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

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Manager
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CR - Federal Tax 700 level [#permalink]

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17 Jul 2011, 19:58
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.

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Re: CR - Federal Tax 700 level [#permalink]

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17 Jul 2011, 20:01
B looks a clear winner. If the income increased significantly, a lower tax rate would still result in higher tax collections

Crick

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Re: CR - Federal Tax 700 level [#permalink]

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17 Jul 2011, 21:21
Between 1977 and 1989, the Internal Revenue Service increased the percentage of its staff members responsible for audits and tax collection.(Tells us nothing)
Between 1977 and 1989, the before-tax income of the richest one percent of Americans increased by over 75 percent when adjusted for inflation. (Tells us why the % went up when the number of people in the top 1% band of richest folks went down)
Between 1977 and 1989, many of the richest one percent of Americans shifted their investments from untaxable to taxable assets. ( Tells us % should be higher but a weak answer)
Between 1977 and 1989, the top tax rate was reduced from 70 percent to 31 percent and several tax loopholes were eliminated. (There was an increase then a decrease, not really telling us anything(
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. [color=#BF8000](This absolute values and doesnt tell us why % are higher) I chose B as well. [/color]

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Re: CR - Federal Tax 700 level [#permalink]

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17 Jul 2011, 21:37
Between 1977 and 1989, the Internal Revenue Service increased the percentage of its staff members responsible for audits and tax collection.This we cannot be sure had an impact - and even if we did it would be presumably on all Americans equally - not just the richest
Between 1977 and 1989, the before-tax income of the richest one percent of Americans increased by over 75 percent when adjusted for inflation.If the income increases by such a high percentage - even with fall in tax rates, absolute value of Tax from Richest Americans will be high. And thus it will form a higher perentage of total tax collected
Between 1977 and 1989, many of the richest one percent of Americans shifted their investments from untaxable to taxable assets.While this would mean more income would be taxable now - the answer is not as strong - use of many and not all and slightly generalised nature of the option
Between 1977 and 1989, the top tax rate was reduced from 70 percent to 31 percent and several tax loopholes were eliminated.that would be for all americans - why just the richest?
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.Absolute values which tell nothing about original value and new value and change in percentage terms

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Re: CR - Federal Tax 700 level [#permalink]

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19 Jul 2011, 13:03
post the OA before any of the blabber can make sense.

these percentage questions in CR stink sometimes.
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Re: CR - Federal Tax 700 level [#permalink]

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19 Jul 2011, 14:20
I agree, "B" looks like the clear winner.

I know this question is from one of the Kaplan books, but i dont know the OA.

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Re: CR - Federal Tax 700 level [#permalink]

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23 Jul 2011, 21:19
bschool83 wrote:
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.

IMO D : Between 1977 and 1989, the top tax rate was reduced from 70 percent to 31 percent and several tax loopholes were eliminated.

the top tax rate was reduced from 70 percent to 31 percent
: This indicates that the percentage of the income paid by the
rich reduced.

several tax loopholes were eliminated : Indicates that more and more rich were forced to pay taxes.

These two points explain the conclusion.

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

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26 Sep 2011, 20:09
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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.
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26 Sep 2011, 20:52
I reached B purely by POE. Can someone explain the real reasoning?

Thanks

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26 Sep 2011, 21:33
maheshsrini wrote:
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 %
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Re: Kap CR- Percentage of income paid to federal taxes [#permalink]

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19 Oct 2011, 23:04
B

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Re: Kap CR- Percentage of income paid to federal taxes [#permalink]

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22 Oct 2011, 00:48
Got D:(

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

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08 Nov 2011, 09:53
Tough one.

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

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08 Nov 2011, 17:51
+1 B

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

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14 Jan 2012, 23:15
B is the only one that directly points at increased income for richest 1% without comparing to movable or unmovable assets or the rest of the Americans!

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

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29 Jan 2012, 02:54
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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.
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Re: Federal taxes by the richest one percent of Americans [#permalink]

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29 Jan 2012, 13:09
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Hi, there. I'm happy to help with this.

CR questions with percents are particularly tricky, because you have to ascertain, in each instant, what is a percent of what?

So, here's the prompt again: "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."

