In 1994, Estonia became the first country to introduce a flat tax on

Question

Passage A

In 1994, Estonia became the first country to
introduce a “flat tax” on personal and corporate income.
Income is taxed at a single uniform rate of 26 percent
no schedule of rates, no deductions. So far eight
  (5)   countries have followed Estonia’s example. An old
idea that for decades elicited the response, “Fine in
theory, just not practical in the real world,” seems to be
working as well in practice as it does on the blackboard.

Practical types who said that flat taxes cannot
  (10)   work offer a further instant objection, once they are
shown such taxes working, namely, that they are unfair.
Enlightened countries, it is argued, have “progressive”
tax systems, requiring high-income earners to forfeit a
bigger share of their incomes in tax than low-income
  (15)   earners have to pay. A flat tax seems to rule this
out in principle.

Not so. A flat tax on personal incomes combines
a threshold (that is, an exempt amount) with a single
rate of tax on all income above it. The extent to which
  (20)   such a system is progressive can be varied within
wide limits using just these two variables. Under the
systems operating in most developed countries, the
incentives for high-income earners to avoid tax (legally or
otherwise) are enormous; and the opportunities to do
  (25)   so, which arise from the very complexity of the
codes, are commensurately large. So it is unsurprising
that high-income earners usually pay about as much
tax under new flat-tax regimes as they would have
paid under the previous codes.

Passage B

(30)   A lot of people don’t understand graduated,
as opposed to “flat,” taxes. They think that if you
make more money you pay a higher rate on your
entire earnings, which seems unfair. Actually,
graduated progressive taxes treat all taxpayers equally.
  (35)   Every taxpayer pays the same rate on equivalent
layers of income. People in higher brackets don’t pay the
higher rate on their entire income, only on the portion
of income over a specified amount. People, not dollars,
are treated equally.

(40)   All people are created equal, but not all dollars
are created equal. Earnings of the working poor go
almost entirely for survival expenses such as food,
shelter, and clothing. At that level, every dollar is
critical; even a small difference causes tremendous
  (45)   changes in quality of life. Middle-income earners are
still very conscious of expenses, but have much greater
flexibility in absorbing small fluctuations in income.
Even some of the flat tax proposals recognize
this, and want to exempt a primary layer from the tax
  (50)   system. So, since they recognize that survival dollars
are different from discretionary dollars, why go
suddenly from one extreme (paying no taxes) to the
other (paying the top rate)? Since flat tax proposals
are supposed to bring in the same total amount of tax
  (55)   revenue, if the working poor are going to pay less and
the high-income earners are going to pay less, it is
naturally going to fall on the middle class to make up
the difference.    1 
 1. Both passages are concerned with answering which one of the following questions?

(A) Can a flat tax be implemented?
(B) Do graduated progressive taxes treat all taxpayers equally?
(C) Can a flat tax be fair to all taxpayers?
(D) What are some objections to progressive taxes?
(E) Do flat tax regimes reduce illegal tax avoidance?

2 
 2. Both passages seek to advance their arguments by means of which one of the following?

(A) accusing opponents of shifting their ground
(B) citing specific historical developments as evidence
(C) arguing on the basis of an analogy
(D) employing rhetorical questions
(E) correcting alleged misunderstandings

3 
 3. Which one of the following, if true of countries that have gone from a graduated progressive tax system to a flat tax, would most support the position of passage B over that of passage A?

(A) Revenues from taxation have remained the same as before.
(B) The tax codes in these countries have been greatly simplified.
(C) Most high-income taxpayers believe that they remain overtaxed.
(D) Middle-income taxpayers tend to pay higher taxes than before.
(E) Some legislators favor a return to a graduated progressive system.

4 
 4. Which one of the following is a conclusion for which passage A argues but that passage B does not address?

(A) that exempting a threshold amount enables a flat tax to avoid unfairness
(B) that flat tax proposals are not practical in the real world
(C) that higher taxes on high-income earners inhibit investment and economic growth
(D) that a flat tax decreases opportunities and incentives for high-income earners to avoid tax
(E) that a progressive tax is unfair to taxpayers who end up paying more

5 
 5. The authors of the two passages would be most likely to disagree over whether

(A) a flat tax system can be progressive
(B) high-income earners would pay less under a flat tax system than under a graduated progressive system
(C) flat tax systems are fine in theory but cannot be put into practice
(D) graduated progressive systems make higherincome taxpayers pay a higher rate on their entire earnings
(E) all of an individual’s income should be subject to taxation

6 
 6. Which one of the following, if true, would be the most reasonable response for the author of passage B to make to the final argument of passage A?

(A) Even under a flat-tax regime, it will be possible for some with high incomes to avoid taxes by underreporting their incomes.
(B) Existing tax codes allow tax avoidance by those with high incomes mainly because they contain loopholes and special deductions, not because they are graduated.
(C) It is unfair to those with high incomes to single them out as tax avoiders, since people at all income levels have been known to try to avoid taxes, sometimes illegally.
(D) Most taxpayers prefer a system that affords them opportunities for avoiding taxes over one that does not afford such opportunities.
(E) The goal of reducing tax avoidance would be advanced by eliminating income taxes altogether in favor of taxes on consumption of goods and services.

MartyTargetTestPrep · Answer

Question 6 asks the following:

Which one of the following, if true, would be the most reasonable response for the author of passage B to make to the final argument of passage A?

So, we need to find "the final argument of passage A."

