Critical Reasoning

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 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.


Please explain this question

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.

The questions simply means:

What should we assume if we have to stop this vicious cycle.
The cycle happens because
Tax Evasion -> Taxes are raised -> Burden on non tax evading payers -> more taxpayers evade taxes.
To break this cycle, either we ensure that there is no Tax Evasion by tax payers,
Or the lawmakers do not raise taxes at all despite evasion.

This can be done by the method provided in option C.
If the lawmakers account for the evasion of taxes, they would not need to raise the rates.

Hi GMATGuruNY,
After going through your EXPLANATIONS in this thread and in another thread - https://www.beatthegmat.com/og-10-problem-t112412.html,I'd like to have few clarifications on this CR as mentioned below -

GMATGuruNY wrote: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.

NOT able to get the portion in RED! Could you please help clarify WHY(and HOW ) this part -- Tax evasion forces lawmakers...by hiding taxable income. -- is NOT FACTS ? How it could be PREDICTION ? I'm lost here...

GMATGuruNY wrote: Answer choice C, negated: When lawmakers establish income tax rates, they allow adequately for revenue that will be lost through evasion.

If lawmakers establish tax rates that allow for tax evasion, then the conclusion that tax evasion will force lawmakers to raise taxes is invalidated.
Since the negation of C invalidates the conclusion, C is the necessary assumption: WHAT MUST BE TRUE for the conclusion to be valid.

The correct answer is C.

NOT able to COMPLETELY understand the portion in RED !

I think,bottom-line is NEGATION of OA IMPLIES that the lawmakers would establish the Tax rate (in such a way),considering the revenue lost through Tax evasion (which occurs if the Tax rate is raised without taking into account this loss of revenue) that TAX EVASION will NOT happen. So, it'd prevent vicious cycle from occurring.

Hence, the (sort of INFINITE) LOOP is broken,and thus the conclusion that tax evasion will force lawmakers to raise taxes is invalidated!

Let me know please whether my understanding is correct ?

As for Option D: Although I marked it as an INCORRECT CHOICE, I'd STILL like to know what's the EXACT issue with D ? Can you please help ?
Also,could you please shed light that how D would be if we NEGATE it ?

RBBmba@2014 wrote:Hi GMATGuruNY,
After going through your EXPLANATIONS in this thread and in another thread - https://www.beatthegmat.com/og-10-problem-t112412.html,I'd like to have few clarifications on this CR as mentioned below -

GMATGuruNY wrote: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.

NOT able to get the portion in RED! Could you please help clarify WHY(and HOW ) this part -- Tax evasion forces lawmakers...by hiding taxable income. -- is NOT FACTS ? How it could be PREDICTION ? I'm lost here...

Passage: When people evade income taxes.
Here, the usage of when implies that people evade income taxes.
Thus, tax evasion is a PREMISE: a fact not in dispute.

The conclusion is that this premise leads to a vicious cycle:
Lawmakers...raise income tax rates, with the result that even more taxpayers are encouraged to evade income taxes.

The question stem implies that it is possible for this vicious cycle NOT to result.
Thus, the statement in red is not a premise but a prediction: what the argument concludes will happen because of tax evasion.

GMATGuruNY wrote: Answer choice C, negated: When lawmakers establish income tax rates, they allow adequately for revenue that will be lost through evasion.

If lawmakers establish tax rates that allow for tax evasion, then the conclusion that tax evasion will force lawmakers to raise taxes is invalidated.
Since the negation of C invalidates the conclusion, C is the necessary assumption: WHAT MUST BE TRUE for the conclusion to be valid.

The correct answer is C.

NOT able to COMPLETELY understand the portion in RED !

I think,bottom-line is NEGATION of OA IMPLIES that the lawmakers would establish the Tax rate (in such a way),considering the revenue lost through Tax evasion (which occurs if the Tax rate is raised without taking into account this loss of revenue) that TAX EVASION will NOT happen. So, it'd prevent vicious cycle from occurring.

Hence, the (sort of INFINITE) LOOP is broken,and thus the conclusion that tax evasion will force lawmakers to raise taxes is invalidated!

Let me know please whether my understanding is correct ?

The negation of the OA implies the following scenario:
To meet its needs, the government must collect $100 million in income taxes.
When they establish tax rates, lawmakers anticipate that $20 million will be lost to tax evasion, so they establish a tax rate that will yield $120 million.
Thus, when people evade paying $20 million in taxes, the government will still collect the $100 million it needs.
Since the government collects all the money it needs, the prediction that lawmakers will be forced to raise tax rates is proved false, and the vicious cycle is broken.

