allow adequately for revenue that will be lost through evasion. D) No one who routinely hides some taxable income can be induced by a lowering of tax rates to stop hiding such income unless fines for evaders are raised at the same time. E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade taxes. We've got the following supposed cycle outlined: tax evasion --> higher taxes to compensate ---> greater incentive to evade taxes. You could treat this as an assumption question and employ the negation technique. If an answer choice, when negated, would break the cycle, that answer is going to be correct. C negated: When lawmakers establish income tax rates in order to generate a certain level of revenue, they DO allow adequately for revenue that will be lost through evasion. If lawmakers took potential evasion into account when setting the initial tax rate, there'd be no reason to raise taxes to compensate for the later shortfall caused by evaders. If lawmakers don't need to raise the tax rate, there'd be no further incentive for future evasion, and thus the cycle would be broken. Because C, when negated, breaks the cycle, we know this is our answer. _________________ Veritas Prep | GMAT Instructor Veritas Prep Reviews Save$100 off any live Veritas Prep GMAT Course

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### GMAT/MBA Expert

GMATGuruNY GMAT Instructor
Joined
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Posted:
13608 messages
Followed by:
1796 members
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GMAT Score:
790
Mon Aug 21, 2017 2:19 am
Quote:
When people evade income taxes by not declaring taxable income, a vicious cycle results. Tax evasion forces lawmakers to raise income tax rates, which causes the tax burden on nonevading taxpayers to become heavier. This, in turn, encourages even more taxpayers to evade income taxes by hiding taxable income.

The vicious cycle described above could not result unless which of the following were true?

(A) An increase in tax rates tends to function as an incentive for taxpayers to try to increase their pretax incomes.
(B) Some methods for detecting tax evaders, and thus recovering some tax revenue lost through evasion, bring in more than they cost, but their success rate varies from year to year.
(C) When lawmakers establish income tax rates in order to generate a certain level of revenue, they do not allow adequately for revenue that will be lost through evasion.
(D) No one who routinely hides some taxable income can be induced by a lowering of tax rates to stop hiding such income unless fines of evaders are raised at the same time.
(E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade taxes.
The question asks for WHAT MUST BE TRUE -- in other words, for the ASSUMPTION.

Premises are FACTS. Only one fact is given in the passage: When people evade income taxes.
The rest of the passage offers PREDICTIONS. Predictions are not facts.

The first connection made by the passage involves a language shift.
The premise is about X: People EVADE income taxes.
The conclusion is about Y: Lawmakers WILL RAISE income tax rates.

The passage assumes that X is linked to Y: that if people EVADE income taxes, lawmakers WILL RAISE income tax rates.

What must be true for this connection to be valid?
Answer choice C: IT MUST BE TRUE that when lawmakers establish income tax rates, they do not allow adequately for revenue that will be lost through evasion.
C provides the necessary ASSUMPTION: in order to conclude that the lawmakers will RAISE income tax rates, it must be true that -- when the lawmakers establish the initial rates -- they do not allow adequately for the revenue that will be lost through EVASION.

The correct answer is C.

_________________
Mitch Hunt
GMAT Private Tutor
GMATGuruNY@gmail.com
If you find one of my posts helpful, please take a moment to click on the "Thank" icon.
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