Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized for You

we will pick new questions that match your level based on your Timer History

Track Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice Pays

we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

It appears that you are browsing the GMAT Club forum unregistered!

Signing up is free, quick, and confidential.
Join other 500,000 members and get the full benefits of GMAT Club

Registration gives you:

Tests

Take 11 tests and quizzes from GMAT Club and leading GMAT prep companies such as Manhattan GMAT,
Knewton, and others. All are free for GMAT Club members.

Applicant Stats

View detailed applicant stats such as GPA, GMAT score, work experience, location, application
status, and more

Books/Downloads

Download thousands of study notes,
question collections, GMAT Club’s
Grammar and Math books.
All are free!

Thank you for using the timer!
We noticed you are actually not timing your practice. Click the START button first next time you use the timer.
There are many benefits to timing your practice, including:

Between 1977 and 1989, the percentage of income paid to [#permalink]

Show Tags

26 Sep 2011, 20:09

4

This post received KUDOS

3

This post was BOOKMARKED

00:00

A

B

C

D

E

Difficulty:

75% (hard)

Question Stats:

51% (02:41) correct
49% (01:53) wrong based on 221 sessions

HideShow timer Statistics

Between 1977 and 1989, the percentage of income paid to Federal taxes by the richest one percent of Americans decreased, from 40 percent to 25 percent. By the end of that same period, however, the richest one percent of Americans were paying a larger proportion of all Federal tax revenues, from 12.7 percent in 1977 to 16.2 percent in 1989.

Which of the following, if true, contributes most to an explanation of the discrepancy described above? Between 1977 and 1989, the Internal Revenue Service increased the percentage of its staff members responsible for audits and tax collection. Between 1977 and 1989, the before-tax income of the richest one percent of Americans increased by over 75 percent when adjusted for inflation. Between 1977 and 1989, many of the richest one percent of Americans shifted their investments from untaxable to taxable assets. Between 1977 and 1989, the top tax rate was reduced from 70 percent to 31 percent and several tax loopholes were eliminated. Between 1977 and 1989, the amount of Federal taxes paid by the richest one percent of Americans increased by $45 billion, while the amount paid by all Americans rose by $50 billion.

Between 1977 and 1989, the percentage of income paid to Federal taxes by the richest one percent of Americans decreased, from 40 percent to 25 percent. By the end of that same period, however, the richest one percent of Americans were paying a larger proportion of all Federal tax revenues, from 12.7 percent in 1977 to 16.2 percent in 1989.

Which of the following, if true, contributes most to an explanation of the discrepancy described above? Between 1977 and 1989, the Internal Revenue Service increased the percentage of its staff members responsible for audits and tax collection. Between 1977 and 1989, the before-tax income of the richest one percent of Americans increased by over 75 percent when adjusted for inflation. Between 1977 and 1989, many of the richest one percent of Americans shifted their investments from untaxable to taxable assets. Between 1977 and 1989, the top tax rate was reduced from 70 percent to 31 percent and several tax loopholes were eliminated. Between 1977 and 1989, the amount of Federal taxes paid by the richest one percent of Americans increased by $45 billion, while the amount paid by all Americans rose by $50 billion.

A - Irrelevant B - Correct - Pre-tax income increased means revenue increased. Since the pre-tax income was adjusted against inflation, the % of taxes decreased. C - Explains why revenues increased, but does not explain why taxes decreased. D - Explains why taxes decreased, but does not explain why revenues increased. E - Irrelevant, since we cannot calculate %
_________________

Re: Between 1977 and 1989, the percentage of income paid to [#permalink]

Show Tags

25 Oct 2013, 09:00

Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.

Re: Between 1977 and 1989, the percentage of income paid to [#permalink]

Show Tags

25 Oct 2013, 09:26

IMO this is how you reason how B is the answer. First you are dealing with a couple different pots.

You have: Pot 1 - Total Taxpayer Income Pot 2 - Total Taxpayer Income - 1% Highest Income Earner Pot 3 - Total Taxpayer Income Taxes Pot 4 - Total Taxpayer Income Taxes - - 1% Highest Income Earner @ 40% rate Pot 5 - Total Taxpayer Income Taxes - - 1% Highest Income Earner @ 25% rate

Pick Some Numbers to represent each Pot:

Pot 1 = $1000 , and Pot 2 = $200 - Therefore the 1% income earners taxes at the 40% rate would be $80 and @ 25% rate would be $50.

Say Pot 3 is $200 (total income taxes paid). Therefore, the % of the total taxes paid by the 1% Inc. Earners is 80/200 or 40%. If all the Pots remained constant when the tax rate is lowered to 25 % then % of taxes paid by the 1% Inc. Earners would decrease to 50/200 or 1/4 or 25%. But what is implied by Answer B is that despite the lowering of the tax rate, the amount of income earned by the 1% also increased by 75%. So instead of income of $200 for the top 1% they now have income of $350. So recalculate the rates and see how that effects the percentage of the income taxes paid. They now pay 25% rate. So they pay $87.5 in taxes. The $87.5 represents 87.5/200 or 43.25% of the total income taxes paid. Before the rate change the 1% income earners paid 40% of the total taxes and now they are paying 43.25%. The numbers are not exact to the problem but the concept in play is the same. Hope it helps.

gmatclubot

Re: Between 1977 and 1989, the percentage of income paid to
[#permalink]
25 Oct 2013, 09:26

Best Schools for Young MBA Applicants Deciding when to start applying to business school can be a challenge. Salary increases dramatically after an MBA, but schools tend to prefer...

Marty Cagan is founding partner of the Silicon Valley Product Group, a consulting firm that helps companies with their product strategy. Prior to that he held product roles at...