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# In order to raise revenue, the federal government planned a

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Re: In order to raise revenue, the federal government planned a [#permalink]

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01 Mar 2015, 05:50
mymba99 wrote:
In order to raise revenue, the federal government planned a tax amnesty program that
allows tax delinquents to pay all owed tax without added financial penalty. However,
economists projected that the federal government would collect a far lower percentage
of total tax owed by delinquents than did state governments implementing similar
programs.
Which of the following, if true, would most contribute to an explanation of the
economists’ projections?

A. Tax amnesty programs are only successful if they are widely publicized.
B. Most people who honestly pay their state tax are equally honest in paying their
federal tax.
C. Although federal tax delinquents usually must pay high financial penalties, the
states require far lower financial penalties.
D. The state tax rate varies considerably from state to state, but the federal tax is
levied according to laws which apply to citizens of all the states.
E. Unlike most federal tax delinquents, most state tax delinquents fail to pay state
tax because of an oversight rather than a decision not to pay.

Guys, please help me understand why D is wrong. Option D states that STATE tax varies while the FEDERAL tax is uniform across states. The conclusion of the the para is STATE tax collection will be higher that FEDERAL tax collection. With option D, one can assume that though the tax varies according to states, the average collection can be higher than collected from the uniform rate of FEDERAL tax. Hence the assumption explains the conclusion.
Option E states that an oversight can be the reason behind delinquency of STATE tax while a bad intention behind FEDERAL tax. I understand the objective of the program is to attract such unwilling citizens as zero penalty would encourage them to make the payment.
The reasoning I have read so far behind option E is that people who haven't paid FEDERAL tax would continue to deny payment. I presume the country would anyway go behind those delinquents so they have no choice but to make the payment. I'm unable to imagine how they will escape from the payment as assumed in the reasoning.

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Re: In order to raise revenue, the federal government planned a [#permalink]

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01 Jul 2015, 12:30
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In order to raise revenue, the federal government planned a tax amnesty program that allows tax delinquents to pay all owed tax without added financial penalty. However, economists projected that the federal government would collect a far lower percentage of total tax owed by delinquents than did state governments implementing similar programs. Which of the following, if true, would most contribute to an explanation of the economists’ projections?

A. Tax amnesty programs are only successful if they are widely publicized.

B. Most people who honestly pay their state tax are equally honest in paying their federal tax.

C. Although federal tax delinquents usually must pay high financial penalties, the states require far lower financial penalties.

D. The state tax rate varies considerably from state to state, but the federal tax is levied according to laws which apply to citizens of all the states.

E. Unlike most federal tax delinquents, most state tax delinquents fail to pay state tax because of an oversight rather than a decision not to pay.
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Re: In order to raise revenue, the federal government planned a [#permalink]

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01 Jul 2015, 18:01
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In order to raise revenue, the federal government planned a tax amnesty program that allows tax delinquents to pay all owed tax without added financial penalty. However, economists projected that the federal government would collect a far lower percentage of total tax owed by delinquents than did state governments implementing similar programs. Which of the following, if true, would most contribute to an explanation of the economists’ projections?

A. Tax amnesty programs are only successful if they are widely publicized.
out of context

B. Most people who honestly pay their state tax are equally honest in paying their federal tax.
again out of context.. we are looking at a relationship between defaulters at federal and state level

C. Although federal tax delinquents usually must pay high financial penalties, the states require far lower financial penalties.
this would rather lead to opposite of economists projection

D. The state tax rate varies considerably from state to state, but the federal tax is levied according to laws which apply to citizens of all the states.
out of context

E. Unlike most federal tax delinquents, most state tax delinquents fail to pay state tax because of an oversight rather than a decision not to pay.
CORRECT...this is the difference we are looking for
ans E
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Re: In order to raise revenue, the federal government planned a [#permalink]

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01 Jul 2015, 23:52
IMO (E)
Difference in the attitude of federal and state tax payers that explains the argument.
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Re: In order to raise revenue, the federal government planned a [#permalink]

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02 Jul 2015, 00:32
is this really a 700 level question?...looks a straight 'E' to me.

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Re: In order to raise revenue, the federal government planned a [#permalink]

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15 Jan 2016, 00:00
If people are intentionally not paying taxes then the amnesty program will not provide an incentive to do so, unlike in the state, where people who had overlooked paying their taxes might be tempted to pay it without a financial penalty.

