paidlukkha wrote:
Some economists view the Kennedy-Johnson tax cut of 1964, which radically reduced corporate and individual taxes, as the impetus for the substantial prosperity enjoyed by the United States in the late 1960's and early 1970's.
Which of the following, if true, would most weaken the claim that the tax cut of 1964 was the impetus for economic prosperity?
(A) Modernized, more productive factories were built in the late 1960's as a result of the funds made available by the tax cut.
(B) Improved economic conditions in Western Europe and Japan resulted in substantially increased demand for United States manufactured goods in the late 1960's.
(C) The tax cut of 1964 contained regulations concerning tax shelters that prompted investors to transfer their savings to more economically productive investments.
(D) Personal income after taxes rose in the years following 1964.
(E) In the late 1960's, unemployment was relatively low compared with the early 1960's.
In 1964, a tax cut was implemented. It reduced corporate and individual taxes (so they had to pay less money and taxes and hence had more spare income).
Some economists claim that this is why US saw substantial prosperity in late 1960s and early 1970s.
What will weaken this claim? If we can give some new information about some other reason that could have been responsible for the prosperity, it would weaken our claim.
(A) Modernized, more productive factories were built in the late 1960's as a result of the funds made available by the tax cut.
The tax cut made the factories possible so it seems to still say that the tax cut led to the prosperity. Hence it doesn't weaken the claim.
(B) Improved economic conditions in Western Europe and Japan resulted in substantially increased demand for United States manufactured goods in the late 1960's.
Correct. This tells you that because of more demand in other countries, exports of US increased. So this could have led to the increased prosperity in US. Then the prosperity may not be because of the tax cuts. This does weaken our claim.
(C) The tax cut of 1964 contained regulations concerning tax shelters that prompted investors to transfer their savings to more economically productive investments.
Again, this suggests that the tax cut had a good economic impact and hence it doesn't weaken the claim.
(D) Personal income after taxes rose in the years following 1964.
This is also a positive impact of the tax cut only.
(E) In the late 1960's, unemployment was relatively low compared with the early 1960's.
This is an effect of prosperity, not the cause of it. So it doesn't give us the reason why prosperity happened.
Answer (B)