So, the first percentage ---- "percent of income paid to Federal taxes" for the 1% --- that means, each one-percenter person went from paying 40% of his income in 1977 to 25% of his income in 1989 (that would have been Mr. Reagan's policies). That is only a percent --- if my income went, say, from \$1 million in 1977 to \$10 million in 1989, then I would have paid 40% of \$1 million = \$400,000 in taxes in 1977, and I would have paid 25% of \$10 million, or \$2.5 million in taxes in 1989. In other words, if the overall amount of income has increase, the dollar amount of taxes paid can increase even if it's a smaller percent of the income.

The second percent: "a larger proportion of all Federal tax revenues" --- so, here, if you look at the big pie, the total dollar amount that the IRS rakes in each year, then the share contributed by the 1% would have increased. In other words, the rich got richer, and the poor got poorer: an oft-repeated description of the 1980s.

The basic way to explain this discrepancy: the dollar amount of income of each 1% person had wildly increased. That's something you need to have sorted out before you look at the answer choices.

Now, the choices.
A. Between 1977 and 1989, the Internal Revenue Service increased the percentage of its staff members responsible for audits and tax collection.
Almost wholly irrelevant --- audits might account for a little more money here and there, but not for a massive increase in revenue.
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.
Bingo! Just what we suspected.
C. Between 1977 and 1989, many of the richest one percent of Americans shifted their investments from untaxable to taxable assets.
First of all, there's no historical evidence for that, but think about it. If the tax rate declines, maybe some 1% folks move a little more from tax shelters to something taxable, but it simply doesn't make sense that person would move so much that the overall dollar amount in taxes paid increases to more than what it was at the higher tax rate. It's unlikely one person would do that, and it's unimaginable that "many" of the 1% would do something so daft.
D. Between 1977 and 1989, the top tax rate was reduced from 70 percent to 31 percent and several tax loopholes were eliminated.
Lower taxes, doesn't explain more tax income from those folks. Eliminating loopholes -- may result in some more income, but a result in a substantially larger slice of the Federal pie? Unlikely.
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.
Here we have dollar amount increases. For the 1%, we have the percentage increase, so we could figure out the before & after dollar amounts. For the 99%, we have no info --- no way to figure out the dollar amounts before or after. To borrow DS language, this choice gives us "insufficient" information.

Again, it's very important to have a clear idea of what the discrepancy is and what would resolve it before you start analyzing answer choices.

Does that make sense? Please let me know if you have any questions on what I've said.

Mike
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Re: Federal taxes by the richest one percent of Americans [#permalink]

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14 Mar 2012, 06:09
Hi Mike,

You are right with what ou said in the end about understanding the discrepancy and look at ans choices. I read the stimulus, but couldn't really figure out the discrepancy. I moved on with options, i figured out with B or C as correct option, but i marked C. Quite often I end up selecting the wrong ans choice among 2 options, what do you suggest. I dont want to work on a CR qustn for more than 2 min.

Thanks,

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Re: Federal taxes by the richest one percent of Americans [#permalink]

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14 Mar 2012, 11:56
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priyalr wrote:
Hi Mike,
You are right with what ou said in the end about understanding the discrepancy and look at ans choices. I read the stimulus, but couldn't really figure out the discrepancy. I moved on with options, i figured out with B or C as correct option, but i marked C. Quite often I end up selecting the wrong ans choice among 2 options, what do you suggest. I dont want to work on a CR qustn for more than 2 min.
Thanks,

Thank you for your kind words. Here's a free video lesson about CR questions that you may find helpful.

http://gmat.magoosh.com/lessons/579-dis ... n-argument

At Magoosh, we have a series of video lessons to guide your approach to CR questions on the GMAT.

I hope that's helpful. Let me know if you have any further questions.

Mike
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Re: Federal taxes by the richest one percent of Americans [#permalink]

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15 Mar 2012, 00:09
Hey Mike,

Thats a brilliant prephrasing above you did.

I was lost and landed on C.

Basically i could not decipher the correct meaning thrown upon by the argument. Could you please suggest what shall i do, Mostly the 700-800 range problems bounce on me because I could hardly figure out what's going on.
Could you recommend any advise on this. It will be of great help.

thanx
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Re: Federal taxes by the richest one percent of Americans   [#permalink] 15 Mar 2012, 00:09

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