If delinquents consciously make a decision not to pay, then the amnesty program will have no effect. E clearly indicates that most delinquents for state tax fail to pay due to oversight unlike federal tax delinquents who choose not to pay.

Those who default on State taxes are mostly those who forget about taxes. Hence once given an opportunity are more likely to pay taxes.

Those who default on Federal taxes are those who have decided not to pay. Such people are not likely to pay even after the mentioned incentive because they dint pay their taxes in the first place and now with no ADDED incentive (like reduction in the amount that needs to be paid) it is likely that they won’t pay still.

Kudo it if you like the detailed solution!

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Re: In order to raise revenue, the federal government planned a [#permalink]

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18 Jan 2016, 08:56
anordinaryguy wrote:
tsheshraj wrote:
hi all,

Though i selected E too, after looking at the answer i am little confused now.

In E, it is mentioned that the state tax deliquents are usually those who dont pay because of oversight. if that were true, a state tax amnesty program wouldnt have any special benefit because those people would have paid either way without needing any additional incentives. Hence, there is no reason why a federal program would be less successful than a state one.

Am i wrong in my approach? Can someone clarify pls?

This argument is assuming that people who forgot to pay state taxes would be reminded and encouraged by state amnesty program to pay Taxes without penalty. Because these people didn't want to default on State Taxes, would pay the taxes more easily than people who defaulted on Federal Taxes.

I think this assumption requires a lot of imagination...
The world sometimes is not that good...

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Re: In order to raise revenue, the federal government planned a [#permalink]

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27 Jan 2016, 10:15
Hi,

I do not understand why E is right. A tax amnesty is a period where taxable people can legalize tax debts. Why should we care about the reason why taxable people did not pay (oversight or not the decision to pay)? There is nowhere told that the aim of the amnesty is to avoid reincidence.

Is E right because delinquents in this state will not care about the amnesty. Hence, the conclusion is strengthened by saying the project will have no effect?

Thanks

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Re: In order to raise revenue, the federal government planned a [#permalink]

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08 Feb 2016, 20:43
I was stuck between C and E and still think C seems reasonable --

C is saying that Fed government has higher penalty and State has lower penalty, so following this, people are LESS incentivized to evade federal tax and more incentivized to evade state tax. For example, let's say it's illegal to chew gum and in country A you and your whole family are given the LIFE SENTENCE if you're caught chewing gum and in country B you're given a slap on the hand, I can assure you FEWER people would chew gum in country A.

So coming back to the problem - I still think if Federal has a higher penalty than State, fewer people would evade federal tax compared to state tax. So, with the amnesty program, there are fewer people to come forward and pay the federal tax because there are, well, simply FEWER evaders.

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Re: In order to raise revenue, the federal government planned a [#permalink]

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09 Feb 2016, 10:06
happyface101 wrote:
I was stuck between C and E and still think C seems reasonable --

C is saying that Fed government has higher penalty and State has lower penalty, so following this, people are LESS incentivized to evade federal tax and more incentivized to evade state tax. For example, let's say it's illegal to chew gum and in country A you and your whole family are given the LIFE SENTENCE if you're caught chewing gum and in country B you're given a slap on the hand, I can assure you FEWER people would chew gum in country A.

So coming back to the problem - I still think if Federal has a higher penalty than State, fewer people would evade federal tax compared to state tax. So, with the amnesty program, there are fewer people to come forward and pay the federal tax because there are, well, simply FEWER evaders.

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Re: In order to raise revenue, the federal government planned a [#permalink]

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09 Feb 2016, 19:40
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Re: In order to raise revenue, the federal government planned a [#permalink]

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10 Feb 2016, 05:00
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happyface101 - Your reasoning above isn't bad, but you are falling into a common CR trap: gross amounts v. proportions. Your argument could potential be viable if we were talking about gross amount (but even then you have to consider the scale of the entire government v. a single state). The argument, however, states that economists believe that "the federal government would collect a far lower percentage of total tax owed", so it doesn't matter that there may be FEWER tax evaders due to the high penalties involved because we are comparing the proportion collected of total tax owed.

Remember also that we are looking for the BEST answer. Many times in CR you will be faced with multiple answers that seem correct. When you find that you have chosen incorrectly, your job is not to try and justify your answer; rather, you need to go back and teach yourself why the correct answer is correct. Try it! Now that you know that E is the correct answer, analyze it logically to determine why it is the best answer.

