It is currently 17 Oct 2017, 19:29

Close

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
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.

Close

Request Expert Reply

Confirm Cancel

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

3 KUDOS received
Intern
Intern
avatar
Joined: 04 Jul 2003
Posts: 7

Kudos [?]: 12 [3], given: 0

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

Show Tags

New post 21 Aug 2003, 01:31
3
This post received
KUDOS
11
This post was
BOOKMARKED
00:00
A
B
C
D
E

Difficulty:

  75% (hard)

Question Stats:

50% (01:36) correct 50% (01:57) wrong based on 593 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 ?

(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

Kudos [?]: 12 [3], given: 0

Expert Post
10 KUDOS received
Magoosh GMAT Instructor
User avatar
G
Joined: 28 Dec 2011
Posts: 4420

Kudos [?]: 8424 [10], given: 102

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

Show Tags

New post 29 Jan 2012, 13:09
10
This post received
KUDOS
Expert's post
4
This post was
BOOKMARKED
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.

Answer: B

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 :)
_________________

Mike McGarry
Magoosh Test Prep

Image

Image

Kudos [?]: 8424 [10], given: 102

4 KUDOS received
Manager
Manager
avatar
Joined: 10 Jan 2010
Posts: 120

Kudos [?]: 146 [4], given: 33

GPA: 4
WE: Programming (Computer Software)
Between 1977 and 1989, the percentage of income paid to [#permalink]

Show Tags

New post 26 Sep 2011, 20:09
4
This post received
KUDOS
3
This post was
BOOKMARKED
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.
_________________

-If you like my post, consider giving KUDOS

Kudos [?]: 146 [4], given: 33

3 KUDOS received
Senior Manager
Senior Manager
User avatar
Joined: 22 May 2003
Posts: 328

Kudos [?]: 173 [3], given: 0

Location: Uruguay
 [#permalink]

Show Tags

New post 21 Aug 2003, 06:47
3
This post received
KUDOS
My guess is: On The Other Hand :wink:

Kudos [?]: 173 [3], given: 0

3 KUDOS received
Senior Manager
Senior Manager
User avatar
Status: May The Force Be With Me (D-DAY 15 May 2012)
Joined: 06 Jan 2012
Posts: 273

Kudos [?]: 320 [3], given: 16

Location: India
Concentration: General Management, Entrepreneurship
Reviews Badge
Between 1977 and 1989, the percentage of income paid to [#permalink]

Show Tags

New post 29 Jan 2012, 02:54
3
This post received
KUDOS
13
This post was
BOOKMARKED
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.
_________________

Giving +1 kudos is a better way of saying 'Thank You'.

Kudos [?]: 320 [3], given: 16

Expert Post
1 KUDOS received
Magoosh GMAT Instructor
User avatar
G
Joined: 28 Dec 2011
Posts: 4420

Kudos [?]: 8424 [1], given: 102

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

Show Tags

New post 15 Mar 2012, 13:53
1
This post received
KUDOS
Expert's post
1
This post was
BOOKMARKED
kraizada84 wrote:
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


Dear kraizada84

Thank you for your kind words. Mastering the high levels of CR is indeed a difficult task. I would recommend checking out Magoosh. We have 200+ GMAT lesson videos, including a whole series on mastering the CR. Here's a sample:

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

We have 800+ practice questions, each with its own video explanation. Here's a sample:

http://gmat.magoosh.com/questions/1309

After you submit your answer to that question, the following page will have the video explanation. I believe the strategies we teach might be just what you need to crack the ceiling you are current hitting on CR. You may also find this blog article helpful.

http://magoosh.com/gmat/2012/arguments- ... -the-gmat/

Let me know if you have any questions.

Mike :)
_________________

Mike McGarry
Magoosh Test Prep

Image

Image

Kudos [?]: 8424 [1], given: 102

Expert Post
1 KUDOS received
Magoosh GMAT Instructor
User avatar
G
Joined: 28 Dec 2011
Posts: 4420

Kudos [?]: 8424 [1], given: 102

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

Show Tags

New post 22 Oct 2012, 12:38
1
This post received
KUDOS
Expert's post
Jp27 wrote:
Hi Mike - I'm a bit lost with option C

1977: 40% of $100
1989: 25% of ($100 + $1 Billion) (the 1B $ is the shifted $ amt from untaxable to taxable.

then we can account for the 12.7 percent in 1977 to 16.2 percent in 1989 increase right, even though the tax rate was low?

