prep test

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prep test

by jamesk486 » Sat Apr 28, 2007 3:20 am
In order to raise revenue, the federal government planned a tax amnesty program that allows tax delinquents to pay all owed tax without added financial penalty. However, economists projected that the federal government would collect a far lower percentage of total tax owed by delinquents than did state governments implementing similary programs.

Which of the following, if true, would most contribute to an explanation of the economists' projections.

A. Tax amnesty programs are only successful if they are widely publicized.
B. Most people who honestly pay their state tax are equally honest in paying their federal tax.
C. Although federal tax delinquents usually must pay high financial penalties, the states require far lower financial penalties.
D. The state tax rate varies considerably from state to state, but the federal tax is levied according to laws which apply to citizens of all the states.
E. Unlike most federal tax deliquents, most state tax delinquents fail to pay state tax because of an oversight rather than a decision not to pay.

Why is the answer E?

For large farm to be as productive as they can be, their owners need to invest heavily in expensive machinery. This typically requires them to go into considerable debt, and interest on this debt is then a significant fixed cost. This high fixed cost makes those farmers vulnerable to operating losses if the prices of their products drop.

The information above best supports which of the following inferences about large farms?
A. They can be highly productive without being profitable.
B. They tend to be so highly productive that they drive down market prices.
C. They tend to be consistently profitable if their owners borrow at low interest rates.
D. They respond to operating losses by increasing their productivity.
E. They cannot be profitable if their owners depend on credit.

Why is the answer A??

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Re: prep test

by jayhawk2001 » Sat Apr 28, 2007 9:56 am
jamesk486 wrote:In order to raise revenue, the federal government planned a tax amnesty program that allows tax delinquents to pay all owed tax without added financial penalty. However, economists projected that the federal government would collect a far lower percentage of total tax owed by delinquents than did state governments implementing similary programs.

Which of the following, if true, would most contribute to an explanation of the economists' projections.

A. Tax amnesty programs are only successful if they are widely publicized.
B. Most people who honestly pay their state tax are equally honest in paying their federal tax.
C. Although federal tax delinquents usually must pay high financial penalties, the states require far lower financial penalties.
D. The state tax rate varies considerably from state to state, but the federal tax is levied according to laws which apply to citizens of all the states.
E. Unlike most federal tax deliquents, most state tax delinquents fail to pay state tax because of an oversight rather than a decision not to pay.

Why is the answer E?
If delinquents consciously make a decision not to pay, then the
amnesty program will have little effect.

E clearly indicates that most delinquents for state tax fail to pay
due to oversight unlike federal tax delinquents who choose not to
pay.

A gives no extra info
B - if people are equally honest, it should help federal tax
C - should lead to more people paying their federal tax
D - knowing the % of tax does not help us explain the difference

jamesk486 wrote: For large farm to be as productive as they can be, their owners need to invest heavily in expensive machinery. This typically requires them to go into considerable debt, and interest on this debt is then a significant fixed cost. This high fixed cost makes those farmers vulnerable to operating losses if the prices of their products drop.

The information above best supports which of the following inferences about large farms?
A. They can be highly productive without being profitable.
B. They tend to be so highly productive that they drive down market prices.
C. They tend to be consistently profitable if their owners borrow at low interest rates.
D. They respond to operating losses by increasing their productivity.
E. They cannot be profitable if their owners depend on credit.

Why is the answer A??
Only A can be properly inferred from the argument. Highly productive
gear can cause huge debt. If costs > revenue (due to lower
product costs), then profits will be down.

B,C - cannot be inferred from the argument
D - unstated in argument
E - out of scope

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CR-Tax Amnesty Program

by aagar2003 » Sun Aug 07, 2011 1:24 am
jamesk486 wrote:In order to raise revenue, the federal government planned a tax amnesty program that allows tax delinquents to pay all owed tax without added financial penalty. However, economists projected that the federal government would collect a far lower percentage of total tax owed by delinquents than did state governments implementing similarly programs. Which of the following, if true, would most contribute to an explanation of the economists' projections?

A. Tax amnesty programs are only successful if they are widely publicized.
B. Most people who honestly pay their state tax are equally honest in paying their federal tax.
C. Although federal tax delinquents usually must pay high financial penalties, the states require far lower financial penalties.
D. The state tax rate varies considerably from state to state, but the federal tax is levied according to laws which apply to citizens of all the states.
E. Unlike most federal tax delinquents, most state tax delinquents fail to pay state tax because of an oversight rather than a decision not to pay.
OA is E
Besides C and E, all others don't make sense.

tax due from delinquents = $tax + $Penalty
If you remove $penalty, the proportion of tax that would be collected from delinquents post the TAP (Tax Amnesty Program) should be $tax/($tax+$penalty)
For Fed, FC = $FTax/($FTax+$Fpenalty) or ($FTax per Person)/($FTax/person+$Fpenalty/person)
For State, SC =$STax/($STax+$Spenalty) or ($STax per Person)/($STax/person+$Spenalty/person)

Looking at C: It says fed tax delinquents must pay high financial penalties => $Fpenalty/person > $Spenalty/person, but the SC and FC depends on $Stax and $Ftax. No info is provided which of $Stax and $Ftax is higher. so this is not the right choice.

Looking at E:
Delinquent people don't pay Federal Tax because of decision to pay
Delinquent people don't pay State Tax because of an oversight (oversight is defined as unintentional omission or mistake). Although, it is not clear whose mistake and what mistake is it:
  • State not informing the tax-payers and they become delinquent,
    State not reminding the delinquent tax-payers and they fail to make payment, or
    State making a mistake in calculating penalties and not informing about penalties or
    The delinquent tax payers who make a mistake of only paying the tax and not the penalty
.

In any case, before and after tap, the imagination has to be stretched FAR enough to say that the State's oversight will be corrected post TAP and we expect more tax to be collected. However, Fed tax delinquents will still not pay Federal tax because no connection is shown between whether their decision is dependent on TAP or penalties.

Would love to hear from experts on this.

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by Joseph_Alexander » Fri Aug 01, 2014 1:55 am
The answer here is E.

We are trying to strengthen the conclusion that "the federal government would collect a far lower percentage of total tax (not tax + penalties) owed by delinquents (not all tax payers)".

A-Out of Scope
B-Out of Scope (we are looking at delinquents, not honest payers)
C-This would suggest that the federal government would see a higher percentage of tax collection because the benefit of the amnesty is much higher for federal tax than for state taxes
D-Out of Scope
E-The amnesty program for was successful because the unpaid taxes were due to oversight, not unwillingness to pay. Federal tax evasion is due to people fundamentally not wanting to pay tax, period. Saving on penalties does not incentivize people who have decided to not pay any tax.