As for Option D: Although I marked it as an INCORRECT CHOICE, I'd STILL like to know what's the EXACT issue with D ? Can you please help ?
Also,could you please shed light that how D would be if we NEGATE it ?

The correct negation must invalidate the conclusion that tax evasion will lead to a vicious cycle.

D is structured as follows:
A cannot happen unless B happens.
Negated:
A can happen even if B does not happen.

The opposite of no one is at least one person.

D, negated:
At least one person who routinely hides some taxable income can be induced by a lowering of tax rates to stop hiding such income even if fines of evaders are not raised at the same time.
The actions of one person are insufficient to invalidate the conclusion that tax evasion will lead to a vicious cycle.
Eliminate D.

GMATGuruNY wrote:...Lawmakers...raise income tax rates, with the result that even more taxpayers are encouraged to evade income taxes.

The question stem implies that it is possible for this vicious cycle NOT to result.
Thus, the statement in red is not a premise but a prediction: what the argument concludes will happen because of tax evasion.

Still NOT able to get the PREDICTION part - I mean,why and how it can be labelled as PREDICTION ? In the STIMULUS,everything is mentioned in PRESENT TENSE,indicating that in case of TAX EVASION, ALL THESE actually happen in REALITY. So how it could be PREDICTIONS ?

Please help!

GMATGuruNY wrote:The negation of the OA implies the following scenario:
To meet its needs, the government must collect $100 million in income taxes.
When they establish tax rates, lawmakers anticipate that $20 million will be lost to tax evasion, so they establish a tax rate that will yield $120 million.
Thus, when people evade paying $20 million in taxes, the government will still collect the $100 million it needs.
Since the government collects all the money it needs, the prediction that lawmakers will be forced to raise tax rates is proved false, and the vicious cycle is broken.

Exactly.Thanks for correcting my thoughts!

Just a quick clarification to confirm my understanding:

Here vicious cycle means As people evade income taxes,Tax evasion forces lawmakers to raise income tax rates - tax burden on nonevading taxpayers becomes heavier - as a result even more taxpayers evade income taxes - CONSEQUENTLY AGAIN Tax evasion forces lawmakers to raise income tax rates and so on... -- so thus it continues in a cyclic manner. Right ?

Now,NEGATION of OA results in such a Tax rate that would cover the recovery of revenue lost through TAX EVASION,truncating the NEED to further increase Tax rate (to recover revenue lost through TAX EVASION because LOST revenue is ALREADY RECOVERED) - hence, the vicious cycle is broken. Did I get you right in terms of WORDS ?

GMATGuruNY wrote:D is structured as follows:
A cannot happen unless B happens.
Negated:
A can happen even if B does not happen.

The opposite of no one is at least one person.

D, negated:
At least one person who routinely hides some taxable income can be induced by a lowering of tax rates to stop hiding such income even if fines of evaders are not raised at the same time.
The actions of one person are insufficient to invalidate the conclusion that tax evasion will lead to a vicious cycle.
Eliminate D.

I got the LOGIC you conveyed here...BUT,couple of quick questions -

1. A cannot happen unless B happens means I guess, If B happens then A will happen. Right ?

So, can you please clarify how then the NEGATION of If B happens then A will happen means that A can happen even if B does not happen ?

2. The opposite of no one can ALSO be SOME. Right ?

However, even in case of SOME, the above logic remains as it is in case of AT LEAST ONE. Am I correct ?

RBBmba@2014 wrote:

GMATGuruNY wrote:...Lawmakers...raise income tax rates, with the result that even more taxpayers are encouraged to evade income taxes.

The question stem implies that it is possible for this vicious cycle NOT to result.
Thus, the statement in red is not a premise but a prediction: what the argument concludes will happen because of tax evasion.

Still NOT able to get the PREDICTION part - I mean,why and how it can be labelled as PREDICTION ? In the STIMULUS,everything is mentioned in PRESENT TENSE,indicating that in case of TAX EVASION, ALL THESE actually happen in REALITY. So how it could be PREDICTIONS ?

Please help!

