rohansherry wrote:
Property taxes are typically set at a flat rate per $1,000 of officially assessed value. Reassessments should be frequent in order to remove distortions that arise when property values change at differential rates. In practice, however, reassessments typically occur when they benefit the government—that is, when their effect is to increase total tax revenue.
If the statements above are true, which of the following describes a situation in which a reassessment should occur but is unlikely to do so?
(A) Property values have risen sharply and uniformly.
(B) Property values have all risen—some very sharply, some less so.
(C) Property values have for the most part risen sharply yet some have dropped slightly.
(D) Property values have for the most part dropped significantly; yet some have risen slightly.
(E) Property values have dropped significantly and uniformly.
If most property values have dropped significantly, but some have risen slightly, a reassessment should occur (since values have changed at different rates) but is unlikely (since it will not benefit the government). Thus choice D describes the required situation and is the best answer.
According to the passage, choices A and E describe the situations in which there is no need for a reassessment, since change has occurred uniformly. Similarly, choices B and C both describe situations in which a reassessment should occur, and is likely to, since the government will benefit.
Let us first analyze the given argument.1. Government has fixed tax rate. Suppose, fixed tax rate is $x for every $1,000 of property value.
=> If a property costs $500,000 then as per fixed tax rate government will receive some money as tax revenue (income).
=> Money government would receive is ($500,000 * x)/($1,000) i.e. $500x.
2. Property values change with market value.
New property value should be calculated after any change. (Government calculates the property value.)
3. In reality, new property value is not calculated until government makes significant money as tax revenue (income). (IMO probably because government has to invest significant money to conduct the assessments. Thus, government does not carry out the process until it is economically beneficial to it.)
Given the above mentioned details, we have to pick an answer that describes a specific scenario.
Scenario is:
Government should conduct the assessment
but will not conduct the assessment.
When the government is expected to carry out assessment ?
=>
When property values have changed.When the government, in reality, carries out the assessment ?
=> The government is reluctant to carry out the assessment if it does not have much to gain.
=> Thus government carries out assessment when
net output is money as tax revenue.
Let us scan each answer choice one by one.
(A) Property values have risen sharply and uniformly.This will increase the money as tax revenue to government.
Hence, gov. is expected to carry out the assessment and is likely that
gov. would do so.
(B) Property values have all risen—some very sharply, some less so.Similar to A, this also will increase the money as tax revenue to government.
Hence, gov. is expected to carry out the assessment and is likely that
gov. would do so.
(C) Property values have for the most part risen sharply yet some have dropped slightly.Property values have changed surely, although we do not know what is the net output. Is it gain or loss ?
Hence, gov. is expected to carry out the assessment, and is likely that
gov. would do so.
(D) Property values have for the most part dropped significantly; yet some have risen slightly.Property values have changed so gov. is expected to carry out the assessment.
However, the net output here would be negative because majority of the change is drop - represented by 'significant'.
Only a little has risen.
Hence,
gov. is expected to carry out the assessment because values have changed, but may not do so because it net output is not money as tax revenue.
CORRECT(E) Property values have dropped significantly and uniformly.If property values have dropped then that is a loss making scenario, in which gov. does not have much to gain.
Hence, gov. is NOT expected to carry out the assessment, and is likely that
gov. would NOT do so.