Proponents of the recently introduced tax on sales of new luxury boats

Question

Proponents of the recently introduced tax on sales of new luxury boats had argued that a tax of this sort would be an equitable way to increase government revenue because the admittedly heavy tax burden would fall only on wealthy people and neither they nor anyone else would suffer any economic hardship. In fact, however, 20 percent of the workers employed by manufacturers of luxury boats have lost their jobs as a direct result of this tax.

If the answer is not D, then why draw the contrast? Why is the loss of manufacturing jobs the only deficit the plan has to cover?

someone please help

The information given, if true, most strongly supports which of the following?

(A) The market for luxury boats would have collapsed even if the new tax on luxury boats had been lower.

(B) The new tax would produce a net gain in tax revenue for the government only if the yearly total revenue that it generates exceeds the total of any yearly tax-revenue decrease resulting from the workers' loss of jobs.

(C) Because many people never buy luxury items, imposing a sales tax on luxury items is the kind of legislative action that does not cost incumbent legislators much popular support.

(D) Before the tax was instituted, luxury boats were largely bought by people who were not wealthy.

(E) Taxes can be equitable only if their burden is evenly distributed over the entire population.

Luxury Boat Tax

Step 1: Identify the Question

The word supports might lead you to think that this is a  Strengthen the Argument  question, but the question asks which answer the given information most strongly supports. That means the correct answer will be an  Inference  that can be drawn from the information provided.

Step 2: Deconstruct the Argument

Luxury Boat Tax

Wealthy pay, but no suffering

But 20% industry job losses

Step 3: Pause and State the Goal

On Inference questions, look for an answer that is supported by the information in the argument. If all or part of an answer is not supported by the given information or requires additional assumptions, then that answer should be eliminated.

Step 4: Work from Wrong to Right

(A) The argument states that workers have lost their job as a result of the tax, but gives no information on the state of the luxury boat market as a whole. It's impossible to infer what would have happened to the luxury boat market with a lower tax.

(B) CORRECT . A tax will only result in an increase in tax revenue if the new revenue it generates is greater than any revenue lost. In this case, the argument specifically cites job losses due to the tax. Thus to be revenue positive the tax would have to generate more revenue than that lost from the associated job losses.

(C) The effects of a legislator supporting a luxury tax are not discussed in the argument. While this answer may seem reasonable in the real world (legislators might support a tax that only affected a few people), it cannot be inferred from the given information.

(D) This answer actually contradicts the information given; the tax burden from the new tax would fall only on the wealthy (presumably meaning only wealthy people are buying luxury boats). You cannot infer that the proponents were wrong about the wealth of people buying the boats.

(E) The passage does not state the definition of an equitable tax. You may or may not agree with the interpretation in this answer, but this opinion is not an inference from the given information.

GMATNinja · Accepted Answer

According to the passage,

the new tax on sales of new luxury boats would "increase government revenue" 
 "20 percent of the workers employed by manufacturers of luxury boats have lost their jobs as a direct result of this tax"

Based solely on the information in the passage, we cannot assume that the government would lose any tax revenue as a result of the jobs lost by employees of luxury boat manufacturers. However, choice (B) does not necessarily say that there WILL be a tax-revenue decrease resulting from the workers' loss of jobs. Instead, choice (B) says that IF there is a tax-revenue decrease resulting from the workers' loss of jobs, the new boat tax will only produce a net gain for the government IF the revenue gained from the tax exceeds the  possible  revenue decrease resulting from the workers' loss of jobs.

In other words, the government should see an increase in tax revenue because of the new boat tax. But what if, for whatever reason, the new boat tax causes a DECREASE in tax revenue (i.e. resulting from workers' loss of jobs)? If that decrease exceeds the increase from the boat tax, the government would actually see a net LOSS in tax revenue. Thus, statement (B) is strongly supported by the information in the passage.

The information in the passage does not necessarily support choice (D). Again, all we know is that the government should expect to receive new tax revenue from the boat tax and that 20 percent of the workers employed by manufacturers of luxury boats have lost their jobs as a result of the new boat tax.

Why did they lose their jobs? Perhaps some people who could have afforded a luxury boat without the tax could not afford a luxury boat with the tax, causing sales and, thus, production of luxury boats to decline. Regardless of whether this theory is true, we cannot assume that the people who decided not to buy luxury boats because of the tax were not wealthy. Even if we could, we would not be able to assume that luxury boats were LARGELY bought by people who were not wealthy before the tax was instituted. There is nothing in the passage to support choice (D), so it must be eliminated.

abhimahna · Answer

Proponents said this tax system will help increase tax revenue. In reality, workers have lost their jobs. So, does that mean the gains will offset the losses? We need to find something of this form.

