The government should stop permitting tobacco companies to subtract ad

Question

The government should stop permitting tobacco companies to subtract advertising expenses from their revenues in calculating taxable income. Tobacco companies would then have to pay more taxes. As a consequence, they would raise the prices of their products and this price increase would raise the prices of their products and this price increase would discourage tobacco use.

Which of the following is an additional premise required by the argument above?

(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.

(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.

(C) People would not continue to buy tobacco products if these products were no longer advertised.

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.

DmitryFarberMPrep · Accepted Answer

(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.

This sounds nice, but we don't need this to be true for the conclusion to follow. If we negate this statement ("Tobacco companies WOULD continue to advertise"), it doesn't hurt the argument. In fact, the author's logic assumes that companies WILL keep advertising, and hence will have to increase prices.

(C) People would not continue to buy tobacco products if these products were no longer advertised.

This one doesn't matter, since there is no indication that advertising will end, nor any prediction of what would happen if it did.

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.

This also sounds very nice, but it isn't  necessary  to the argument. If we did NOT use the tax revenue for public health education, the author's prediction still might play out as described.

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.

We don't need the tobacco companies to keep their profit stable. As long as the companies raise their prices at all, the author's prediction is unharmed.

GyanOne · Answer

Clear A - the argument assumes that prices will have to be raised to offset additional tax costs. This may not happen if the tobacco companies are able to meet the increased costs through cost cuts. They will then not have to increase prices.

anothermillenial · Answer

The government should stop permitting tobacco companies to subtract advertising expenses from their revenues in calculating taxable income. Tobacco companies would then have to pay more taxes. As a consequence, they would raise the prices of their products and this price increase would raise the prices of their products and this price increase would discourage tobacco use.

Notes 
(C) gov. stop company subtract exp. in tax. income
(P) —> pay more tax —> (AP) ^ prices —> (AP) lower tobacco use

Analysis

This author claims that the government needs to prohibit tobacco companies from subtracting advertising expenses. The following statements are basically side effects of such prohibition. The author notes that disallowing the subtraction of ad expenses would increase prices and discourage tobacco use.

What the author assumes though is that companies won’t find other ways to evade taxes. I think what comes off as slightly confusing (as it did to me when I did this question the second time around) was which statement is truly the conclusion. I almost thought that the price raising section was the conclusion but it’s not.

Which of the following is an additional premise required by the argument above?

(A) Tobacco companies  would not offset the payment of extra taxes  by reducing costs in other areas. 
Sounds similar to our pre-thinking. Let’s hold onto it.

Just to double check: If companies WERE to offset payment by reducing costs, why bother raising prices? They'll probably just keep it as is!

(B) Tobacco companies  would not continue to advertise  if they were forced to pay higher taxes. 
This answer discusses advertising (rightly so) but hinges on the idea that we might jump to the conclusion that if they stop advertising….then people would stop using tobacco. But that’s too many jumps.

(C) People  would not continue to buy tobacco products  if these products were no longer advertised. 
Again, similar to (B). We’re looking for an answer that discusses the taxable income.

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used  to educate the public about the dangers  of tobacco use. 
Not relevant. Trying to trick us into thinking the conclusion is really about discouraging smokers….!

(E) The increase in taxes paid by tobacco companies  would be equal to  the additional income generated by raising prices. 
Hm, so this answer choice says taxes are equal to the price raise. What if the taxes were not equal? Let’s consider two scenarios:

If increase in taxes paid > additional income generated: In this case, it might be true that companies would increase their prices....

Increase in taxes paid < additional income generated: In this case, it’s not necessary that the companies would increase taxes. In fact, if this were true, I might (?) even lower prices slightly to sell more?

Since we have a half and half answer, this is incorrect. We need a negated answer choice to WEAKEN the argument for it to be correct. Generally these "equal to" phrases generate many 'could be true but not necessary' scenarios.

VerbalBot · Answer

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The government should stop permitting tobacco companies to subtract ad

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The government should stop permitting tobacco companies to subtract ad

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