Companies are inclined to move in search of more favourable tax t

Question

Companies are inclined to move in search of more favorable tax treatment, hence the success of Ireland in attracting business with its 12.5% corporate-tax rate, and the row about “inversions” where American companies move overseas to lower-tax jurisdictions. In response, countries have steadily lowered corporate-tax rates; since 1990 the average rate in advanced economies has fallen by more than 13 percentage points. Therefore, countries seeking to balance tax revenues have no option but to hike tax rates for individuals.

Which of the following if true would seriously weaken the conclusion given in the argument?

A. Many rich individuals can choose to shift the way they report their income to take advantage of lower corporate-tax rates.

B. Individuals are less likely to migrate to countries having lower tax structures.

C. Tax revenues from rich individuals (top 5%) accounts for 64% of income tax collected.

D. Taxes on wealth and Inheritance are cumbersome and rarely raise significant income.

E. USA should work towards securing an international agreement preventing tax evasion and money laundering.

SharadIIFT · Answer

OPtion (A) , even if the government chooses to fill the gap by raising rax rates of individual, it will not help as Individuals can change the way income is reported and can use the lower corporate tax. So raising individual tax won't help government fill the gap.

sayan640 · Answer

Is this question legit ?  MartyMurray   KarishmaB

Shafkat26 · Answer

Why not D? Can anyone explain? Wealth and Inheritance tax does fall under tax on individuals. If they are cumbersome and rarely significantly raise tax revenue, then surely it won't be a good alternative

MyNameisFritz · Answer

I also chose D. The conclusion states that "Therefore, countries seeking to balance tax revenues have no option but to hike tax rates for individuals." But D says that it rarely raises significant income. Could anybody explain why we eliminate D?

tgmat24 · Answer

gmatwhiz 
 egmat 
 GMATNinja 
please provide explanation

my doubt for option A is that we don't know how much tax do rich people pay and how them choosing lower corporate tax rates will hamper the balance, so we can't say about the impact

option D: I had doubt on tax on wealth and inheritance(we don't know if its tax for individuals or not), but the option does say that "rarely" raise significant amt which hence will not help in balancing the gap.

egmat · Answer

tgmat24  - I am not sure that this is a high-quality question. I am not sure how option A would make sense. Similarly, Option D does not seem relevant to me. Here is how I would think about weakening this argument:

Conclusion :
Countries seeking to balance tax revenues have no option but to hike tax rates for individuals.

Framework for thinking about weakeners:
 A weakener is a statement that, if true, undermines the conclusion or makes it less likely to be true. In this case, we're looking for statements that suggest there are other viable options for balancing tax revenues besides raising individual tax rates. Good weakeners might:

1. Provide alternative ways to increase revenue
2. Show that current strategies are more effective than assumed

Translation:

A) Several countries have successfully implemented digital service taxes and financial transaction taxes, which have generated substantial revenue without the need to increase individual income tax rates.

B)Despite lower corporate tax rates, the total amount collected from corporations can be increased if countries invest in enhancing their collection systems.

I hope the above help!

-Rajat

Shafkat26 · Answer

Tax on wealth and inheritance are not the only way to tax individuals. Okay, wealth and inheritance may not significantly increase tax revenue, but what about income tax?

Now coming to option A, suppose the corporate tax is 12.5%, and the income tax is 13%. IF the income tax is raised to, say 20%, rich individuals will shift to reporting to paying corporate tax. Hence, the tax revenue will fall to be collected at 12.5%, rather than the previous 13%.

Vishnu0001 · Answer

Poor option set.

Option A: "many rich individuals" - how many? What percent of the country's population? - In this case, Option D is also a "kind of okay" weakener.
 "take advantage of lower corporate-tax rates"? Corporate tax rates are for companies, not for individuals. And here it has been reduced.

SreenivasGiri · Answer

i feel comparing the income of corporates with wealth or inheritance will not be apple to apple comparison. The idea is government earning by taxing peoples income not their inheritance or wealth.

gullyboy09 · Answer

Can anyone help me with this question? I think there is some flaw in this question but would love to be corrected. Conclusion here is that - There is only one way to balance tax revenues and that is by hiking tax rates for individuals. Now it is not saying that if we hike tax rates for individuals, tax revenue will be balanced, it is still possible that it might not work, but that's the only option. For example, I want to run a half marathon this year, only way to achieve that is to hit gym everyday. But here it doesn't guarantee that I will be able to run half marathon if I hit gym everyday, but that's the only way which gives me a chance.

Now if I look at option A, yes many individuals can do that and because of that we might not get revenue in balance, but it doesn't weaken the fact that hiking tax is the only way which can make it happen.

Now on option D, it's not very clear that because it is cumbersome, raised revenue is very low? It might be possible even if things would have been straightforward, we would have been getting nothing much.

Companies are inclined to move in search of more favorable tax treatment, hence the success of Ireland in attracting business with its 12.5% corporate-tax rate, and the row about “inversions” where American companies move overseas to lower-tax jurisdictions. In response, countries have steadily lowered corporate-tax rates; since 1990 the average rate in advanced economies has fallen by more than 13 percentage points. Therefore, countries seeking to balance tax revenues have no option but to hike tax rates for individuals.

Which of the following if true would seriously weaken the conclusion given in the argument?

A. Many rich individuals can choose to shift the way they report their income to take advantage of lower corporate-tax rates.

B. Individuals are less likely to migrate to countries having lower tax structures.

C. Tax revenues from rich individuals (top 5%) accounts for 64% of income tax collected.

D. Taxes on wealth and Inheritance are cumbersome and rarely raise significant income.

E. USA should work towards securing an international agreement preventing tax evasion and money laundering.

guddo · Answer

Companies are inclined to move in search of more favorable tax treatment, hence the success of Ireland in attracting business with its 12.5% corporate-tax rate, and the row about “inversions” where American companies move overseas to lower-tax jurisdictions. In response, countries have steadily lowered corporate-tax rates; since 1990 the average rate in advanced economies has fallen by more than 13 percentage points. Therefore, countries seeking to balance tax revenues have no option but to hike tax rates for individuals. 
 
Which of the following if true would seriously weaken the conclusion given in the argument?

The argument says countries cannot rely on higher corporate-tax rates because companies can move to lower-tax countries. So it concludes that countries must raise individual tax rates instead.  To weaken this , we need to show that raising individual tax rates is not a real solution, or that there is another way to balance tax revenues.

A. Many rich individuals can choose to shift the way they report their income to take advantage of lower corporate-tax rates.

Correct. If rich individuals can report income in ways that benefit from lower corporate-tax rates, then raising individual tax rates may not raise the expected revenue. This weakens the claim that countries have no option but to hike individual tax rates.

B. Individuals are less likely to migrate to countries having lower tax structures.

This strengthens the argument. If individuals are less mobile than companies, then taxing individuals becomes a more practical option.

C. Tax revenues from rich individuals (top 5%) accounts for 64% of income tax collected.

This also tends to support the argument. It suggests that individual income taxes can be a major source of revenue.

D. Taxes on wealth and Inheritance are cumbersome and rarely raise significant income.

This strengthens the argument by removing another possible revenue source.

E. USA should work towards securing an international agreement preventing tax evasion and money laundering.

This is too narrow and not directly relevant. The argument is about countries generally and corporate tax competition, not specifically US tax evasion or money laundering.

Answer: (A)

Companies are inclined to move in search of more favourable tax t

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Companies are inclined to move in search of more favourable tax t

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