In order to raise revenue, the federal government planned a

Question

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.

gixxer1000 · Accepted Answer

Fist break out the premises and conclusion

Premise:
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.

Conclusion:
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?

So we want to strengthen the argument that if the federal governemnt implements the same program they will collect lower taxes than what the state government did.

So before looking at the questions think for a second what you need. The answer should show why people would pay back more state taxes then they would federal taxes.

If you alread have this in mind before looking at the answers then you wont get distracted easily.

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

Does this give a reason why people would pay back state tax but not federal tax? No, so move on.

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

This addresses people paying state and federal tax but it argues the opposite and weakens.

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

The fees will be abolished so this is irrelevant.

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.

Doesn't address why people would pay more of one over the other.

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.

Bingo! The people who do not pay their state tax do so because they forget not because they were unwilling. These peopel would surely pay once they are reminded and given the opportunity to do it penalty free. It also implies that dont pay federal tax do so because they intentionally dont want to. These people are far less likely to repay once penalties are removed because they didn't want to pay in the first place when there were no penalties.

If you already have an ideal of what your looking for it is easier to spot in a crowd than if you just go through them one by one and decide if they make sense or not.

GMATNinja · Answer

Thanks for walking through your thoughts on these answer choices!

The best advice I can offer is: avoid turning this (or any other verbal question) into a quantitative problem if you can identify the best answer choice based on the logic of the argument. Here's that argument again:

Let's break down what's presented, without introducing any hypotheticals or re-phrasing:

Economists conclude  that when compared to States, Feds will collect a far lower % of total tax owed to them by delinquents. 
  We're talking about tax  delinquents . This program is only concerned with taxpayers who are  already late  in paying their taxes. 
  The Feds' program allows delinquents to pay all of what they already owe,  without added financial penalty . This implies that the penalty in question is issued at the moment when a delinquent steps forward and pays all taxes owed.

The logic of this program is that delinquents will willingly pay all of what they owe, if doing so doesn't cost them anything extra.

Yet, economists conclude that the Feds' version of this program will bring in a smaller proportion of owed taxes than States' versions of this program. We aren't given any information that would explain this difference between Federal outcome and State outcome.

We're looking for the answer choice that most strengthens the economists' conclusion. The right choice does NOT have to prove the economists' conclusion. It just has to make the conclusion easier to believe by connecting the missing logical dots. In other words, we want a choice that shows us:

Why State delinquents are more willing to pay all that they owe in this amnesty program, OR 
  Why Federal delinquents are less willing to pay all that they owe in this amnesty program.

Since discussion around choice (C) and (E) has been the focus of this thread so far, let's start there.

Wait a minute. The amnesty program  gets rid of added financial penalties  for delinquents who pay what they owe. If amnesty reduces this penalty to $0 at the Federal level  and  the State level, does it matter if the penalty was high or low before these programs were implemented? Knowing what the federal and state penalties were usually like  before  these programs are implemented doesn't directly explain the economists' conclusion, which projects how much total tax will be collected  after  these programs are implemented.

If anything, Choice (C) weakens the conclusion, because it states that Federal penalties would have been high without the amnesty program. So if you're a delinquent, and you learn that your penalty is about to go from "high" to "$0," then you've gained an extra incentive to pay what you owe now.

From either line of reasoning, (C) does not make the economists' conclusion easier to believe. Either this information is  irrelevant to why Federal delinquents would pay at a lower rate than State delinquents , or it leads us to expect delinquents to be  more willing to pay the Feds.  This is why we eliminate (C).

(E) is a much better answer choice because it goes straight for the heart of this argument:  why each type of delinquents would pay or not pay what they owe . This choice neatly tells us:

State delinquents don't pay what they owe because of an oversight (i.e., a mistake), rather than a decision not to pay. 
  State delinquents are unlike most federal tax delinquents. 
  This implies that most federal tax delinquents don't pay what they because they're deciding not to pay, rather than because of an oversight.

