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One state adds a 7 percent sales tax to the price of most

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One state adds a 7 percent sales tax to the price of most [#permalink]

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New post 18 Jan 2010, 07:10
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One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.
The conclusion above would be properly drawn if which of the following were assumed as a premise?
(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.
(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.
(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.
(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.
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Re: CR - One state adds a 7 percent sales tax [#permalink]

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New post 18 Jan 2010, 08:47
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SudiptoGmat wrote:
One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.
The conclusion above would be properly drawn if which of the following were assumed as a premise?
(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.
(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.
(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.
(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.


IMO B by POE..
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Re: CR - One state adds a 7 percent sales tax [#permalink]

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New post 18 Jan 2010, 10:45
CN: the lower the income, the higher the annual percentage rate at which the income is taxed

If B is the answer then you are actually opposing the conclusion because if sales tax favor low income group then the percentage on income will also be low not hing.
So, should be rejected at the first look. Answer should be something that says that low income group actually spends more in products (eventually pays more sales tax) compared to their income.
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Re: CR - One state adds a 7 percent sales tax [#permalink]

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New post 18 Jan 2010, 12:43
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The question asks what assumption should be made for the validity of the passage.

A) In order to draw a conclusion on the relative effect on low and high income earners, one must assume how these two groups spend their money. If low income earners were to spend all their money outside the jurisdiction, while the high income earners were to spend some of it in the jurisdiction, the conclusion made in the statement would be wrong. This statement makes an assumption regarging the spending habits of the two groups, and if it were true, the statement would be true as well. Right answer.

B) The passage actually states the opposite of B, but this is ininfluential, since the comparison between the two types of taxes is the conclusion of the passage, and not an assumption. Wrong answer.

C) The author is not arguing about affordability, but about the fiscal effect of the tax increase on two different earner groups. Wrong answer.

D) No assumption needs to be made regarding income redistribution among earners groups. Wrong answer.

E) If this assumption were true, the passage would be wrong. Wrong answer.

My answer is A

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Re: CR - One state adds a 7 percent sales tax [#permalink]

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New post 18 Jan 2010, 13:25
OA is A
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Re: CR - One state adds a 7 percent sales tax [#permalink]

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New post 24 Apr 2010, 05:27
@SudiptoGmat,

You post some of the good questions on CR forum.
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One state adds a 7 percent sales tax to the price of most [#permalink]

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One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.
The conclusion above would be properly drawn if which of the following were assumed as a premise?
(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.
(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.
(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.
(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.

Provide detailed explanations to your answer.

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Re: One state adds a 7 percent sales tax... [#permalink]

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New post 03 Jul 2011, 14:14
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achan wrote:
One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.
The conclusion above would be properly drawn if which of the following were assumed as a premise?
(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.
(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.
(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.
(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.

Provide detailed explanations to your answer.


On a purchase of $100 product, Larry, whose income is $1000, spends $7 because of the interest on the product.

On the purchase of same $100 product, Alisa, whose income is $100000, spends $7 because of the interest on the product.

Now,
$7 of 1000 IS MUCH MUCH higher than $7 of 100000. Thus, Larry is paying a greater percentage of his income for this tax than Alisa is. This entire scenario is exactly opposite to the federal tax paradigm, where a higher earner spends a greater percentage against his/her tax.

What did we assume here; we assumed that both Alisa and Larry paid only "$7" for the product. What if the price of the taxable products vary. We know the tax doesn't vary but the product price itself may vary.

A product that Larry purchase is priced at $100. Larry pays $7 in tax. $7 of 1000 is 0.007
And, the same product if bought by Alisa can be priced at $100000, as it is purchased by a high earner. She pays 7000 in tax. 0.07 of her income.
Who paid more tax now; Alisa of course.

Thus, if we assume that the prices of the taxable products are constant across all income levels, the conclusion can properly be drawn.

Ans: "A"
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Re: One state adds a 7 percent sales tax... [#permalink]

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New post 03 Jul 2011, 19:33
Clear A.

