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tax reform

by jainrahul1985 » Mon May 31, 2010 6:27 pm
Which of the following best completes the passage below?
One tax-reform proposal that has gained increasing support in recent years is the flat tax, which would impose a uniform tax rate on incomes at every level. Opponents of the flat tax say that a progressive tax system, which levies a higher rate of taxes on higher-income taxpayers, is fairer, placing the greater burden on those better able to bear it. However, the present crazy quilt of tax deductions, exemptions, credits, and loopholes benefits primarily the high-income taxpayer, who is consequently able to reduce his or her effective tax rate, often to a level below that paid by the lower-income taxpayer. Therefore, ______
(A) higher-income taxpayers are likely to lend their support to the flat-tax proposal now being considered by Congress
(B) a flat-tax system that allowed no deductions or exemptions would substantially increase actual government revenues
(C) the lower-income taxpayer might well be penalized by the institution of a flat-tax system in this country
(D) the progressive nature of our present tax system is more illusory than real
(E) the flat tax would actually be fairer to the lower-income taxpayer than any progressive tax system could be

OA [spoiler]D but I don't understand why B is not the answer[/spoiler]

Source : https://gmatclub.com/forum/cr-tax-reform ... 59330.html
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by student22 » Mon May 31, 2010 6:43 pm
B goes too far. By removing deductions and exemptions, there is no guarantee that it would substantially increase revenues. Substantially is a very strong word. For example, what if all the people who use exemptions and deductions decide to stop paying taxes altogether or leave the country if these deductions are removed? In that case gov't revenues will actually drop.

D on the other hand is a very neutral statement and is drawn from the premises. It basically summarizes the last sentence.
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by sk818020 » Mon May 31, 2010 7:33 pm
Another way B would be wrong is if the new flat tax is less than the lowest possible % that a high income person pays now.
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by tpr-becky » Mon May 31, 2010 7:57 pm
B is incorrect because it doesn't state what the percents would be or what they are - you can't compare revenues unless you have information about those revenues.

D is basically a restatement of what the argument has already said.
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by susantaiitk » Mon May 31, 2010 10:56 pm
hey can someone explain why E is not correct? E seems to be correct as the progressive system because of its flaws takes less as tax compared to that from the poorest one. So then a flat tax rate would give the poor a fair chance compared to the progressive system
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by ballubalraj » Mon May 31, 2010 11:07 pm
susantaiitk wrote:hey can someone explain why E is not correct? E seems to be correct as the progressive system because of its flaws takes less as tax compared to that from the poorest one. So then a flat tax rate would give the poor a fair chance compared to the progressive system
(E) the flat tax would actually be fairer to the lower-income taxpayer than any progressive tax system could be

Consider this example (the figures are taken just for illustration purpose):

Flat tax rate: 20% for all income groups
Progressive tax rates: 5% for income less than $100,00; 20% for income > $100,000

Do you think the flat tax rate of 20% is fairer to the lower income group than progressive tax rate of 5%? NO.
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by kstv » Tue Jun 01, 2010 12:02 am
A) Higher income group will not lend support as they will end up paying more in a flat tax regime than under progressive tax rate.
B) The increase or decrese in tax revenue to the goverment has not been mentioned. No numbers to support that the revenue collected under flat tax system will be higher. Theratio of lower income and higher income group will also be a factor, which has not been disclosed.
C) Not necessarily, maybe the flat tax will be fixed at rates presently prescribed for the lower income group. Their position will be unaltered.
D) The progressive tax system does not always tax the higher income group more. The actual tax in comparison to their income may be lower than the tax rate being levied on the lower income group.
E) Same logic as C. The lower income group may not enjoy a different situation but the higher income group may end up paying a higer tax rate than the effective tax rate under the progressive system.
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by kevincanspain » Tue Jun 01, 2010 1:16 am
jainrahul1985 wrote:Which of the following best completes the passage below?
One tax-reform proposal that has gained increasing support in recent years is the flat tax, which would impose a uniform tax rate on incomes at every level. Opponents of the flat tax say that a progressive tax system, which levies a higher rate of taxes on higher-income taxpayers, is fairer, placing the greater burden on those better able to bear it. However, the present crazy quilt of tax deductions, exemptions, credits, and loopholes benefits primarily the high-income taxpayer, who is consequently able to reduce his or her effective tax rate, often to a level below that paid by the lower-income taxpayer. Therefore, ______
(A) higher-income taxpayers are likely to lend their support to the flat-tax proposal now being considered by Congress
(B) a flat-tax system that allowed no deductions or exemptions would substantially increase actual government revenues
(C) the lower-income taxpayer might well be penalized by the institution of a flat-tax system in this country
(D) the progressive nature of our present tax system is more illusory than real
(E) the flat tax would actually be fairer to the lower-income taxpayer than any progressive tax system could be

OA [spoiler]D but I don't understand why B is not the answer[/spoiler]

Source : https://gmatclub.com/forum/cr-tax-reform ... 59330.html
You are not looking not for any old inference but rather the conclusion of the argument. Think about what point the author is trying to make: she is addressing the objections that opponents of the flat tax raise. She tells us that the loopholes are such that , under the present system, the weathy pay propotionally less than do others. In other words, , what does she want to convince you of?
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by Testluv » Tue Jun 01, 2010 11:43 pm
received a pm.

When a question asks you to complete the passage, you should think about the following while reading the passage:

--what is the author's intent in arguing?
--what keywords telegraph that intent?
--what are the different points of view, and how does the author's fit in?
--how does each sentence connect to the next (and previous) one?

(Note that these are also good tips for boldface questions)
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The first sentence tells us that the flat tax proposal has been gaining popularity (so right now we have something other than flat tax).

The second sentence: Those opposed to the flat tax proposal point out that the progressive tax is fairer--the rich have to pay more.

The third sentece begins with the important contrast keyword "however". When we have: "xxx...HOWEVER...yyy" the author is asserting a contrast between xxx and yyy. Therefore, in this question, the author is asserting a contrast between the idea in the second sentence and the one in the third.

The third sentence tells us that the current system is actually pretty good for the rich--the rich don't have to pay that much. Meanwhile, the second sentence told us that progressive is not supposed to be so amenable to the rich.

In order for "however" to fulfill its contrast function, this must mean that the current system is in fact progressive (before we only knew that it was not flat--we couldn't assume away the possibility of a third system).

Furthermore (and more importantly), this must mean that while the opponents of the flat tax point out the progressive tax should be fairer in theory, in practice the rich don't have to pay much (because of deductions, exemptions, etc). And because the final sentence begins with "therefore", this must also be the author's main point, and this should be our prediction. This prediction clearly matches choice D.

______________

As for choice B:

First of all it is wrong because it doesn't match the keyword/author's rhetorical analysis described above; in other words, it is wrong because it doesn't match our prediction.

Second, note that "complete the passage" questions fall into the inference family. Thus, we should avoid extreme language such as "substantiallly" (unless the passage itself traffics in extreme language--which is rare.)
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