This connects the logical dots we were missing! If (E) is true, then we know why economists would expect to see a smaller % of owed taxes collected through the federal program: Most Federal delinquents are trying  not to pay at all . They're not just trying to avoid a penalty; they're trying to avoid paying taxes. So simply eliminating an added penalty is unlikely to impact that avoidance.

Given this information we'd expect the Federal program to bring in a smaller % of owed taxes than comparable State programs. So let's keep (E) and run our process of elimination on (A), (B), and (D) to be sure we haven't missed an even more convincing choice.

So what? As pointed out by  gixxer1000  ages ago, (A) doesn't tell us a single thing about why Federal delinquents would be less willing to pay what they owe or why State delinquents would be more willing to pay what they owe. Get outta here, (A).

We only care about  delinquents , i.e., people who have not paid their taxes yet. And knowing whether or not the delinquents are honest is irrelevant. Knowing that honest federal taxpayers are just as honest as state taxpayers is miles away from the types of taxpayers we're thinking about and the logical argument we've been analyzing. Eliminate (B).

Huh? So you're telling me that state taxes are  state  taxes, and... the federal tax is a  federal  tax? (D) adds absolutely no information to the passage or the argument. It just tells us state and federal taxes are based on different laws. Eliminate (D).

(E) is  by far  the best answer choice, so we can keep it and move onto the next question.

I hope this helps!

EvaJager · Answer

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.

So, I think most tax delinquents don't pay fed taxes because they decide not to, or simply put, don't want to pay. 
Those who don't pay state taxes are mostly forgetting to pay, not because they don't want to pay. 
Two different attitudes, why should the same method work for both?

I think it is E.

plumber250 · Answer

Hi Milan & Tomas,

Let me see if I can help you both....

Answer C is not correct in my opinion because as previously stated the fees are being abolished. The question of whether there are more or less state/federal avoiders is in my opinion just speculation.

Answer E does strengthen, because whilst Milan may have a point that SOME State avoiders will forget again, overall it is more likely that becuase people have decided consciously to break the law that they will keep that same opinion even when faced with an amnesty. If people have forgotten, they're likely to be happy with the route out of their dilemma (because they normally want/are happy to pay tax).

Hope that helps.

James

KyleWiddison · Answer

The answer here is E.

We are trying to strengthen the conclusion that "the federal government would collect a far lower percentage of total tax (not tax + penalties) owed by delinquents (not all tax payers)".

A-Out of Scope
B-Out of Scope (we are looking at delinquents, not honest payers)
C-This would suggest that the federal government would see a higher percentage of tax collection because the benefit of the amnesty is much higher for federal tax than for state taxes
D-Out of Scope
E-The amnesty program for was successful because the unpaid taxes were due to oversight, not unwillingness to pay. Federal tax evasion is due to people fundamentally not wanting to pay tax, period. Saving on penalties does not incentivize people who have decided to not pay any tax.

KW

KyleWiddison · Answer

Be careful about the exact language of the argument. The argument states that economists believe that the federal government "would collect a far 
lower  percentage of total tax owed  by delinquents than did state governments". In your explanation you make assumptions about the probable size of tax owed to federal or state governments. The amount that is owed is outside the scope of the argument. This argument is focused on the  percent  of tax already owed that will be collected through the amnesty program. The GMAT will try to confuse you by switching between raw amounts and percentages - watch out!

Choice C is super relevant to the argument but it's working in the wrong direction. Our job is to strengthen the economists' position that the federal government would collect a LOWER percentage of owed tax. If the federal government had higher penalties that would be waived in an amnesty program, there would be more incentive to participate and federal governments would be expected to collect a HIGHER percentage of owed tax - this is a weakening position, not strengthening. Choice C cannot be the answer.

Choice E states that state delinquents fail to pay out of oversight. The amnesty program alerts them to their payment oversight and they pay because they never really intended to not pay. Federal delinquents, on the other hand, are consciously not paying taxes. The fines/penalties are irrelevant to this group because they have no intention to ever pay the owed tax. Choice E strengthens the economists' position and is the correct answer.