KW
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Re: In order to raise revenue, the federal government planned a [#permalink]

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10 Feb 2016, 20:03
KyleWiddison wrote:
happyface101 - Your reasoning above isn't bad, but you are falling into a common CR trap: gross amounts v. proportions. Your argument could potential be viable if we were talking about gross amount (but even then you have to consider the scale of the entire government v. a single state). The argument, however, states that economists believe that "the federal government would collect a far lower percentage of total tax owed", so it doesn't matter that there may be FEWER tax evaders due to the high penalties involved because we are comparing the proportion collected of total tax owed.

Remember also that we are looking for the BEST answer. Many times in CR you will be faced with multiple answers that seem correct. When you find that you have chosen incorrectly, your job is not to try and justify your answer; rather, you need to go back and teach yourself why the correct answer is correct. Try it! Now that you know that E is the correct answer, analyze it logically to determine why it is the best answer.

KW

THANK YOU KW! I was so frustrated by this question because I thought my reasoning was very logical and it terrified me that I simply couldn't tell why it would be a bad answer ... then, good news and bad news, I realized I read the statement incorrectly. Thank you!

I missed the "tax owed" part, and thought the statement said that Fed's collection of tax owed would be a lower % of total taxes collected, INSTEAD of lower collection of TAX OWED. So very obviously the question here is what would make the state evaders more likely to come forward out of all evaders. E is clearly the better answer because it provides the rationale that State evaders actually didn't do it on purpose, while the Fed evaders intentionally didn't pay the taxes in the first place and so are less likely to pay it.

So relieved but need to read more carefully. Thanks again a million times for responding! +1
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Re: In order to raise revenue, the federal government planned a [#permalink]

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11 Feb 2016, 06:13
Happy to help. This is great news that now you see how you missed it AND what you learned will help on future problems. You have the amount v percentage issue to look out for and you know to read more carefully because little words / phrases can shift the answer.

Best of luck in your studies!
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Re: In order to raise revenue, the federal government planned a [#permalink]

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11 Feb 2016, 18:47
KyleWiddison wrote:
Happy to help. This is great news that now you see how you missed it AND what you learned will help on future problems. You have the amount v percentage issue to look out for and you know to read more carefully because little words / phrases can shift the answer.

Best of luck in your studies!
KW

Exactly! Thank you
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Re: In order to raise revenue, the federal government planned a [#permalink]

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27 Feb 2016, 11:59
Considering I got this as the first question on GMAT Prep test #3, I was wondering can actual GMAT too put a 700-level question as the first one? I got it right, though took >2 mins to solve.

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Re: In order to raise revenue, the federal government planned a [#permalink]

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07 Mar 2016, 05:39
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Dienekes wrote:
Considering I got this as the first question on GMAT Prep test #3, I was wondering can actual GMAT too put a 700-level question as the first one? I got it right, though took >2 mins to solve.

It would be a bit surprising to see a really hard one at the start of the GMAT as that would go against the general algorithm of the CAT (see this article on MBA.com: http://www.mba.com/us/the-gmat-blog-hub ... -gmat.aspx). That said, the GMAT mixes things up all the time so it's wouldn't be out of the question for them to alter the structure a bit without changing how the exam works overall. The basic gameplan of the GMAT stays the same - don't spend too long on any problem, even if it is the first problem you see!

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Re: In order to raise revenue, the federal government planned a [#permalink]

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10 Jul 2016, 21:38
Can someone please explain why D is out of scope?

I thought that if the tax rates are different in each states, then people will be more willing to pay the tax according to the rates that the are supposed to pay. Whereas federal tax requires all citizen to pay the same amount of tax, which to some may be higher that their state's tax rate.

Thanks,

DT

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Re: In order to raise revenue, the federal government planned a [#permalink]

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13 Sep 2016, 21:07

For state tax, those who forget to pay taxes will pay there taxes when penalty is removed. They are not deliberate tax evaders.

However, federal tax payers deliberately evade their taxes. So, incentive is not going to work similarly as it worked for state tax payers.

Also, why the percentage will be far lower?? The fed is not going to receive the amount collected through penalty.

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Re: In order to raise revenue, the federal government planned a [#permalink]

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14 Sep 2016, 20:23
Hi,

It should be out of topic, but could someone help to explain the differences between federal tax and state tax in the US? I find it difficult to understand as a non-native speaker. The tax amount that a delinquent has to pay the federal equals that paid the state, right? So what makes these delinquents not as willing to pay tax to the federal as they are to the state?

Thank for helping! :D

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Re: In order to raise revenue, the federal government planned a   [#permalink] 14 Sep 2016, 20:23

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