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The city of Carina is considering implementing an Alternative Minimum

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Joined: 12 Dec 2016
Posts: 1854
Location: United States
GMAT 1: 700 Q49 V33
GPA: 3.64
The city of Carina is considering implementing an Alternative Minimum  [#permalink]

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Updated on: 12 Jan 2018, 12:00
5
2
00:00

Difficulty:

95% (hard)

Question Stats:

50% (02:10) correct 50% (02:01) wrong based on 305 sessions

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The city of Carina is considering implementing an Alternative Minimum Tax (AMT) for taxpayers earning more than 90% of the population, those individuals who earn more than \$350,000 annually. Under this tax plan, Carina citizens in the AMT bracket would be exempt from paying taxes on the first \$80,000 of their income and be taxed at a flat rate on the income thereafter. People paying the AMT would not be given allowances regular taxpayers are, such as deductions for children, healthcare expenses, or college tuition.

Which of the following would be most important to determine in order to evaluate whether implementing the AMT plan would be profitable for the city of Carina?

A The average dollar value of Carina citizens’ tax payments for the previous year.
B The dollar value of the tax exemptions the top 10% of wage earners in Carina currently take.
C How many children per capita those earning over \$350,000 have in Carina, and how many attend college.
D The average revenue generated by cities in that country that charge AMT when such a system is implemented.
E The dollar value that processing the AMT would require, compared to the dollar value that running the current tax system in Carina requires.

This question is quite tricky in term of concepts.

Originally posted by chesstitans on 12 Jan 2018, 05:38.
Last edited by chesstitans on 12 Jan 2018, 12:00, edited 2 times in total.
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Joined: 01 Jun 2015
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GMAT 1: 620 Q48 V26
Re: The city of Carina is considering implementing an Alternative Minimum  [#permalink]

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12 Jan 2018, 11:34
5
chesstitans

You should put your comment under the spoiler.It starts directly after the last sentence of the question.It kind of takes the fun out.

this one is a very good question .I think pre thinking helps a lot in this kind of questions.

What the question says that a

1.city where pople with earning over 350,000 \$ per year are considered top 10% percent.

2.Now the city introduces an alternate tax plan

3.Under that plan.No Tax for the first 80,000\$+ a flat percentage (y% as example) on the 270,000\$.And suppose in the previous plan,the tax rate on the entire 350,000 \$ WAS X%

Now to evaluate whether the plan is profitable or not one has to determine that whether y% of 270,000 \$> the x% of 350000\$ or not.

Only B talks about the ( x% of 350000\$ - y% of 270,000) or The dollar value of the tax exemptions that the top 10% of wage earners in Carina currently take.
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Manager
Joined: 20 Feb 2017
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Location: United States
Re: The city of Carina is considering implementing an Alternative Minimum  [#permalink]

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13 Jan 2018, 07:21
2
chesstitans wrote:
The city of Carina is considering implementing an Alternative Minimum Tax (AMT) for taxpayers earning more than 90% of the population, those individuals who earn more than \$350,000 annually. Under this tax plan, Carina citizens in the AMT bracket would be exempt from paying taxes on the first \$80,000 of their income and be taxed at a flat rate on the income thereafter. People paying the AMT would not be given allowances regular taxpayers are, such as deductions for children, healthcare expenses, or college tuition.

Which of the following would be most important to determine in order to evaluate whether implementing the AMT plan would be profitable for the city of Carina?

A The average dollar value of Carina citizens’ tax payments for the previous year.
B The dollar value of the tax exemptions the top 10% of wage earners in Carina currently take.
C How many children per capita those earning over \$350,000 have in Carina, and how many attend college.
D The average revenue generated by cities in that country that charge AMT when such a system is implemented.
E The dollar value that processing the AMT would require, compared to the dollar value that running the current tax system in Carina requires.

This question is quite tricky in term of concepts.

Option C is just a trap option. We need the full deduction information, so Option B.
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Re: The city of Carina is considering implementing an Alternative Minimum  [#permalink]

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03 Aug 2018, 23:44
1

Official Explanation

In this scenario, we are asked to identify information that would help evaluate a plan’s profitability: namely, a plan to tax those in Carina’s upper-income bracket. This plan will not allow the taxpayers it affects to take exemptions. It makes sense, then, that it would be helpful to know the amount of money the city currently loses through such exemptions, (B), in order to compare this to the potential revenues gained by instituting an AMT.

Because the question is concerned only with the profits to be gained by instituting an AMT for people who earn over \$350,000, information about the city’s taxpayers in general, (A), would not be very useful.

(C) would provide us with information about two particular exemptions that the high-income Carina citizens can currently take, but it does not provide us with as full a view of the possible profitability of an AMT as (B) does.

While (D) may have some relevance to the town, it does not provide specific information on Carina’s situation in the way that (B) does. This information could be useful, but it is not the best choice of the answers provided.

The cost of processing the new tax forms (E) is likely to be small in comparison to the money gained or lost implementing the new tax, so while (E) might, at some point, be useful for government officials to know, it is not as useful as (B) in determining overall profitability.

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Re: The city of Carina is considering implementing an Alternative Minimum &nbs [#permalink] 03 Aug 2018, 23:44
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