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Vicious cycle

Expert replies
by adi_800 » Sat Jun 19, 2010 2:43 am
70.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 non-evading 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 yean
(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.

[spoiler]
In this q, I am not sure as to whether we want to show whether vicious cycle should continue or whether vicious cycle should break..May be a silly doubt... But the OA seems to be on the lines that the vicious cycle should continue and question states that if which of the options were true, then vicious cycle could not result..
OA is C[/spoiler]
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Source: — Critical Reasoning |

by pnk » Sat Jun 19, 2010 2:54 am
IMO - A;

Ques stem talks abt how to break vicious cycle (more tax..more tax evaders).

C - irrelevent (neither support nor break vicious cycle)...it talks abt adequate method to calculate revenue collection
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by hardik.jadeja » Sat Jun 19, 2010 2:55 am
IMO C

The passage describes a cycle and the question asks us to find out what could trigger this cycle.

Lawmakers increase the tax rate when they are unable to generate the expected level of revenue. If lawmakers while establishing income tax rates keep in mind that there will be some tax evaders and calculate the rates accordingly, then they will be able to generate the expected level of revenue. And so they wont have to increase the tax rate, and since there is no further increase in tax rates, there wont be any increase in people not paying tax. So the cycle wont get triggered at all.

Hope that helps...
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by pnk » Sat Jun 19, 2010 3:29 am
Got it now. Thanks Hardrik
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by martin.jonson007 » Sat Jun 19, 2010 4:06 am
wen we r given such scenario then we have to consider that all given option are possible somehow... !

C option is not bad either (although flaw is there of course) BUT

A is Best among ALL option...! This will create an idealistic condition... NOTE AGAIN : we are considering here all option are possible somehow...
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by missionGMAT007 » Sat Jun 19, 2010 8:04 am
the cycle could not result unless something is happening. we have to find out the option which explains that.

C Explains that correctly
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by martin.jonson007 » Sun Jun 20, 2010 5:51 am
I again EMPHASIZE ...........

I knw A option is not practically possible..
BUT

we are asked that IF 5 OPTION WERE TRUE i.e. practicaly possibe somehow..

then

A WILL BE IDEAL...!

i don't like writing much so skipping lots of things here as well as flaws of C option...

So if experts can look into the matter ... That wud be very nice of them...!
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