KW

KyleWiddison · Answer

You are right that C doesn't make sense under a zero penalty situation. The question asks us to find support for the states getting a higher percentage of taxes owned, so when we say C doesn't make sense, we mean that economists would not use this argument to explain how states would receive a higher percentage of tax owed. Choice C would be an excellent argument for why the federal government would received the higher percentage of tax, but that is not the question. C is not correct.

KW

chetan2u · Answer

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.

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

KyleWiddison · Answer

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

PGTLrowanhand · Answer

Hi everyone,

Here's my video explanation of the question. Hope you enjoy!

aRYNe3Mzbtc

Rowan

cledgard · Answer

The arguments is comparing percentages, not absolute quantities.

Most people agree that the answer is either C or E

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

The higher the penalties, the stronger the reasons to pay on time. Then there would be fewer delinquents. However,  we do not know if these delinquents are going to pay .

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.

If  most state tax delinquents  failed to pay state tax because of  an oversight (let’s say 80%) . These delinquents are likely to pay the tax owed (let’s say 90%), and the rest  (20%) failed to pay because they did not want to pay . These delinquents are not likely to pay the tax owed (let’s say that only 10% paid). So, from 100 delinquents 80% * 90% (because of an oversight) + 20% * 10% (because they did not want to pay) = 72% + 2% =  74% state tax delinquents would pay.

If  few federal tax delinquents failed to pay  state tax because of  an oversight (let’s say 20%) . These delinquents are likely to pay the tax owed (let’s say 90%), and the rest  (60%) failed to pay because they did not want to pay . These delinquents are not likely to pay the tax owed (let’s say that only 10% paid). So, from 100 delinquents 20% * 90% (because of an oversight) + 80% * 10% (because they did not want to pay) = 18% + 8% =  26% federal tax delinquents would pay .

So,  the federal government would collect a far  lower percentage of total tax owed by delinquents  .

Answer is E

mikemcgarry · Answer

Dear Poorvasha , I'm happy to respond.

(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 . We are told that " state tax delinquents fail to pay state tax because of an oversight ," this is, a mistake. These people were intending to pay, and just made a mistake, overlooking their state taxes. The word " oversight " connotes unintentionality: these people failed to pay by accident: this suggests that many would like to rectify that accident and do what they previously unintentionally overlooked. By contrast, (E) suggest that " most federal tax delinquents . . . fail to pay state tax because of . . . a decision not to pay ." That's different. These people did not make a mistake or fail to pay by accident. These people made a conscious decision not to pay. This decision would not have been based on the penalties for lateness, because these people made the decision before anything was late. We don't really know why they so consciously chose not to pay--maybe sudden poverty, maybe because their income was illegally gained, etc. The decision may well be rooted in some aspect of their lives, and the presence or absence of the late penalties is not going to change those life circumstances. Does all this make sense? Mike

harshitagarg · Answer

Can you clarify which question type is this?

Arro44 · Answer

I would consider this an assumption question as one is asked to determine an underlying thought of the argument.

NikMan · Answer

Hi Experts, There's been considerable debate on this one (C/E?) but I feel that we are still missing one key part. Kindly let me know if I am mistaken.

It is clear that E implies that a smaller proportion of Federal tax delinquents would pay under the scheme than that of state. However, since, we are concerned with the "percentage of total tax owed", there are two factors at play: the proportion of people and the proportion of tax that would be paid back i.e. total tax - penalty.
C implies that for Fed TD, the proportion of penalty is higher (in comparison)(the amount that need not be paid back). Therefore it can be concluded that the % of total would be less in this case. if the penalty was 50% only 50% of the total need to be paid.
On the other hand if the penalty was 10% in state, then 90% would need to be paid back.
With this line of reasoning, I chose C.

