The Tax system---confusing completion

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champmag: Master | Next Rank: 500 Posts; Posts: 234; Joined: Tue Feb 22, 2011 5:02 amFollowed by: 3 members; Thanked: 5 times

by champmag » Tue Apr 12, 2011 4:04 am

Which of the following, if true, is the most logical completion of the argument below?
The tax system of the Republic of Grootland encourages borrowing by granting its taxpayers tax relief for interest paid on loans. The system also discourages saving by taxing any interest earned on savings. Nevertheless, it is clear that Grootland's tax system does not consistently favor borrowing over saving, for if it did, there would be no______

(A) tax relief in Grootland for those portions of a taxpayer's income, if any, that are set aside to increase that taxpayer's total savings
(B) tax relief in Grootland for the processing fees that taxpayers pay to lending institutions when obtaining certain kinds of loans
(C) tax relief in Grootland for interest that taxpayers are charged on the unpaid balance in credit card accounts
(D) taxes due in Grootland on the cash value of gifts received by taxpayers from banks trying to encourage people to open savings accounts
(E) taxes due in Grootland on the amount that a taxpayer has invested in interest-bearing savings accounts

I am confused between A and E. OA after discussion.

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Source: Beat The GMAT — Critical Reasoning | Tue Apr 12, 2011 4:04 am

HSPA: Legendary Member; Posts: 1101; Joined: Fri Jan 28, 2011 7:26 amFollowed by: 13 members; Thanked: 47 times; GMAT Score:640

by HSPA » Tue Apr 12, 2011 4:21 am

1) tax money is given for loan
2) interset on savings is taxable

Q)What will happen if borrowing > saving??
opinion: people will not open savings account or borrowing will hurt

D) govt not getting tax on interest [matches my opinion]
E) if member has savings account he will pay tax [ wrong ]
I am not able to find where the govt is providing tax releif..My first inference is a big mistake.. very very tough 4.20sec
IMO D

OA and OE please

First take: 640 (50M, 27V) - RC needs 300% improvement
Second take: coming soon..
Regards,
HSPA.

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fitzgerald23: Master | Next Rank: 500 Posts; Posts: 219; Joined: Mon Mar 08, 2010 8:51 pmFollowed by: 5 members; Thanked: 62 times; GMAT Score:750

by fitzgerald23 » Tue Apr 12, 2011 6:21 am

This one made my head spin and I dont think I would be able to get this correct on an actual exam in 2 minutes or less and Im still not sure if my interpretation is right.

What the passage tells us is that you get tax relief on interest for borrowed money but you get taxed on interest earned in savings. They want you to find a situation that shows incentive to save rather than just borrow.

A. Correct. This tells us that there is incentive (a tax relief) to save money (setting aside income). Im assuming this would be similar to an IRA or 401K type incentive.

B. Incorrect. This would favor borrowing since it gives relief for the "closing" costs of a loan.

C. Incorrect. Again this favors borrowing.

D. Incorrect. This is different than savings being encouraged by the government. This is about banks trying to encourage savings. The government still gets tax revenue on the interest.

E. Incorrect. The issue isnt being taxed on saved money its about being taxed on interest, so this really tells us nothing.

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rohu27: Legendary Member; Posts: 586; Joined: Tue Jan 19, 2010 4:38 amFollowed by: 5 members; Thanked: 31 times; GMAT Score:730

by rohu27 » Tue Apr 12, 2011 7:02 am

arrived at A in 2.24 mins. answer choices are wordy more than anything else on this.
double negations used.
okay now to the choices.

A-Grootland does no favor borrowing over saving, as there are tax relifs on amount set aside to increase total savings.
B-money paid to lending insti no way favors saving.
C-same as above
now D and E change the wording, if X,(borrowing>saving)there would be no taxes due implies . but the passage says B is not greater than S, so there are taxes due. this conclusion i feel is important before jumping into the options.