The prompt employs present tense to express general truths about a vicious cycle that results from tax evasion.
But the question stem does NOT ask about these general truths.
Rather, the question stem refers to a HYPOTHETICAL situation: how a vicious cycle might NOT result from tax evasion.
According to the question stem, if one of the answer choices WERE NOT true, then a vicious cycle COULD not result.
In this hypothetical situation, the present tense actions discussed in the passage become HYPOTHETICAL actions.
In other words, they become PREDICTIONS.

Just a quick clarification to confirm my understanding:

Here vicious cycle means As people evade income taxes,Tax evasion forces lawmakers to raise income tax rates - tax burden on nonevading taxpayers becomes heavier - as a result even more taxpayers evade income taxes - CONSEQUENTLY AGAIN Tax evasion forces lawmakers to raise income tax rates and so on... -- so thus it continues in a cyclic manner. Right ?

Now,NEGATION of OA results in such a Tax rate that would cover the recovery of revenue lost through TAX EVASION,truncating the NEED to further increase Tax rate (to recover revenue lost through TAX EVASION because LOST revenue is ALREADY RECOVERED) - hence, the vicious cycle is broken. Did I get you right in terms of WORDS ?

Correct.

GMATGuruNY wrote:D is structured as follows:
A cannot happen unless B happens.
Negated:
A can happen even if B does not happen.

The opposite of no one is at least one person.

D, negated:
At least one person who routinely hides some taxable income can be induced by a lowering of tax rates to stop hiding such income even if fines of evaders are not raised at the same time.
The actions of one person are insufficient to invalidate the conclusion that tax evasion will lead to a vicious cycle.
Eliminate D.

I got the LOGIC you conveyed here...BUT,couple of quick questions -

1. A cannot happen unless B happens means I guess, If B happens then A will happen. Right ?

So, can you please clarify how then the NEGATION of If B happens then A will happen means that A can happen even if B does not happen ?

The portions in red are incorrect.
unless means IF NOT.
A cannot happen unless B happens means NOT A IF NOT B.
Rephrased:
If not B, then not A.

The CONTRAPOSITIVE of If A, then B is If not B, then not A.
Thus, the statement in green can rephrased as follows:
If A, then B.
(For a discussion of the contrapositive, check my second post here: https://www.beatthegmat.com/tough-cr-t283417.html.)

The negation of If A, then B is as follows:
If A, then not B.
Since A does not imply B, we get:
A can happen even if B does not happen.

2. The opposite of no one can ALSO be SOME. Right ?

However, even in case of SOME, the above logic remains as it is in case of AT LEAST ONE. Am I correct ?

Correct.
Some = NOT NONE = AT LEAST ONE.

GMATGuruNY wrote:

RBBmba@2014 wrote:

GMATGuruNY wrote:...Lawmakers...raise income tax rates, with the result that even more taxpayers are encouraged to evade income taxes.

The question stem implies that it is possible for this vicious cycle NOT to result.
Thus, the statement in red is not a premise but a prediction: what the argument concludes will happen because of tax evasion.

Still NOT able to get the PREDICTION part - I mean,why and how it can be labelled as PREDICTION ? In the STIMULUS,everything is mentioned in PRESENT TENSE,indicating that in case of TAX EVASION, ALL THESE actually happen in REALITY. So how it could be PREDICTIONS ?

Please help!

The prompt employs present tense to express general truths about a vicious cycle that results from tax evasion.
But the question stem does NOT ask about these general truths.
Rather, the question stem refers to a HYPOTHETICAL situation: how a vicious cycle might NOT result from tax evasion.
According to the question stem, if one of the answer choices WERE true, then a vicious cycle COULD not result.
In this hypothetical situation, the present tense actions discussed in the passage become HYPOTHETICAL actions.
In other words, they become PREDICTIONS.

Just a quick clarification to confirm my understanding:

Here vicious cycle means As people evade income taxes,Tax evasion forces lawmakers to raise income tax rates - tax burden on nonevading taxpayers becomes heavier - as a result even more taxpayers evade income taxes - CONSEQUENTLY AGAIN Tax evasion forces lawmakers to raise income tax rates and so on... -- so thus it continues in a cyclic manner. Right ?

Now,NEGATION of OA results in such a Tax rate that would cover the recovery of revenue lost through TAX EVASION,truncating the NEED to further increase Tax rate (to recover revenue lost through TAX EVASION because LOST revenue is ALREADY RECOVERED) - hence, the vicious cycle is broken. Did I get you right in terms of WORDS ?

Correct.