If it is considered that tax amount is inversely proportional to income, it should also be assumed that the money spent on products is same across income groups.

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Re: One state adds a 7 percent sales tax... [#permalink]

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New post 03 Jul 2011, 20:35
clear A

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Re: One state adds a 7 percent sales tax... [#permalink]

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New post 04 Jul 2011, 11:31
fluke wrote:
achan wrote:
One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.
The conclusion above would be properly drawn if which of the following were assumed as a premise?
(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.
(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.
(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.
(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.

Provide detailed explanations to your answer.


On a purchase of $100 product, Larry, whose income is $1000, spends $7 because of the interest on the product.

On the purchase of same $100 product, Alisa, whose income is $100000, spends $7 because of the interest on the product.

Now,
$7 of 1000 IS MUCH MUCH higher than $7 of 100000. Thus, Larry is paying a greater percentage of his income for this tax than Alisa is. This entire scenario is exactly opposite to the federal tax paradigm, where a higher earner spends a greater percentage against his/her tax.

What did we assume here; we assumed that both Alisa and Larry paid only "$7" for the product. What if the price of the taxable products vary. We know the tax doesn't vary but the product price itself may vary.

A product that Larry purchase is priced at $100. Larry pays $7 in tax. $7 of 1000 is 0.007
And, the same product if bought by Alisa can be priced at $100000, as it is purchased by a high earner. She pays 7000 in tax. 0.07 of her income.
Who paid more tax now; Alisa of course.

Thus, if we assume that the prices of the taxable products are constant across all income levels, the conclusion can properly be drawn.

Ans: "A"


Great Explanation Fluke
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Re: One state adds a 7 percent sales tax... [#permalink]

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New post 04 Jul 2011, 13:07
thanks Fluke

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Re: One state adds a 7 percent sales tax... [#permalink]

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New post 05 Jul 2011, 21:35
A it is... :plasma
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Re: One state adds a 7 percent sales tax... [#permalink]

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New post 05 Jul 2011, 22:01
Federal income tax: more income, more tax, more annual rate of tax
Sales Tax: more income, same spend as less income(assumption A) same tax, and thus lower percentage of the 'more income'
elimination of other choices:
B - Even if this could affect the conclusion, in this case it can't because this is incorrect as per the understanding from the premise- fed tax favors low income group and sales tax achieves the reverse
C - affordability of various groups to pay taxes is not a question here
D - that doesnt explain why the low income groupes will pay tax at higher rates
E - If that were so, it will not have reverse effect as fed tax!

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Re: One state adds a 7 percent sales tax... [#permalink]

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New post 06 Jul 2011, 09:15
I find it hard to believe that this is a level 700 question.
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Re: One state adds a 7 percent sales tax... [#permalink]

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New post 06 Jul 2011, 11:58
144144 wrote:
I find it hard to believe that this is a level 700 question.


Hey 144144
you think it higher than that or lower than that???????? :? :? :?
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Re: One state adds a 7 percent sales tax... [#permalink]

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Re: One state adds a 7 percent sales tax... [#permalink]

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New post 07 Jul 2011, 03:53
144144 wrote:
IMO 500-600


Even i thought so
but after getting the answer wrong and after reading Fluke's explanation
i thought no one would think that deep in real GMAT :? :?

maybe you are more intelligent than me and you can think that deep :? :?
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Re: One state adds a 7 percent sales tax... [#permalink]

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New post 08 Jul 2011, 02:15
Clearly A

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Re: One state adds a 7 percent sales tax... [#permalink]

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New post 18 Aug 2011, 23:50
Warlock007 wrote:
144144 wrote:
IMO 500-600


Even i thought so
but after getting the answer wrong and after reading Fluke's explanation
i thought no one would think that deep in real GMAT :? :?

maybe you are more intelligent than me and you can think that deep :? :?


hehe, gmatclub should have a like button in front of each post. In that case I would have liked Warlock's post. :)
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Re: One state adds a 7 percent sales tax...   [#permalink] 18 Aug 2011, 23:50

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