D-there are taxes due on gifts for saving accounts - weakens the stimulus.
E-similar lines as above. if it supported saving equally, there would not be taxes due on saving account.

hope im correct,else theres some serious flaw i in the fashion i attempted the Q

let us knw the OA

Have time? https://www.beatthegmat.com/730-q-50-v40 ... 88058.html

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champmag: Master | Next Rank: 500 Posts; Posts: 234; Joined: Tue Feb 22, 2011 5:02 amFollowed by: 3 members; Thanked: 5 times

by champmag » Tue Apr 12, 2011 7:48 am

OA is A

@flitzgerald

Awesome explaination...specially about why is E incorrect.

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mundasingh123: Legendary Member; Posts: 2330; Joined: Fri Jan 15, 2010 5:14 amFollowed by: 26 members; Thanked: 56 times

by mundasingh123 » Wed Apr 13, 2011 1:08 am

fitzgerald23 wrote:This one made my head spin and I dont think I would be able to get this correct on an actual exam in 2 minutes or less and Im still not sure if my interpretation is right.

What the passage tells us is that you get tax relief on interest for borrowed money but you get taxed on interest earned in savings. They want you to find a situation that shows incentive to save rather than just borrow.

A. Correct. This tells us that there is incentive (a tax relief) to save money (setting aside income). Im assuming this would be similar to an IRA or 401K type incentive.

B. Incorrect. This would favor borrowing since it gives relief for the "closing" costs of a loan.

C. Incorrect. Again this favors borrowing.

D. Incorrect. This is different than savings being encouraged by the government. This is about banks trying to encourage savings. The government still gets tax revenue on the interest.

E. Incorrect. The issue isnt being taxed on saved money its about being taxed on interest, so this really tells us nothing.

hi fitzgerald, how does c favour borrowing
u r eliminating E because its not discussed in the passage?

I Seek Explanations Not Answers

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M09: Master | Next Rank: 500 Posts; Posts: 110; Joined: Tue Dec 23, 2008 4:52 am; Thanked: 3 times

by M09 » Wed Apr 13, 2011 4:09 am

fitzgerald23 wrote:This one made my head spin and I dont think I would be able to get this correct on an actual exam in 2 minutes or less and Im still not sure if my interpretation is right.

What the passage tells us is that you get tax relief on interest for borrowed money but you get taxed on interest earned in savings. They want you to find a situation that shows incentive to save rather than just borrow.

A. Correct. This tells us that there is incentive (a tax relief) to save money (setting aside income). Im assuming this would be similar to an IRA or 401K type incentive.

B. Incorrect. This would favor borrowing since it gives relief for the "closing" costs of a loan.

C. Incorrect. Again this favors borrowing.

D. Incorrect. This is different than savings being encouraged by the government. This is about banks trying to encourage savings. The government still gets tax revenue on the interest.

E. Incorrect. The issue isnt being taxed on saved money its about being taxed on interest, so this really tells us nothing.

Hi Fitzgerald23, I guess I didn't understand the Q right that's why went wrong while answering it.
just wanted to confirm, is the Q saying Nevertheless Grootland's tax system does not consistently favor borrowing over saving, but if it did(I mean if GT's tax supported borrowing over saving) then which of following should be TRUE. is that what is asked? Please help me in understanding this one.

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fitzgerald23: Master | Next Rank: 500 Posts; Posts: 219; Joined: Mon Mar 08, 2010 8:51 pmFollowed by: 5 members; Thanked: 62 times; GMAT Score:750

by fitzgerald23 » Wed Apr 13, 2011 10:01 am

M09 wrote:
Hi Fitzgerald23, I guess I didn't understand the Q right that's why went wrong while answering it.
just wanted to confirm, is the Q saying Nevertheless Grootland's tax system does not consistently favor borrowing over saving, but if it did(I mean if GT's tax supported borrowing over saving) then which of following should be TRUE. is that what is asked? Please help me in understanding this one.

I find the question pretty confusing I think because its wordy.

it is clear that Grootland's tax system does not consistently favor borrowing over saving, for if it did, there would be no______

What that line is essentially saying is that Grootland has a law in place that favors saving over borrowing and that law could not exist if they constantly favored borrowing over saving. So our job in answering the question is to find the item that shows some support for saving. A is the only one that does that.

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