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 varies 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.
Official guide CR Toughy When people evade income taxes
This topic has expert replies
- richachampion
- Legendary Member
- Posts: 698
- Joined: Tue Jul 21, 2015 12:12 am
- Location: Noida, India
- Thanked: 32 times
- Followed by:26 members
- GMAT Score:740
Last edited by richachampion on Fri Aug 18, 2017 1:49 pm, edited 1 time in total.
R I C H A,
My GMAT Journey: 470 → 720 → 740
Target Score: 760+
[email protected]
1. Press thanks if you like my solution.
2. Contact me if you are not improving. (No Free Lunch!)
My GMAT Journey: 470 → 720 → 740
Target Score: 760+
[email protected]
1. Press thanks if you like my solution.
2. Contact me if you are not improving. (No Free Lunch!)
- richachampion
- Legendary Member
- Posts: 698
- Joined: Tue Jul 21, 2015 12:12 am
- Location: Noida, India
- Thanked: 32 times
- Followed by:26 members
- GMAT Score:740
OA: C
R I C H A,
My GMAT Journey: 470 → 720 → 740
Target Score: 760+
[email protected]
1. Press thanks if you like my solution.
2. Contact me if you are not improving. (No Free Lunch!)
My GMAT Journey: 470 → 720 → 740
Target Score: 760+
[email protected]
1. Press thanks if you like my solution.
2. Contact me if you are not improving. (No Free Lunch!)
- DavidG@VeritasPrep
- Legendary Member
- Posts: 2663
- Joined: Wed Jan 14, 2015 8:25 am
- Location: Boston, MA
- Thanked: 1153 times
- Followed by:128 members
- GMAT Score:770
We've got the following supposed cycle outlined: tax evasion --> higher taxes to compensate ---> greater incentive to evade taxes. You could treat this as an assumption question and employ the negation technique. If an answer choice, when negated, would break the cycle, that answer is going to be correct.richachampion wrote: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 varies 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.
C negated: 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.
If lawmakers took potential evasion into account when setting the initial tax rate, there'd be no reason to raise taxes to compensate for the later shortfall caused by evaders. If lawmakers don't need to raise the tax rate, there'd be no further incentive for future evasion, and thus the cycle would be broken. Because C, when negated, breaks the cycle, we know this is our answer.
- GMATGuruNY
- GMAT Instructor
- Posts: 15539
- Joined: Tue May 25, 2010 12:04 pm
- Location: New York, NY
- Thanked: 13060 times
- Followed by:1906 members
- GMAT Score:790
The question asks for WHAT MUST BE TRUE -- in other words, for the ASSUMPTION.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.
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.
Private tutor exclusively for the GMAT and GRE, with over 20 years of experience.
Followed here and elsewhere by over 1900 test-takers.
I have worked with students based in the US, Australia, Taiwan, China, Tajikistan, Kuwait, Saudi Arabia -- a long list of countries.
My students have been admitted to HBS, CBS, Tuck, Yale, Stern, Fuqua -- a long list of top programs.
As a tutor, I don't simply teach you how I would approach problems.
I unlock the best way for YOU to solve problems.
For more information, please email me (Mitch Hunt) at [email protected].
Student Review #1
Student Review #2
Student Review #3
Followed here and elsewhere by over 1900 test-takers.
I have worked with students based in the US, Australia, Taiwan, China, Tajikistan, Kuwait, Saudi Arabia -- a long list of countries.
My students have been admitted to HBS, CBS, Tuck, Yale, Stern, Fuqua -- a long list of top programs.
As a tutor, I don't simply teach you how I would approach problems.
I unlock the best way for YOU to solve problems.
For more information, please email me (Mitch Hunt) at [email protected].
Student Review #1
Student Review #2
Student Review #3