Could you please correct my reasoning?

Dear Jp27,

Think about it this way. We are being asked for an "explanation of the discrepancy." An explanation is something that makes something clear --- explanations resolve uncertainty & ambiguity --- that's the job of an explanation.

Choice (C) contains that beautifully vague word "many" --- how many? a majority? almost all? or just a substantial minority? And then we have the question of --- what was the dollar amount of the investments that were shifted "from untaxable to taxable assets", and how does that compare in dollar amount to the assets that were already being taxed? Much more? much less? about equal? More uncertainty.

We have been asked to explain something. A statement awash in uncertainty does not make a cogent explanation.

Does all this make sense?

Mike :-)
_________________

Mike McGarry
Magoosh Test Prep

Image

Image

Kudos [?]: 8424 [1], given: 102

Expert Post
1 KUDOS received
Magoosh GMAT Instructor
User avatar
G
Joined: 28 Dec 2011
Posts: 4420

Kudos [?]: 8424 [1], given: 102

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

Show Tags

New post 22 Oct 2012, 12:44
1
This post received
KUDOS
Expert's post
thebigr002 wrote:
phew!! tricky question this!! federal taxes, federal revenues, percentage increase, percentage decrease!! too many confusing words..

Dear thebigr002

My friend, if you are studying for the GMAT and headed for business school, you need to get used to arguments just like this. This argument is very typically, in scope and language, of what the GMAT will test. Furthermore, this is precisely the sort of information that managers need to process to make business decisions. If you are aiming for the MBA, hoping to pursue a career in business, you have to acclimate yourself to all these ideas until reading a passage like this is totally natural. I would strongly suggest reading the Economist magazine to build familiarity with fundamental economic ideas.

I'll also recommend this series of blogs on real-life issues to understand for the GMAT.
http://magoosh.com/gmat/2012/gmat-supply-and-demand/

Let me know if you have any further questions.

Mike :-)
_________________

Mike McGarry
Magoosh Test Prep

Image

Image

Kudos [?]: 8424 [1], given: 102

1 KUDOS received
Verbal Forum Moderator
Verbal Forum Moderator
User avatar
Status: Getting strong now, I'm so strong now!!!
Affiliations: National Institute of Technology, Durgapur
Joined: 04 Jun 2013
Posts: 565

Kudos [?]: 694 [1], given: 80

Location: India
GPA: 3.32
WE: Information Technology (Computer Software)
GMAT ToolKit User Premium Member Reviews Badge
Re: Between 1977 and 1989, the percentage of income paid to [#permalink]

Show Tags

New post 21 Nov 2013, 12:01
1
This post received
KUDOS
New Gmat club project
Click here


_________________

Regards,

S

Consider +1 KUDOS if you find this post useful


Last edited by dentobizz on 22 Nov 2013, 11:28, edited 1 time in total.
updated theory articles

Kudos [?]: 694 [1], given: 80

GMAT Instructor
User avatar
Joined: 07 Jul 2003
Posts: 769

Kudos [?]: 234 [0], given: 0

Location: New York NY 10024
Schools: Haas, MFE; Anderson, MBA; USC, MSEE
Re: Kaplan CR Question Doubt [#permalink]

Show Tags

New post 21 Aug 2003, 02:11
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.

The answer is B.

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.
_________________

Best,

AkamaiBrah
Former Senior Instructor, Manhattan GMAT and VeritasPrep
Vice President, Midtown NYC Investment Bank, Structured Finance IT
MFE, Haas School of Business, UC Berkeley, Class of 2005
MBA, Anderson School of Management, UCLA, Class of 1993

Kudos [?]: 234 [0], given: 0

Manager
Manager
User avatar
Joined: 28 Feb 2003
Posts: 146

Kudos [?]: 9 [0], given: 0

Location: Kiev
 [#permalink]

Show Tags

New post 21 Aug 2003, 02:50
AkamaiBrah

Could you explain what "OTOH" means, pls
_________________

Too much is not enough...

