It is currently 16 Oct 2017, 21:25

### GMAT Club Daily Prep

#### 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

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

# Events & Promotions

###### Events & Promotions in June
Open Detailed Calendar

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

 new topic post reply Question banks Downloads My Bookmarks Reviews Important topics
Author Message
TAGS:

### Hide Tags

Director
Joined: 05 Jul 2004
Posts: 893

Kudos [?]: 65 [0], given: 0

### Show Tags

10 Feb 2005, 20:32
I think (C) brings in an assumption that rich ppl had untaxable asset.

Kudos [?]: 65 [0], given: 0

SVP
Joined: 03 Jan 2005
Posts: 2232

Kudos [?]: 376 [0], given: 0

### Show Tags

10 Feb 2005, 21:28
The stem says rich people are paying less fractions of their income, but the absolute value represents a larger proportion of total tax. For example, this rich guy used to pay 40% of 10 million, which is 4 million, and now he is paying only 30% of his income, but the value is 6 million. The only explanation is that his income is now 20 million. If C is true, he would be paying a higher fraction of his income as tax.

Kudos [?]: 376 [0], given: 0

Director
Joined: 29 Oct 2004
Posts: 847

Kudos [?]: 250 [0], given: 0

### Show Tags

10 Feb 2005, 23:34
This does not convince much.

Quote:
If C is true, he would be paying a higher fraction of his income as tax.

(C) Between 1977 and 1989, many of the richest one percent of Americans shifted their investments from untaxable to taxable assets.

Let look at some number here.

1977: 40% of \$100
1989: 25% of (\$100 + \$10000000) (the taxable assets now, before it was not)

Kudos [?]: 250 [0], given: 0

SVP
Joined: 03 Jan 2005
Posts: 2232

Kudos [?]: 376 [0], given: 0

### Show Tags

11 Feb 2005, 00:01
Your post cannot be true unless the taxable assets are considered income since we are talking about fraction of income. If assets are considered income then B is true, although I don't think assets are the same as income.

Kudos [?]: 376 [0], given: 0

Director
Joined: 29 Oct 2004
Posts: 847

Kudos [?]: 250 [0], given: 0

### Show Tags

11 Feb 2005, 00:11
income vs assets

Alright! Got it now. Thanks.

Kudos [?]: 250 [0], given: 0

Manager
Joined: 01 Jan 2005
Posts: 165

Kudos [?]: 4 [0], given: 0

Location: NJ

### Show Tags

11 Feb 2005, 06:51
I know I am late. Yet another B.
I think this is a PR question...isn't it?

Kudos [?]: 4 [0], given: 0

Director
Joined: 01 Feb 2003
Posts: 842

Kudos [?]: 122 [0], given: 0

CR - Tax - Kaplan online test [#permalink]

### Show Tags

27 Feb 2005, 02:34
Between 1977 and 1989, the percentage of income paid to federal taxes by the richest one percent of Americans decreased , from 40% to 25%. By the end of that same period, however, the richest 1% of Americans were paying a larger proportion of all federal tax revenues, from 12.7% in 1977 to 16.2% in 1989.
Which of the following, if true, contributes to an explanation of the discrepancy described above?
A) between 1977 and 1989, the Internal Revenue Servuce increased the percentage of its staff members responsible for audits and tax collection
B)Between 1977 and 1989, the before-tax income of the richest 1% of Americans increased by over 75% when adjusted for inflation
C) Between 1977 and 1989, many of the richest one percent of Americans shifted their investements from taxable to untaxable assets
D)Between 1977 and 1980, the tax rate paid by middle-income Americans was reduced, but several tax loopholes were eliminated
E) Between 1977 and 1989, the amount of federal taxes paid by the richest 1% of Americans increased by \$45 billion, while the amount paid by all Americans rose by \$50 billion

Kudos [?]: 122 [0], given: 0

Senior Manager
Joined: 19 Feb 2005
Posts: 486

Kudos [?]: 25 [0], given: 0

Location: Milan Italy

### Show Tags

27 Feb 2005, 04:46
B)

If your income grows, then you pay more taxes even if the tax rate is reduced

Kudos [?]: 25 [0], given: 0

VP
Joined: 25 Nov 2004
Posts: 1482

Kudos [?]: 125 [0], given: 0

Re: CR - Tax - Kaplan online test [#permalink]

### Show Tags

27 Feb 2005, 07:26
Only B explains why decreased rate increased the tax revenues.

B)Between 1977 and 1989, the before-tax income of the richest 1% of Americans increased by over 75% when adjusted for inflation

Kudos [?]: 125 [0], given: 0

GMAT Club Legend
Joined: 07 Jul 2004
Posts: 5037

Kudos [?]: 436 [0], given: 0

Location: Singapore

### Show Tags

28 Feb 2005, 00:59
(C). If the returns of the investments are not taxble, then it explains the drop in income tax paid, even though the 1% could be paying a lot of other taxes (property tax, road tax etc)

Kudos [?]: 436 [0], given: 0

Intern
Joined: 04 Feb 2005
Posts: 11

Kudos [?]: [0], given: 0

### Show Tags

28 Feb 2005, 11:02
(B)

(D) explains only one side of the paradox (if middle class is paying less taxes, then the richest will pay a higher percentage of overall taxes), but it doesn't say anything about the richest earning more revenue.

