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 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 vary 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.


I could not understand the options D and E .Why is D and E incorrect ? Pls explain.


OA is [C]

Perhaps you should tell us why you think D and E are correct, so we may address possible flaws in your reasoning.

uwhusky wrote:Perhaps you should tell us why you think D and E are correct, so we may address possible flaws in your reasoning.

Thanks for the reply.First of all I did not understand the question "The vicious cycle described above could not result unless which of the following were true ?" .This "not unless" in the question is confusing". If you can explain to me how to handle such questions.Also I was not able to interpret choice "D" because two things are mentioned.Raising fines and inducing outine tax evaders.How are they related to the question.I mean,how do we analyze choice "D"?

Vicious cycle:

Tax evasion forces lawmakers to raise income tax rates, and cause more taxpayers to evade income taxes by hiding taxable income.

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

In another words, which of the following, if true, could create the vicious cycle as described above?

D says that people who evade taxes would not stop evading taxes even if tax rates are lowered[edited from dropped for clarity], unless fines for such offense are raised.

D is considered out of scope because its focus is that tax evaders would not stop evading taxes unless the fines are increased, and this piece of information has little to do with the vicious cycle under discussion.

On the other hand, C is correct because C says that the lawmakers did not foresee lost revenue in tax evasion, and therefore they will raise taxes to cover for the lost revenue, and the cycle begins.

Thanks for explaining choice "D".It was very helpful to understand the problem.

uwhusky wrote:Vicious cycle:

Tax evasion forces lawmakers to raise income tax rates, and cause more taxpayers to evade income taxes by hiding taxable income.

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

In another words, which of the following, if true, could create the vicious cycle as described above?

D says that people who evade taxes would not stop evading taxes even if tax rates are dropped, unless fines for such offense are raised.

D is considered out of scope because its focus is that tax evaders would not stop evading taxes unless the fines are increased, and this piece of information has little to do with the vicious cycle under discussion.

On the other hand, C is correct because C says that the lawmakers did not foresee lost revenue in tax evasion, and therefore they will raise taxes to cover for the lost revenue, and the cycle begins.