Kudos [?]: 9 [0], given: 0

Manager
Manager
User avatar
Joined: 28 Feb 2003
Posts: 146

Kudos [?]: 9 [0], given: 0

Location: Kiev
 [#permalink]

Show Tags

New post 21 Aug 2003, 07:23
Thanks! :-D
_________________

Too much is not enough...

Kudos [?]: 9 [0], given: 0

GMAT Instructor
User avatar
Joined: 07 Jul 2003
Posts: 769

Kudos [?]: 234 [0], given: 0

Location: New York NY 10024
Schools: Haas, MFE; Anderson, MBA; USC, MSEE
 [#permalink]

Show Tags

New post 21 Aug 2003, 21:01
bono wrote:
Thanks! :-D
\


I use these a lot:

OTOH: on the other hand
IMO: in my opinion
IMHO: in my humble opinion
YMMV: your mileage may vary
GIGO: garbage in, garbage out
RTFM: read the * manual
_________________

Best,

AkamaiBrah
Former Senior Instructor, Manhattan GMAT and VeritasPrep
Vice President, Midtown NYC Investment Bank, Structured Finance IT
MFE, Haas School of Business, UC Berkeley, Class of 2005
MBA, Anderson School of Management, UCLA, Class of 1993

Kudos [?]: 234 [0], given: 0

Manager
Manager
avatar
Joined: 19 Oct 2003
Posts: 72

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

Location: USA
Re: Kaplan CR Question Doubt [#permalink]

Show Tags

New post 27 Oct 2003, 21:52
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?
Answer:
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.

The answer is B.

I would like to know why it is not C ?

Thank You.

_________________

I have 2 month for gmat.

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

GMAT Instructor
User avatar
Joined: 07 Jul 2003
Posts: 769

Kudos [?]: 234 [0], given: 0

Location: New York NY 10024
Schools: Haas, MFE; Anderson, MBA; USC, MSEE
 [#permalink]

Show Tags

New post 28 Oct 2003, 03:50
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.
_________________

Best,

AkamaiBrah
Former Senior Instructor, Manhattan GMAT and VeritasPrep
Vice President, Midtown NYC Investment Bank, Structured Finance IT
MFE, Haas School of Business, UC Berkeley, Class of 2005
MBA, Anderson School of Management, UCLA, Class of 1993

Kudos [?]: 234 [0], given: 0

Director
Director
avatar
Joined: 29 Oct 2004
Posts: 847

Kudos [?]: 251 [0], given: 0

CR - the richest one percent of Americans [#permalink]

Show Tags

New post 09 Feb 2005, 23:33
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.

Kudos [?]: 251 [0], given: 0

SVP
SVP
User avatar
Joined: 03 Jan 2005
Posts: 2231

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

 [#permalink]

Show Tags

New post 09 Feb 2005, 23:43
Definitely B. The rich has become richer.

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

VP
VP
User avatar
Joined: 25 Nov 2004
Posts: 1482

Kudos [?]: 126 [0], given: 0

 [#permalink]

Show Tags

New post 09 Feb 2005, 23:45
lower income => higher tax
Higher income => lower tax.

B points this contradiction.

Kudos [?]: 126 [0], given: 0

Director
Director
avatar
Joined: 05 Jul 2004
Posts: 893

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

 [#permalink]

Show Tags

New post 10 Feb 2005, 18:40
Betweeb (B) and (C).. I will go for (B).

All other choices are out of scope.

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

Director
Director
avatar
Joined: 29 Oct 2004
Posts: 847

Kudos [?]: 251 [0], given: 0

 [#permalink]

Show Tags

New post 10 Feb 2005, 19:49
Please explain why (C) is wrong.
OA is (B)

Kudos [?]: 251 [0], given: 0

  [#permalink] 10 Feb 2005, 19:49

Go to page    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  


GMAT Club MBA Forum Home| About| Terms and Conditions| GMAT Club Rules| Contact| Sitemap

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®.