GMATGuruNY wrote:D is structured as follows:
A cannot happen unless B happens.
Negated:
A can happen even if B does not happen.

The opposite of no one is at least one person.

D, negated:
At least one person who routinely hides some taxable income can be induced by a lowering of tax rates to stop hiding such income even if fines of evaders are not raised at the same time.
The actions of one person are insufficient to invalidate the conclusion that tax evasion will lead to a vicious cycle.
Eliminate D.

I got the LOGIC you conveyed here...BUT,couple of quick questions -

1. A cannot happen unless B happens means I guess, If B happens then A will happen. Right ?

So, can you please clarify how then the NEGATION of If B happens then A will happen means that A can happen even if B does not happen ?

The portions in red are incorrect.
unless means IF NOT.
A cannot happen unless B happens means NOT A IF NOT B.
Rephrased:
If not B, then not A.

The CONTRAPOSITIVE of If A, then B is If not B, then not A.
Thus, the statement in green can rephrased as follows:
If A, then B.
(For a discussion of the contrapositive, check my second post here: https://www.beatthegmat.com/tough-cr-t283417.html.)

The negation of If A, then B is as follows:
If A, then not B.
Since A does not imply B, we get:
A can happen even if B does not happen.

2. The opposite of no one can ALSO be SOME. Right ?

However, even in case of SOME, the above logic remains as it is in case of AT LEAST ONE. Am I correct ?

Correct.
Some = NOT NONE = AT LEAST ONE.

Hey mitch,
I had a question to ask you said in one of your explanations that In strengthen and weaken questions options with some are wrong.
So is that kind of always as a rule or 'questions with options as some' can also be true?

GMATGuruNY wrote:The prompt employs present tense to express general truths about a vicious cycle that results from tax evasion.
But the question stem does NOT ask about these general truths.
Rather, the question stem refers to a HYPOTHETICAL situation: how a vicious cycle might NOT result from tax evasion.

According to the question stem, if one of the answer choices WERE true, then a vicious cycle COULD not result.

In this hypothetical situation, the present tense actions discussed in the passage become HYPOTHETICAL actions.
In other words, they become PREDICTIONS.

That seems to be really CRITICAL & IMPORTANT shift....

Is such shift frequent on GMAT ? Do we have any other Official instances in which we find such aspect ?

Also,as for the portion in RED in your above quote - is this OK ? Shouldn't it be if one of the answer choices WERE true, then a vicious cycle COULD result ?

GMATGuruNY wrote:

RBBmba@2014 wrote:

GMATGuruNY wrote:D is structured as follows:
A cannot happen unless B happens.
Negated:
A can happen even if B does not happen.

The opposite of no one is at least one person.

D, negated:
At least one person who routinely hides some taxable income can be induced by a lowering of tax rates to stop hiding such income even if fines of evaders are not raised at the same time.
The actions of one person are insufficient to invalidate the conclusion that tax evasion will lead to a vicious cycle.
Eliminate D.

I got the LOGIC you conveyed here...BUT,couple of quick questions -

1. A cannot happen unless B happens means I guess, If B happens then A will happen. Right ?

So, can you please clarify how then the NEGATION of If B happens then A will happen means that A can happen even if B does not happen ?

The portions in red are incorrect.
unless means IF NOT.
A cannot happen unless B happens means NOT A IF NOT B.
Rephrased:
If not B, then not A.

The CONTRAPOSITIVE of If A, then B is If not B, then not A.
Thus, the statement in green can rephrased as follows:
If A, then B.
(For a discussion of the contrapositive, check my second post here: https://www.beatthegmat.com/tough-cr-t283417.html.)

The negation of If A, then B is as follows:
If A, then not B.
Since A does not imply B, we get:
A can happen even if B does not happen.

(1) So, per D negated --even some persons are stopped evading Taxes -- then ALSO we can't conclude on ALL the TAX EVADERS,depending on the effect on some persons because it's an ASSUMPTION CR and accordingly MUST BE TRUE aspect should hold good. Am I correct ?

(2) Does option D REALLY fall in the SCOPE of this CR in order to evaluate what HAS TO BE TRUE for Vicious Cycle to hold good ?

Below are my thoughts -
D talks about lowering of tax rates -- it seems to CONTRADICT the STIMULUS, which says tax rates are raised.

D talks about raising fines of evaders -- how this is RELEVANT/IN SCOPE of the argument ? Is the author trying to relate FINES on evaders to raising tax rates by lawmakers ?

