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# Raising the tax rate on essential goods—a traditional means of increas

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Re: Raising the tax rate on essential goods—a traditional means of increas [#permalink]
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Bunuel wrote:
Raising the tax rate on essential goods—a traditional means of increasing government revenues—invariably turns low- and middle-income taxpayers against the government. Hence government officials have proposed adding a new tax on purchases of luxury items such as yachts, private planes, jewels, and furs. The officials claim that this tax will result in a substantial increase in government revenues while affecting only the wealthy individuals and corporations who can afford to purchase such items.

The answer to which one of the following questions would be most relevant in evaluating the accuracy of the government officials’ prediction?

(A) Will luxury goods be taxed at a higher rate than that at which essential goods are currently taxed?

(B) Will the revenues generated by the proposed tax be comparable to those that are currently being generated by taxes on essential goods?

(C) Will sales of the luxury items subject to the proposed tax occur at current rates once the proposed tax on luxury items has been passed?

(D) Will the proposed tax on luxury items win support for the government in the eyes of low- and middle-income taxpayers?

(E) Will purchases of luxury items by corporations account for more of the revenue generated by the proposed tax than will purchases of luxury items by wealthy individuals?

Even though I marked option B, I now understand why option C is correct after giving some careful thought.

(B) Will the revenues generated by the proposed tax be comparable to those that are currently being generated by taxes on essential goods?
Even though this option seems very tempting, notice that revenues generated by the proposed tax might be very much higher than the current revenue.
This option says questions whether revenues will be COMPARABLE, but the revenues might not be comparable, yet sufficiently high. That is the reason this choice is incorrect.

(C) Will sales of the luxury items subject to the proposed tax occur at current rates once the proposed tax on luxury items has been passed?
One may question whether we can apply a similar logic, as we did for option B, on this option.
However, notice that the sales cannot increase BECAUSE of the tax increase. It might increase because of some other external factors, but not because of tax INCREASE.
So, it is reasonable to think that if the the sales do not decline then, most probably, the tax revenues will increase.

Option C is therefore correct.
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Re: Raising the tax rate on essential goods—a traditional means of increas [#permalink]
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Plan:
Rather than raising the tax rate on essential goods, government officials have proposed adding a new tax on purchases of luxury items.

(B) Will the revenues generated by the proposed tax be comparable to those that are currently being generated by taxes on essential goods?

Note the difference between the blue portion in the passage and the red portion in B.
Since the conclusion is that adding a new tax on luxury items is preferable to RAISING THE TAX RATE ON ESSENTIAL GOODS, the portion in red -- which refers to the CURRENT tax rate -- is irrelevant.

Eliminate B.
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Re: Raising the tax rate on essential goods—a traditional means of increas [#permalink]
GMATGuruNY wrote:
Plan:
Rather than raising the tax rate on essential goods, government officials have proposed adding a new tax on purchases of luxury items.

(B) Will the revenues generated by the proposed tax be comparable to those that are currently being generated by taxes on essential goods?

Note the difference between the blue portion in the passage and the red portion in B.
Since the conclusion is that adding a new tax on luxury items is preferable to RAISING THE TAX RATE ON ESSENTIAL GOODS, the portion in red -- which refers to the CURRENT tax rate -- is irrelevant.

Eliminate B.

Sorry; there is no conclusion in the argument. They don’t even use the word ‘preferable’. We have to evaluate a claim. Claim is that the govt revenue will substantially increase. B - what does comparable revenue mean? Higher, lower, equal - we don’t know.
Only C can result in substantial increase as the claim says. So, question C is the most relevant.

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Re: Raising the tax rate on essential goods—a traditional means of increas [#permalink]
Ted2007 wrote:
C.
In other to evaluate the officials' claim that the increased tax on luxary item can increase, it is important to evaluate his assumption.

The increased tax can increase the income can be hold only if it won't be offset by decreased sales in luxary item, therefore, c is crucial for evaluating the assumption.

Posted from my mobile device

Took a little time to understand. However, the explanation made sense to me.
Thanks.
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Re: Raising the tax rate on essential goodsa traditional means of increas [#permalink]
Option C asks whether sales will occur at current rates after tax imposition; however, if the sales INCREASE then also the outcome of the plan will hold.

So since we can't get clear contrasting answers when asking Yes/No to option C, how is it correct?
Re: Raising the tax rate on essential goodsa traditional means of increas [#permalink]
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