Between 1977 and 1989, the percentage of income paid to : GMAT Critical Reasoning (CR)
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# Between 1977 and 1989, the percentage of income paid to

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

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21 Aug 2003, 00:31
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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 IRS 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 taxable to untaxable.

(D) Between 1977 and 1989, 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 one percent of American increased by $45 billion, while the amount paid by all Americans rose by$50 billion.
[Reveal] Spoiler: OA
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Re: Kaplan CR Question Doubt [#permalink]

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21 Aug 2003, 01:11
tina 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 ?

(A) Between 1977 and 1989, the IRS 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 taxable to untaxable.

(D) Between 1977 and 1989, 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 one percent of American increased by $45 billion, while the amount paid by all Americans rose by$50 billion.

I would like to know why it is not C ?

Thank You.

You are trying to explain how the proportion of taxes paid by the top 1% earners actually went up despite a rate decrease.

B correctly explains that the top 1% earners could have been earning a lot more, hence every though their tax rate was lower, their overall tax was higher.

C, OTOH, describes why the top 1% should be paying EVEN LESS (by moving money into taxfree earnings, their tax burden is reduce even further) hence it does nothing to explain why the proportion of taxes paid increased.
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21 Aug 2003, 01:50
AkamaiBrah

Could you explain what "OTOH" means, pls
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21 Aug 2003, 05:47
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My guess is: On The Other Hand
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21 Aug 2003, 06:23
Thanks!
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21 Aug 2003, 20:01
bono wrote:
Thanks!
\

I use these a lot:

OTOH: on the other hand
IMO: in my opinion
IMHO: in my humble opinion
GIGO: garbage in, garbage out
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Re: Kaplan CR Question Doubt [#permalink]

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27 Oct 2003, 20:52
B is not correct. What if the income of the rest 99% increase 10000000%.
I like E.
For reasoning:
The formular is Rate77*Income77; Rate89*income89.
proportion: Rate77*Income77/total tax77 = P77
rate89*income89/total tax89 = p89

Arguement: Rate77>rate89 BUT p77<p89 --> WHY?
1. Income89 much larger than income77 AND there is not much change in total tax or the rest 99% DOESN'Tcontribute much more!
2. Income89*rate89 < income77*rate77 AND total tax (or the tax of the rest 99%) reduces even much much more.
So the answer here much has something to do with BOTH sides (the richest and the rest 99%)
That is why B cannot be correct
The only one sound correct is E. richest increase tax 45 m while the rest increase only 5 (50-45)

tina 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 ?

(A) Between 1977 and 1989, the IRS 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 taxable to untaxable.

(D) Between 1977 and 1989, 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 one percent of American increased by $45 billion, while the amount paid by all Americans rose by$50 billion.

I would like to know why it is not C ?

Thank You.

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28 Oct 2003, 02:50
You are correct that you can solve for numbers in E that will be consistent. However, this does not do much to explain the discrepancy of why a smaller tax rate for the rich contributes more to the overall tax burden.

Choice B states that the "rich people" pie is much bigger. Hence, it shows that by taking a smaller piece out of a much larger pie, the overall tax burden borne by the rich can still increase as a percentage of all tax payers. Hence, B does a better job of explaining the discrepancy and is IMO the better answer.
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CR - the richest one percent of Americans [#permalink]

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09 Feb 2005, 22:33
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 IRS 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 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 one percent of American increased by $45 billion, while the amount paid by all Americans rose by$50 billion.
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09 Feb 2005, 22:43
Definitely B. The rich has become richer.
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09 Feb 2005, 22:45
lower income => higher tax
Higher income => lower tax.

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10 Feb 2005, 17:40
Betweeb (B) and (C).. I will go for (B).

All other choices are out of scope.
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10 Feb 2005, 18:49
Please explain why (C) is wrong.
OA is (B)
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10 Feb 2005, 19:32
I think (C) brings in an assumption that rich ppl had untaxable asset.
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10 Feb 2005, 20:28
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.
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10 Feb 2005, 22:34
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) SVP Joined: 03 Jan 2005 Posts: 2243 Followers: 16 Kudos [?]: 328 [0], given: 0 ### Show Tags 10 Feb 2005, 23:01 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. Director Joined: 29 Oct 2004 Posts: 863 Followers: 4 Kudos [?]: 205 [0], given: 0 ### Show Tags 10 Feb 2005, 23:11 income vs assets Alright! Got it now. Thanks. Manager Joined: 01 Jan 2005 Posts: 167 Location: NJ Followers: 1 Kudos [?]: 4 [0], given: 0 ### Show Tags 11 Feb 2005, 05:51 I know I am late. Yet another B. I think this is a PR question...isn't it? Director Joined: 01 Feb 2003 Posts: 851 Location: Hyderabad Followers: 4 Kudos [?]: 102 [0], given: 0 CR - Tax - Kaplan online test [#permalink] ### Show Tags 27 Feb 2005, 01:34 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
CR - Tax - Kaplan online test   [#permalink] 27 Feb 2005, 01:34

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