basshead wrote:
VaibhavMahindru wrote:
Could someone tell me why D is not an option, considering the fact that
-There is a possibility that state tax rates, as they vary, are lower in many states in comparison to federal tax rates.
- People do not mind paying these lower state tax rates in majority of states due to lower tax liability
In light of the scenario stated above, D is a viable option, isn't it?
I have the same thought process.
If the state tax rate varies considerably from state to state, and if the state tax rate is lower than the federal tax rate, then perhaps more people are willing to pay the lower state rate than the higher federal tax rate, resulting in a lower federal tax collection rate.
Is this line of thinking incorrect?
Let’s take a closer look at (D):
Quote:
(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.
The problem is that (D) does not indicate that the state tax rate is lower than the federal tax rate. Rather, it says that the state tax rate varies from state to state whereas the federal tax rate is the same across all states. As we said in our previous post, this merely reiterates what we already knew: state and federal taxes are based on different laws.
(D) simply gives us no reason to believe that state taxes are lower than federal taxes. From the information given in (D), it is equally likely that state taxes are higher than federal taxes, so we cannot assume that state taxes are lower. Some states may have lower tax rates, and some states may have higher tax rates. If we assume that people are more likely to pay off their taxes in states with lower tax rates, then we must also assume that they are less likely to pay off their taxes in states with higher tax rates. This would then have no net effect on the percentage of delinquent tax collected.
So (D) doesn't explain the economists’ projections, and we can eliminate it.
I hope that helps!
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