Kudos [?]: [0], given: 0

SVP
Joined: 03 Jan 2005
Posts: 2232

Kudos [?]: 376 [0], given: 0

### Show Tags

28 Feb 2005, 11:21

Kudos [?]: 376 [0], given: 0

Manager
Status: Its Wow or Never
Joined: 11 Dec 2009
Posts: 205

Kudos [?]: 288 [0], given: 7

Location: India
Concentration: Technology, Strategy
GMAT 1: 670 Q47 V35
GMAT 2: 710 Q48 V40
WE: Information Technology (Computer Software)

### Show Tags

29 Jan 2010, 12:42
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?

A.Between 1977 and 1989, the Internal Revenue Service increased the percentage of its staff members responsible for audits and tax collection.
B.Between 1977 and 1989, the before-tax income of the richest one percent of Americans increased by over 75 percent when adjusted for inflation.
C.Between 1977 and 1989, many of the richest one percent of Americans shifted their investments from untaxable to taxable assets.
D.Between 1977 and 1989, the top tax rate was reduced from 70 percent to 31 percent and several tax loopholes were eliminated.
E.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.
[Reveal] Spoiler:
B

_________________

---------------------------------------------------------------------------------------
If you think you can,you can
If you think you can't,you are right.

Last edited by mojorising800 on 29 Jan 2010, 13:53, edited 1 time in total.

Kudos [?]: 288 [0], given: 7

Senior Manager
Joined: 22 Dec 2009
Posts: 356

Kudos [?]: 414 [0], given: 47

Re: Kaplan CR [#permalink]

### Show Tags

29 Jan 2010, 13:00
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?

A.Between 1977 and 1989, the Internal Revenue Service increased the percentage of its staff members responsible for audits and tax collection.
B.Between 1977 and 1989, the before-tax income of the richest one percent of Americans increased by over 75 percent when adjusted for inflation.
C.Between 1977 and 1989, many of the richest one percent of Americans shifted their investments from untaxable to taxable assets.
D.Between 1977 and 1989, the top tax rate was reduced from 70 percent to 31 percent and several tax loopholes were eliminated.
E.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

Explanation:
The stems says - 1977 the tax for the richest people was 40% and in 1989 the tax for the richest people was 25%.
Even then the in 1977 the total tax paid by richest people was 12.7 % but in 1989 the total tax paid by the richest people was 16.2%

For easy analysis, lets say the total taxable asset of one rich guy in 1977 was 100 million dollars. Tax paid = 40 million dollars (40% 0f 100m)
Now in 1989, the same person shifted his non taxable assets to taxable asset, lets now becomes total asset as 200 million dollars. Hence the Tax paid in 1989 = 50 million dollars (25% of 200m).
Therefore even if the tax rate was reduced, the tax actually paid by the rich guy was more and this can be an increase in % of the total tax collected among rich people.
_________________

Cheers!
JT...........
If u like my post..... payback in Kudos!!

|Do not post questions with OA|Please underline your SC questions while posting|Try posting the explanation along with your answer choice|
|For CR refer Powerscore CR Bible|For SC refer Manhattan SC Guide|

~~Better Burn Out... Than Fade Away~~

Kudos [?]: 414 [0], given: 47

Senior Manager
Status: Can't give up
Joined: 20 Dec 2009
Posts: 307

Kudos [?]: 36 [0], given: 35

Re: Kaplan CR [#permalink]

### Show Tags

29 Jan 2010, 13:29
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?

A.Between 1977 and 1989, the Internal Revenue Service increased the percentage of its staff members responsible for audits and tax collection. - makes no sense. the q/stem does not talk anything about staff increases. here the impact is thru rich pple.
B.Between 1977 and 1989, the before-tax income of the richest one percent of Americans increased by over 75 percent when adjusted for inflation - ditto, nothing talks about inflation. and why will inflation cause more federal tax revenues.
C.Between 1977 and 1989, many of the richest one percent of Americans shifted their investments from untaxable to taxable assets. - do the math, initial amount when they were taxed. later because of moving from taxable to untaxable assets more taxes. also look for key words
D.Between 1977 and 1989, the top tax rate was reduced from 70 percent to 31 percent and several tax loopholes were eliminated - does not make sense.
E.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 - this increase will not lower federal tax to d ecrease and federal tax revenue to increase

Kudos [?]: 36 [0], given: 35

Intern
Joined: 10 Jan 2010
Posts: 10

Kudos [?]: 1 [0], given: 1

Schools: wharton, lbs, harvard
Re: Kaplan CR [#permalink]

### Show Tags

30 Jan 2010, 05:36
why not B?

the same logic applies to B.

if instead of 100million the income rose to 175million. would the logic not be applicable?

