15.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.
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When people evade income
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kiranlegend
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IMO Cektamatta wrote:15.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.
if lamakers were to account of loss of tax through evasion, then they wouldn't need to raise the tax amount..
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me.prasanna
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Well understand the situation.
The vicious cycle results mainly because of more TAX evaders, because of tax evaders, government loses tax and thus in recovery it increases taxes, So if any thing that helps government not to increase taxes would provide support that vicious cycle does not occur.
Now look at the choices:
A) Certainly results in less tax revenues and government will be force to increase taxes
B) May be true but not effective as mentioned success rate varies year to year
C) True, If government finds a way to effectively evaluate its revenues will result in less tax evaders and more revenues for government.
D) Higher fines will result in more number of tax evaders.
E) Almost Irrelvent
I hope it gives some clarity.
The vicious cycle results mainly because of more TAX evaders, because of tax evaders, government loses tax and thus in recovery it increases taxes, So if any thing that helps government not to increase taxes would provide support that vicious cycle does not occur.
Now look at the choices:
A) Certainly results in less tax revenues and government will be force to increase taxes
B) May be true but not effective as mentioned success rate varies year to year
C) True, If government finds a way to effectively evaluate its revenues will result in less tax evaders and more revenues for government.
D) Higher fines will result in more number of tax evaders.
E) Almost Irrelvent
I hope it gives some clarity.
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mehravikas
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IMO - A
According to me, argument says that tax revenue is lost because lot of tax payers hide their income which in turn means loss of revenue to the goverment. What is the increase in taxes would be helpful to taxpayers to increease their pre-tax incomes, in that pay more tax payers would declare their income so in total the revenue would the same or more....
According to me, argument says that tax revenue is lost because lot of tax payers hide their income which in turn means loss of revenue to the goverment. What is the increase in taxes would be helpful to taxpayers to increease their pre-tax incomes, in that pay more tax payers would declare their income so in total the revenue would the same or more....
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krishnakumarhod
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I was not initially correct ,But here is my take on eliminating other choices
ektamatta wrote:15.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.
"Try" is the keyword here.They may be able to increase thier income or they may not.I they cannot increase then i evade wat else to do when a person has to run a family
(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.
Keyword "success rate varies from year to year" what if it does not bring in more than it is invested in
(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.
OA as explanied by ppl above
(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.
"routinely hides some taxable income".These talk about people who always do it no matter wat the rate is
(E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade taxes.
If this were it would be real funny.If everone stops paying taxes after a particular threshold persentage then it would be really bad
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GMAT Hacker
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subgeeth
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I chose D............ pls explain
This is my understanding
The higher fines (not rate) for tax evaders will not affect the other people who pay tax.
According to C if it happens how they are going to make sure non tax payers will start paying...................
This is my understanding
The higher fines (not rate) for tax evaders will not affect the other people who pay tax.
According to C if it happens how they are going to make sure non tax payers will start paying...................
Still working on my dreams best part is I have not achieved one yet !!!!!
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vijay_venky
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My understanding of the question stimulus goes like
The vicious cycle described above could not result unless which of the following were true
This I guess is a sufficient - necessary condition in itself.
vicious cycle can result --> answer option true
answer option false--> vicious cycle could not result
vicious cycle::
TE forces LM to increase TR
increased TR means more TE and thus a never ending cycle between TE and TR.
Now because the confusion is primarily between C and D, according to the contra-positive mentioned above, a logical opposite answer should stop the vicious cycle.
falsified D: some of the people who routinely hide some taxable income can be induced by a lowering of tax rates to stop hiding such income even though fines for evaders are not raised at the same time.
The immediate question is whether this stops the vicious cycle? not necessarily.
because this is at the best not affecting the cycle.
falsified C: 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.
whether this stops the vicious cycle ? Yes.
because this way the lawmakers will not be forced to raise the tax rates thus stopping the vicious cycle. This is directly affecting the cycle by stopping the first step.
Please correct me if I'm wrong
The vicious cycle described above could not result unless which of the following were true
This I guess is a sufficient - necessary condition in itself.
vicious cycle can result --> answer option true
answer option false--> vicious cycle could not result
vicious cycle::
TE forces LM to increase TR
increased TR means more TE and thus a never ending cycle between TE and TR.
Now because the confusion is primarily between C and D, according to the contra-positive mentioned above, a logical opposite answer should stop the vicious cycle.
falsified D: some of the people who routinely hide some taxable income can be induced by a lowering of tax rates to stop hiding such income even though fines for evaders are not raised at the same time.
The immediate question is whether this stops the vicious cycle? not necessarily.
because this is at the best not affecting the cycle.
falsified C: 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.
whether this stops the vicious cycle ? Yes.
because this way the lawmakers will not be forced to raise the tax rates thus stopping the vicious cycle. This is directly affecting the cycle by stopping the first step.
Please correct me if I'm wrong