That being said, I now see that there is a trade-off in C. If very few people pay (even with the higher %) the total would still be low.
That being said still not sure on how to conclusively evaluate C vs E? Request the experts to suggest.

Thanks

NikMan · Answer

C vs E? Not sure that the comments so far are conclusive. Have commented in detail, as well. Thanks

gmatman1031 · Answer

One thing we know is that the federal government has a larger citizen base that it needs to reach when publicizing the tax amnesty program. However, there is nothing to suggest that the federal government would have a harder time reaching x% percent of its citizens than a state government would have reaching x% of its citizens.

This doesn't mean much for the economists' conclusion.

I didn't consider this one during my practice exam, but after reading  tae808  's analysis I had to think pretty hard about why this one was wrong. He made a very convincing argument for why (C) should be right and hopefully, I'm able to offer an even more convincing refutation.

tae mentioned that if federal tax penalties are so high, then people who were bold enough to cheat on their taxes will continue to cheat even after amnesty has been offered. He also mentioned that if the federal tax penalties are higher than state tax penalties, then fewer people would cheat on their federal taxes. I happen to agree with the logic in both of these statements. However, I would like to add more analysis to this. First, I'd like to make a distinction between the two different kinds of cheaters - (1) those who are ideologically opposed to paying taxes or don't have enough money left to pay their taxes (these people have an extreme aversion to paying taxes) and (2) those who could pay their taxes but feel that the risk is worth it. If an extremely averse cheater has avoided their state taxes, then he or she is very likely to avoid federal and vice versa. Thus, there will probably be a roughly equal number of extremely averse cheaters in both groups. And because the risk is much lower for state taxes, there will be more risk-taking cheaters on state taxes than federal taxes. Second, because we don't know any better at this point, we should assume that oversight is just as likely on federal taxes as it is on state taxes. Thus, there will be a roughly equal number of unintentional delinquents on federal and on state. I will explain why these distinctions are important later.

tae also mentioned that there will be more people who cheated on state taxes. Again, I agree with this. And he goes on to claim that because there are more state tax cheaters, there will be more people that come forward during the amnesty program. This statement I disagree with and will explain why soon.

Imagine that the tax deadline for both state and federal taxes has passed and since it has passed several of the unintentional delinquents have realized that they forgot to pay their taxes or filed their taxes incorrectly. Because the state penalties are lower than the federal, we can assume that more unintentional delinquents will come forward to pay their state taxes than they will for federal taxes. At this point, there are more unintentional delinquents for federal taxes than state taxes. There are still more risk-taking delinquents for state taxes. And there is still a roughly equal number of extremely averse delinquents for both state and federal.

Now, its been several months since the deadline has passed and the state governments and federal government each offer a tax amnesty program. The extremely averse delinquents all decide they still will not pay their taxes. The risk of cheating is not any less than before and so the risk-taking delinquents decide they will not pay their taxes either. The only people that come forward are those from the unintentional delinquent group. And there are more federal unintentional delinquents than state unintentional delinquents.

Thus, because more people will come forward from the federal delinquents, answer (C) actually undermines the economists' projections.

This doesn't mean much for the economists' conclusion.

Also, like  tae808 , I did not choose this option initially because I figured that if someone failed to pay taxes because of an oversight, then they would not know that they owed taxes. However, it is completely possible that someone could realize that they forgot to file their state taxes, forgot to add some amount of income to their taxes, or were notified by the government that they still owe money. And thus, (E) is the correct answer.

VaibhavMahindru · Answer

Could someone tell me why D is not an option, considering the fact that
-There is a possibility that state tax rates, as they vary, are lower in many states in comparison to federal tax rates.
- People do not mind paying these lower state tax rates in majority of states due to lower tax liability

In light of the scenario stated above, D is a viable option, isn't it?

NandishSS · Answer

HI  mira93 ,  nightblade354 ,  eakabuah

Please add the tag as GMATPrep EP1.

In order to raise revenue, the federal government planned a

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