|
Author |
Message |
|
TAGS:
|
|
|
Senior Manager
Joined: 10 Mar 2008
Posts: 378
Followers: 3
Kudos [?]:
18
[0], given: 0
|
When people evade income taxes by not declaring taxable [#permalink]
 11 Jul 2008, 07:01
Question Stats:
45% (01:16) correct
54% (02:06) wrong based on 4 sessions
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 years 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.
Please support your answers with a brief explanation
|
|
|
|
|
|
|
Director
Joined: 12 Apr 2008
Posts: 501
Location: Eastern Europe
Schools: Oxford
Followers: 10
Kudos [?]:
130
[1] , given: 4
|
Re: CR: evade income taxes [#permalink]
12 Jul 2008, 16:00
1
This post received
KUDOS
More variety  : I’d pick C. Quote: 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? We need to find a statement, a negation of which will break the ‘vicious circle’: (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 it: if it is false, i.e. lawmakers allow adequately for revenue that will be lost through evasion, then the statement that ‘Tax evasion forces lawmakers to raise income tax rates’ will also be false, and ‘a vicious cycle’ will not take place.
|
|
|
|
|
|
Director
Joined: 10 Sep 2007
Posts: 958
Followers: 5
Kudos [?]:
152
[0], given: 0
|
Re: CR: evade income taxes [#permalink]
11 Jul 2008, 07:10
IMO B.
If tax evading techniques catch the defaulters and produce net profit, then there is no need to raise tax.
|
|
|
|
|
|
Intern
Joined: 16 Jun 2006
Posts: 6
Followers: 0
Kudos [?]:
0
[0], given: 0
|
Re: CR: evade income taxes [#permalink]
11 Jul 2008, 11:57
IMO D
Lowering the tax rates or increasing the fine will invite evaders to pay tax properly and vicious cycle will not result.
|
|
|
|
|
|
Director
Joined: 20 Sep 2006
Posts: 661
Followers: 2
Kudos [?]:
47
[0], given: 7
|
Re: CR: evade income taxes [#permalink]
12 Jul 2008, 17:59
greenoak wrote: More variety : I’d pick C. Quote: 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? We need to find a statement, a negation of which will break the ‘vicious circle’: (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 it: if it is false, i.e. lawmakers allow adequately for revenue that will be lost through evasion, then the statement that ‘Tax evasion forces lawmakers to raise income tax rates’ will also be false, and ‘a vicious cycle’ will not take place.Another vote for C
|
|
|
|
|
|
SVP
Joined: 04 May 2006
Posts: 1946
Schools: CBS, Kellogg
Followers: 10
Kudos [?]:
168
[0], given: 1
|
Re: CR: evade income taxes [#permalink]
12 Jul 2008, 18:34
Which of the following is neccessary to make the cicious cycle happen? C breaks the chain!
_________________
Find out what's new at GMAT Club - latest features and updates
|
|
|
|
|
|
Manager
Joined: 12 Jul 2008
Posts: 74
Followers: 1
Kudos [?]:
4
[0], given: 0
|
Re: CR: evade income taxes [#permalink]
12 Jul 2008, 19:00
thanks for providing this information
|
|
|
|
|
|
Intern
Joined: 02 Sep 2011
Posts: 2
Followers: 0
Kudos [?]:
0
[0], given: 1
|
Re: CR: evade income taxes [#permalink]
15 Sep 2011, 10:38
greenoak wrote:
We need to find a statement, a negation of which will break the ‘vicious circle’:
missed this one! This is a basic assumption question. The framing of the question stem makes it difficult to decipher.
|
|
|
|
|
|
Manager
Joined: 01 Jun 2011
Posts: 177
Followers: 1
Kudos [?]:
9
[0], given: 6
|
Re: CR: evade income taxes [#permalink]
15 Sep 2011, 23:07
IMO C
if lamakers were to account of loss of tax through evasion, then they wouldn't need to raise the tax amount..
|
|
|
|
|
|
Intern
Joined: 25 Apr 2010
Posts: 48
Followers: 0
Kudos [?]:
5
[0], given: 14
|
Re: CR: evade income taxes [#permalink]
29 Sep 2011, 08:07
I request everybody to clarify one doubt of mine.... "They do not allow adequately for revenue that will be lost through evasion" To allow for the lost revenue, wouldn't the lawmakers have to raise the tax rates even further, thus leading faster to the vicious circle?