Could you please shed some light on this ?

RBBmba@2014 wrote:In this hypothetical situation, the present tense actions discussed in the passage become HYPOTHETICAL actions.
In other words, they become PREDICTIONS.

That seems to be really CRITICAL & IMPORTANT shift....

Is such shift frequent on GMAT ? Do we have any other Official instances in which we find such aspect ?

Offhand, I can't cite an analogous CR.
A suggestion:
Read the question stem BEFORE you read the passage.
Using this approach, you will always read the passage IN THE CONTEXT OF WHAT IS BEING ASKED.

Also,as for the portion in RED in your above quote - is this OK ? Shouldn't it be if one of the answer choices WERE true, then a vicious cycle COULD result ?

The correct rephrase is as follows:
If one of the answer choices WERE NOT true, then the vicious cycle COULD NOT result.
In my post above, the not in red was inadvertently omitted.
I've corrected the post accordingly.

(1) So, per D negated --even some persons are stopped evading Taxes -- then ALSO we can't conclude on ALL the TAX EVADERS,depending on the effect on some persons because it's an ASSUMPTION CR and accordingly MUST BE TRUE aspect should hold good. Am I correct ?

As I mentioned in my post above, the opposite of none is AT LEAST ONE.
The negation of D offers information about AT LEAST ONE tax evader.
While it is possible that D applies to more than one tax evader, it is also possible that D applies to ONLY ONE tax evader.
Thus, we cannot make any assumptions about all tax evaders.

(2) Does option D REALLY fall in the SCOPE of this CR in order to evaluate what HAS TO BE TRUE for Vicious Cycle to hold good ?

Below are my thoughts -
D talks about lowering of tax rates -- it seems to CONTRADICT the STIMULUS, which says tax rates are raised.

D talks about raising fines of evaders -- how this is RELEVANT/IN SCOPE of the argument ? Is the author trying to relate FINES on evaders to raising tax rates by lawmakers ?

Could you please shed some light on this ?

Your reasoning seems correct.

GMATGuruNY wrote:

RBBmba@2014 wrote:(2) Does option D REALLY fall in the SCOPE of this CR in order to evaluate what HAS TO BE TRUE for Vicious Cycle to hold good ?

Below are my thoughts -
D talks about lowering of tax rates -- it seems to CONTRADICT the STIMULUS, which says tax rates are raised.

D talks about raising fines of evaders -- how this is RELEVANT/IN SCOPE of the argument ? Is the author trying to relate FINES on evaders to raising tax rates by lawmakers ?

Could you please shed some light on this ?

Your reasoning seems correct.

Hi GMATGuruNY - just a quick clarification on this PARTICULAR part to confirm my understanding of your reply.

1. So, BOTH the above TWO reasons are valid to eliminate Option D as an IRRELEVANT/OUT of SCOPE choice. Right ?

2. FINES on evaders and raising tax rates by lawmakers BOTH ARE TWO DIFFERENT stuffs in the scope this argument. Am I correct ?

Hi GMATGuruNY - could you please provide your quick feedback on my above quote ?

Looking forward to it...

RBBmba@2014 wrote:Below are my thoughts -
D talks about lowering of tax rates -- it seems to CONTRADICT the STIMULUS, which says tax rates are raised.

D talks about raising fines of evaders -- how this is RELEVANT/IN SCOPE of the argument ? Is the author trying to relate FINES on evaders to raising tax rates by lawmakers ?

1. So, BOTH the above TWO reasons are valid to eliminate Option D as an IRRELEVANT/OUT of SCOPE choice. Right ?

Yes.

2. FINES on evaders and raising tax rates by lawmakers BOTH ARE TWO DIFFERENT stuffs in the scope this argument. Am I correct ?

If you are stating that a fine is not the same as an increase in the tax rate, then your understanding is correct.

GMATGuruNY wrote:

RBBmba@2014 wrote: FINES on evaders and raising tax rates by lawmakers BOTH ARE TWO DIFFERENT stuffs in the scope this argument. Am I correct ?

If you are stating that a fine is not the same as an increase in the tax rate, then your understanding is correct.

Thanks. A quick question:

ESSENTIALLY, I meant that a FINE on evaders is NOT the SAME as an increase in the tax rate by lawmakers, as far as the SCOPE of this CR is concerned.

Did you mean the same ?