Kudos [?]: 1 [0], given: 1

Senior Manager
Status: Can't give up
Joined: 20 Dec 2009
Posts: 307

Kudos [?]: 36 [0], given: 35

Re: Kaplan CR [#permalink]

### Show Tags

30 Jan 2010, 08:35
yeah - "B" has a more straight explanation as to why one pays more taxes - due to inflation.

C = nothing talks about transferring assets from one to the other.

Kudos [?]: 36 [0], given: 35

Kaplan GMAT Instructor
Joined: 25 Aug 2009
Posts: 644

Kudos [?]: 300 [0], given: 2

Location: Cambridge, MA
Re: Kaplan CR [#permalink]

### Show Tags

30 Jan 2010, 22:23
On this explain question, we know two facts--tax rates of the top one percent plummeted, but the amount of taxes they paid relevant to the rest of us skyrocketed. This leads us to only one conclusion: the top one percent is earning more money to be taxed! (B) matches perfectly.

Note that the "adjusted for inflation" is a phrase that is almost guaranteed to show up at least once on the GMAT. It's a sure thing that the wealthy earned more dollars in 1989 than in 1977. Inflation during that period means that each dollar was individually worth less; the same value of pay or income would be measured in a larger number of dollars! However, that change in number affected all income brackets in that time period, so would have no effect on the proportion that the wealthy paid. By adjusting for inflation, we are told that the rich's amount of wealth--not merely their number of dollars--had increased.

(C) is a tempting trap because it seems to provide a possible explanation for the discrepancy. However, being told that "many" of the wealthy had tax-free "investments" doesn't give us much to go on. Without the proportion of the wealthy that make up "many," or a proportion of their income put into "investments," we have zero clue how much money is actually being newly taxed.
_________________

Eli Meyer
Kaplan Teacher
http://www.kaptest.com/GMAT

Prepare with Kaplan and save \$150 on a course!

Kaplan Reviews

Kudos [?]: 300 [0], given: 2

Intern
Joined: 08 Nov 2006
Posts: 3

Kudos [?]: 1 [0], given: 0

Re: Kaplan CR [#permalink]

### Show Tags

17 Feb 2010, 11:29
I think it should be C. The first tax was income tax while the second one was tax revenue. The richest one percent would definitely have increased their other taxable assets and since the income tax revenue reduced it obviously should mean that they have increased their other taxable assets like wealth,gift...

Kudos [?]: 1 [0], given: 0

Retired Moderator
Joined: 02 Sep 2010
Posts: 793

Kudos [?]: 1184 [0], given: 25

Location: London
Re: Kaplan CR [#permalink]

### Show Tags

07 Sep 2010, 05:11
KapTeacherEli wrote:
On this explain question, we know two facts--tax rates of the top one percent plummeted, but the amount of taxes they paid relevant to the rest of us skyrocketed. This leads us to only one conclusion: the top one percent is earning more money to be taxed! (B) matches perfectly.

Note that the "adjusted for inflation" is a phrase that is almost guaranteed to show up at least once on the GMAT. It's a sure thing that the wealthy earned more dollars in 1989 than in 1977. Inflation during that period means that each dollar was individually worth less; the same value of pay or income would be measured in a larger number of dollars! However, that change in number affected all income brackets in that time period, so would have no effect on the proportion that the wealthy paid. By adjusting for inflation, we are told that the rich's amount of wealth--not merely their number of dollars--had increased.

(C) is a tempting trap because it seems to provide a possible explanation for the discrepancy. However, being told that "many" of the wealthy had tax-free "investments" doesn't give us much to go on. Without the proportion of the wealthy that make up "many," or a proportion of their income put into "investments," we have zero clue how much money is actually being newly taxed.

I just got this question in one of the online CATs. I still cant quite get my head around how (b) is better than (c). The bit I dont understand is how (b) explains that the percentage of income the wealthy paid off as tax went down from 40% to 25%
_________________

Kudos [?]: 1184 [0], given: 25

Re: Kaplan CR   [#permalink] 07 Sep 2010, 05:11

Go to page   Previous    1   2   3   4   5    Next  [ 84 posts ]

Display posts from previous: Sort by

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

 new topic post reply Question banks Downloads My Bookmarks Reviews Important topics

 Powered by phpBB © phpBB Group | Emoji artwork provided by EmojiOne Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.