Going to the later area of passage A, we see that "the final argument" appears to be the following:

Under the
systems operating in most developed countries, the
incentives for high-income earners to avoid tax (legally or
otherwise) are enormous; and the opportunities to do
(25) so, which arise from the very complexity of the
codes, are commensurately large. So it is unsurprising
that high-income earners usually pay about as much
tax under new flat-tax regimes as they would have
paid under the previous codes.

So, we need to find a response that counters that argument and fits the agenda of the author of passage B, which is to argue in favor of graduated tax regimes.

Let's now go to the answer choices.

(A) Even under a flat-tax regime, it will be possible for some with high incomes to avoid taxes by underreporting their incomes.

This could be an argument against switching to a flax tax regime in general, but it's not a respond that counters the final argument in (A) since that final argument is based on the fact that high earners wouldn't end up paying any less under flat tax regimes because they have ways of avoiding taxes under graduated regimes, and this choice doesn't counter that argument.

(B) Existing tax codes allow tax avoidance by those with high incomes mainly because they contain loopholes and special deductions, not because they are graduated.

This choice is an effective response to the final argument because it points out that it's not the fact that tax regimes are graduated that allows the tax avoidance that the final argument mentions. It's all the loopholes and deductions that do. In other words, this choice points out that the final argument in passage (A) doesn't really effectively show that gradated tax regimes can't result in those with high incomes paying more than they would a under flat tax regime. Rather it shows that certain forms of graduates tax regimes that currently exist and involve loopholes and deductions don't result in those with high incomes paying more than they would under flat tax regime.

(C) It is unfair to those with high incomes to single them out as tax avoiders, since people at all income levels have been known to try to avoid taxes, sometimes illegally.

This choice misses the point of the final argument in passage A. The point of the final argument is not to judge or single out the tax avoidance of those with high incomes.

(D) Most taxpayers prefer a system that affords them opportunities for avoiding taxes over one that does not afford such opportunities.

This choice misses the point of the author of passage (B). The author of passage (B) is not arguing in favor of systems that afford taxpayers opportunities for avoiding taxes. In fact, the author of passage (B) would likely prefer a system that does not afford high income taxpayers opportunities for avoiding taxes.

(E) The goal of reducing tax avoidance would be advanced by eliminating income taxes altogether in favor of taxes on consumption of goods and services.

This choice is completely off topic. The author of passage (B) is arguing in favor of using a graduated tax system not about ways of reducing tax avoidance.

So, the correct answer is (B).

Sajjad1994 · Answer

Explanation

5. The authors of the two passages would be most likely to disagree over whether

Explanation

Treat this question like a Point-at-Issue question in an Arguments section. Look for an answer that is supported by the a statement in one passage but contradicted by a statement in the other. Eliminate answers that are supported by both passages or not supported by either passage.

A. No.  This answer is supported by both passages. Both passage A and passage B state that a flat tax can be modified to exempt a threshold amount, which would technically make the flat tax system progressive.

B.  Yes.   The authors of the two passages would likely disagree over this statement. The last sentence of passage A argues that high-income earners usually pay about the same amount under a flat tax as under a progressive tax system. On the other hand, the last sentence of passage B argues that high-income earners would pay less under a flat tax than under a progressive tax system.

C. No.  The authors of both passages would disagree with this statement. The last sentence of the first paragraph of passage A contradicts this statement by saying that a flat tax seems to work as well in practice as it does in theory. Passage B argues that the flat tax is unfair, and therefore the author of passage B would disagree with the idea that the flat tax is fine in theory.

D. No.  The authors of both passages would agree with this statement. The second paragraph of passage A supports this statement, as does the first paragraph of passage B.

E. No.  Neither passage supports this statement. The third paragraph of passage A argues that a certain portion of every individual’s income should be exempt from taxation, as does the third paragraph of passage B.

Answer: B

Sajjad1994 · Answer

Explanation

4. Which one of the following is a conclusion for which passage A argues but that passage B does not address?

Difficulty Level:   700

Explanation

The question asks which answer is a conclusion for which passage A argues but that is not addressed by  passage B . Look for an answer that is supported by the argument in passage A but that is not addressed in  passage B . Eliminate answers that reverse the relationship or that are addressed in both passages.

A. No.  This answer is addressed by both passages. The last paragraph of passage B addresses whether exempting a threshold amount enables a flat tax to avoid unfairness, so this answer does not match the requirement that the answer is not addressed by passage B.

B. No.  Passage A argues against this conclusion. The main idea of the first paragraph of passage A is that the flat tax is actually practical in the real world, so this answer does not match the requirement that the answer is a conclusion argued for by passage A.

C. No.  This answer is an outside knowledge trap. Neither passage addresses how taxes may inhibit investment or economic growth.

D.  Yes.   This answer is a conclusion argued for by passage A, and it is not addressed in passage B. The third paragraph of passage A argues for the idea that a flat tax would eliminate opportunities for high-income earners to avoid tax, but passage B does not address this issue.

E. No.  This answer is not supported by either passage. Passage A argues that the flat tax is not unfair, but passage A does not argue that a progressive tax system is unfair.  Passage B , on the other hand, argues that the flax tax is unfair, but it does not argue that a progressive tax system is unfair.

Answer: D

VerbalBot · Answer

Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.

In 1994, Estonia became the first country to introduce a flat tax on

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Reading Comprehension (RC) Questions

In 1994, Estonia became the first country to introduce a flat tax on

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards