When people evade income taxes by not declaring taxable

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Manager

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When people evade income taxes by not declaring taxable [#permalink]

04 Sep 2007, 18:05

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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 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.

Manager

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[#permalink]

04 Sep 2007, 21:44

C - if the lawmakers had made reservations for people evading taxes the vicious cycle would not have occurred.

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04 Sep 2007, 23:48

I also go for C. That's the only choice that would keep the cycle going. All others has the possibility of breaking the cycle.

But what is the source? Doesnt look like a GMAT type question!!!

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Re: When people evade income taxes by not declaring taxable [#permalink]

19 Jan 2013, 02:45

Question: The vicious cycle described above could not result unless which of the following were true?
The question is twisted in interesting way with double negations. Note the use of "could not" along with "Unless"="IF..NOT" or "Except-IF".

You can simplify the question to:
Reworded Question: The vicious cycle described above could result if which of the following were true?

Hence you need to eliminate the choices which "breaks" the vicious cycle and choose the choice that does not [break the cycle].

(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.
-- This is the correct answer choice! This situation will ensure that the vicious cycle is continued.

Hence choice(C) is the answer.
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Re: When people evade income taxes by not declaring taxable [#permalink] 19 Jan 2013, 02:45

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When people evade income taxes by not declaring taxable

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