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Official guide CR Toughy When people evade income taxes

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Official guide CR Toughy When people evade income taxes

Post 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.

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Last edited by richachampion on Fri Aug 18, 2017 1:49 pm; edited 1 time in total

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Top Reply
Post 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.

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Top Reply
Post 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.

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Post 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.

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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.

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