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The city of Carina is considering implementing an Alternative Minimum 28 Feb 2022, 04:00
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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.
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The city of Carina is considering implementing an Alternative Minimum 26 Mar 2022, 02:45
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Bunuel
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.
Show more

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.

Answer = (B)
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The city of Carina is considering implementing an Alternative Minimum 28 Mar 2022, 01:21
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Bunuel
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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.

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.

Answer = (B)
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Yes I understand we should compare the exemption value under the two tax policy, but why just concern “ top 10% of wage earners” ?
I think we should concern all tax payers, so I went with C. Anybody would like to explain? Much thanks.
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The city of Carina is considering implementing an Alternative Minimum 31 Mar 2022, 00:09
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Mavisdu1017
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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.

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.

Answer = (B)

Yes I understand we should compare the exemption value under the two tax policy, but why just concern “ top 10% of wage earners” ?
I think we should concern all tax payers, so I went with C. Anybody would like to explain? Much thanks.
Show more

I was briefly deciding between B and C but went with B because the question was asking which is the most important to evaluate. While both can be taken into account, I thought the very specific case of "children in college" couldn't be as significant a factor as the broad category of tax exemptions in evaluating profitability. Ultimately, I chose the answer that took into account more factors because that would most likely mean a larger percentage of where the costs and revenue come from.
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The city of Carina is considering implementing an Alternative Minimum 31 Mar 2022, 03:47
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c3tangerines, thanks for your sharing and I think it should be the case. But I think the real GMAT question is more watertight than this one.
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The city of Carina is considering implementing an Alternative Minimum 28 Jul 2024, 05:30
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DETAILED EXPLANATION

To evaluate the profitability of implementing the Alternative Minimum Tax (AMT) plan for the city of Carina, a thorough analysis of several factors is essential. Each option must be considered in terms of its relevance and importance to the evaluation process:

A. The average dollar value of Carina citizens’ tax payments for the previous year.
This information provides a general sense of the tax revenue currently collected from all citizens. However, it does not specifically address the tax contributions of the top 10% of wage earners, who are the focus of the AMT plan. Hence, while useful for contextual understanding, it is not the most critical data for evaluating the specific impact of the AMT on high-income earners.

B. The dollar value of the tax exemptions the top 10% of wage earners in Carina currently take.
This is the most pertinent information. The AMT plan aims to increase tax revenue by removing exemptions for high-income earners. Understanding the current dollar value of these exemptions will directly inform how much additional taxable income will be generated and thus how much additional revenue the city could potentially collect under the AMT system. This calculation is central to determining the plan’s profitability.

C. How many children per capita those earning over $350,000 have in Carina, and how many attend college.
While this information is indirectly related to the value of current deductions and exemptions for children and college tuition, it is less directly useful than knowing the exact dollar value of these exemptions. Understanding family demographics alone does not provide the precise fiscal impact necessary for a detailed evaluation of the AMT’s profitability.

D. The average revenue generated by cities in that country that charge AMT when such a system is implemented.
This provides comparative data and can offer insights into the potential success of an AMT system based on other cities' experiences. However, the specific economic conditions, tax structures, and demographics of Carina may differ significantly from those of other cities. Thus, while informative, it is not as directly relevant as understanding the specific exemptions and tax contributions of Carina’s high-income earners.

E. The dollar value that processing the AMT would require, compared to the dollar value that running the current tax system in Carina requires.
Operational costs are an important consideration in any tax system overhaul. However, this factor is secondary to understanding the revenue impact of the AMT. Only after estimating the potential increase in tax revenue can the city meaningfully assess whether the additional processing costs would render the AMT profitable or not.

In conclusion, the most important factor to determine is:

B. The dollar value of the tax exemptions the top 10% of wage earners in Carina currently take.

This information is critical to accurately estimate the additional taxable income and potential revenue increase from implementing the AMT, thereby enabling a precise evaluation of the plan’s profitability for the city.
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