_________________
Consider +1 Kudos if you find my post useful. Even otherwise :D
Please feel free to point out any errors in whatever I post.
|
|
|
|
|
|
Manager
Joined: 15 Mar 2009
Posts: 147
Concentration: Finance, Entrepreneurship
Schools: UCLA (Anderson) - Class of 2014
GMAT 1: 710 Q49 V35
Followers: 2
Kudos [?]:
11
[0], given: 51
|
Re: CR: evade income taxes [#permalink]
31 Jul 2012, 03:11
shaaka wrote: IMO D
Lowering the tax rates or increasing the fine will invite evaders to pay tax properly and vicious cycle will not result. C is not the answer. Lowering the tax rate would stop the tax invaders from hiding some taxable income. However, this possibility doesn't eliminate the possibility that they would do so in the case that the tax rate is raised and the vicious cycle still happens.
|
|
|
|
|
|
Manager
Status: Re-take.. The OG just loves me too much.
Joined: 18 Jun 2012
Posts: 68
Location: India
GMAT 1: 600 Q44 V29
WE: Information Technology (Consulting)
Followers: 2
Kudos [?]:
10
[0], given: 48
|
Re: When people evade income taxes by not declaring taxable [#permalink]
31 Jul 2012, 12:12
vksunder 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 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 years 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.
Please support your answers with a brief explanation talking about variety, can we evaluate option E? it says - taxpayers do not differ from each other w.r.t. the rate of taxation that'll cause them to evade taxes. lets say that a person earns 5 million dollars per annum, but the rate of tax for this income is only 10% meaning that he'll have to pay just $500,000 as taxes per year. however, a person earns 10 million dollars per year, but the tax rate for him is 50% meaning that he'll have to pay $5 million as taxes. now, in this case, the person earning 10 million would be obviously tempted to evade taxes as it eats away a huge chunk of his earnings. also, we are not looking at options that would help us break the cycle.. we want an answer choice that, if true, would have resulted in the cycle not coming into picture.
_________________
Live Life the Way YOU Love It !!
GmatPrep1 [10/09/2012] : 650 (Q42;V38) - need to make lesser silly mistakes.
MGMAT 1 [11/09/2012] : 640 (Q44;V34) - need to improve quant pacing and overcome verbal fatigue.
|
|
|
|
|
|
Intern
Joined: 04 Jun 2011
Posts: 2
Followers: 0
Kudos [?]:
0
[0], given: 0
|
Re: When people evade income taxes by not declaring taxable [#permalink]
10 Aug 2012, 21:57
The answer IMO is C because the question asks which of them have to be true for vicious cycle to continue. Hence the option C which says that authorities do not account for loss of revenue because of tax evasion in their calculation of tax revenue implies that they would raise tax to meet the target and the vicious cycle would ensue. Also this question is from official guide verbal 2nd edition and OC is C
|
|
|
|
|
|
Senior Manager
Joined: 27 Jun 2012
Posts: 412
Followers: 23
Kudos [?]:
194
[0], given: 171
|
Re: When people evade income taxes by not declaring taxable [#permalink]
19 Jan 2013, 02:44
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.
_________________
Thanks,
PraPon
VOTE: vote-best-gmat-practice-tests-excluding-gmatprep-144859.html
Tough RCs: Passage1 | Passage2 | Passage3 | Passage4 | Passage5 | Passage6 | Passage7
|
|
|
|
|
|
Intern
Joined: 05 Mar 2013
Posts: 15
GMAT Date: 04-20-2013
Followers: 0
Kudos [?]:
0
[0], given: 9
|
Re: When people evade income taxes by not declaring taxable [#permalink]
13 Apr 2013, 18:29
Blue Book CR69
Weaken
Conclusion: Bad cycle results if people escape tax. How so?
Premise: People escape, forces lawmakers to raise tax rate, everyone (even the good ones) suffers, and cause more people to escape tax.
Thinking: Looking at premise should tell you that there are 2 out of 2 choices only: eliminate evaders or lawmakers should not raise tax rate due to evasion.
Not A: Increase in tax rate is good since it allows increase in pretax. This is still under the condition that tax rate is raised.
Not B: Success rate of method detecting evaders shows unreliable. This will still cause the cycle since there are remaining evaders not caught.
It's C: Lawmakers determine tax rate without accounting for lost revenue due to evasion. Lawmakers will not raise tax rate due to evasion.
Not D: People who escape tax cannot be prevented by lowering tax, can only be prevented if evaders are fined. But, the method is no guarantee that evasion will be prevented.
Not E: People have the same tax rate will cause them to evade. This still causes the cycle since people escape tax.
|
|
|
|
|
|
|
Re: When people evade income taxes by not declaring taxable
[#permalink]
13 Apr 2013, 18:29
|
|
|
|
|
|
|
|
|
|
Moderators:
metallicafan, rajeevrks27, souvik101990, PTK, MacFauz, noboru, kissthegmat, carcass, willigetmylifeback, mikemcgarry, doe007, Vercules, Legendaddy, tuanquang269, RaviChandra, Marcab, Narenn
|
close