(A) The market for luxury boats would have collapsed even if the new tax on luxury boats had been lower. -->  Hypothetical condition is OFS.

(B) The new tax would produce a net gain in tax revenue for the government only if the yearly total revenue that it generates exceeds the total of any yearly tax-revenue decrease resulting from the workers' loss of jobs.  Yes, so benefits will be only when gains will offset the losses.

(C) Because many people never buy luxury items, imposing a sales tax on luxury items is the kind of legislative action that does not cost incumbent legislators much popular support. -->  Whether they have support is OFS. we are concerned whether government will be able to increase revenue.

(D) Before the tax was instituted, luxury boats were largely bought by people who were not wealthy.  And now? We don't know. Don't try to break the premise.

(E) Taxes can be equitable only if their burden is evenly distributed over the entire population. -->  Again, OFS. We are concerned about increasing government revenues.

KarishmaB · Answer

Premises:

- Proponents say that a tax of this sort would be an equitable way to increase government revenue because the burden would fall only on wealthy people and neither they nor anyone else would suffer any economic hardship.
(they have enough money and no one else will suffer)

- In fact, however, 20 percent of the workers employed by manufacturers of luxury boats have lost their jobs as a direct result of this tax.
(others have suffered)

The information given, if true, most strongly supports which of the following?
The question is asking for what is most strongly supported. Keep in mind that in this case, we have to look for the "most likely to be true" option. It is often "necessarily true" but may not be.

(A) The market for luxury boats would have collapsed even if the new tax on luxury boats had been lower.

We have no information to support this.

(B) The new tax would produce a net gain in tax revenue for the government only if the yearly total revenue that it generates exceeds the total of any yearly tax-revenue decrease resulting from the workers' loss of jobs.

Correct. This is true. The tax will produce a net gain only if revenue generated is more than the revenue lost because of the tax. We know that some revenue has been lost. In fact, this is true for every kind of tax, not just this one if the tax leads to loss of some revenue.

(C) Because many people never buy luxury items, imposing a sales tax on luxury items is the kind of legislative action that does not cost incumbent legislators much popular support.

No discussion on what impacts popular support in the argument.

(D) Before the tax was instituted, luxury boats were largely bought by people who were not wealthy.

Unlikely to be true. We are given that it is expected that the burden would fall only on wealthy people. It means that only the wealthy buy boats.

(E) Taxes can be equitable only if their burden is evenly distributed over the entire population.

This is unlikely to be true as per our argument. We are given "a tax of this sort would be an equitable way to increase government revenue because the admittedly heavy tax burden would fall only on wealthy people"

Answer (B)

Firdaus · Answer

Proponents of the recently introduced tax on sales of new luxury boats had argued that a tax of this sort would be an equitable way to increase government revenue because the admittedly heavy tax burden would fall only on wealthy people and neither they nor anyone else would suffer any economic hardship. In fact, however, 20 percent of the workers employed by manufacturers of luxury boats have lost their jobs as a direct result of this tax.

If the answer is not D, then why draw the contrast? Why is the loss of manufacturing jobs the only deficit the plan has to cover?

someone please help

In fact, however, 20 percent of the workers employed by manufacturers of luxury boats have lost their jobs as a direct result of this tax ( This is the conclusion - main point advocated by the author)

Inference : if these statements are true then following must also be true.
 Tax will increase gov revenue only if tax gained from sale of boats will be greater than tax lost as a result of loss of workers job.

Mahamudul608 · Answer

how can one understand that the issue discussed is about government revenue? why D is incorrect?

adkikani · Answer

Hi GMATNinjaTwo
Are you in line with Firdaus s explanation.
As per me there is no main conclusion in this argument and the last sentence is
a premise supporting the first statement.
Let me know your views :-)

WR,
Arpit

WR, Arpit

GMATNinjaTwo · Answer

I agree that the passage does not have a main conclusion. It is an inference question, and we are looking for a statement that is most strongly supported by the statements in the passage. Thanks for asking!

gmati3 · Answer

I think Option B is not very well formatted as it compares "yearly total revenue" with "total of any yearly tax-revenue".

Experts need help..

GMATNinja · Answer

Option (B) refers to the "yearly total revenue" produced by the new tax.

We are told that 20 percent of the workers employed by manufacturers of luxury boats have lost their jobs as a direct result of this new tax. This loss of jobs MAY result in a decrease in tax revenue, but we can't be sure based on the information given. Perhaps none of those workers were paying taxes in the first place, and, thus, the loss of jobs will have no effect on tax revenue. Or perhaps those workers found other jobs and will end up paying the same amount in taxes.

However, maybe some or all of those workers who lost their jobs were paying taxes each year, and now the government is not going to get that money. If that's the case, we have to add up ALL of the resulting decreases and compare the total amount to the "yearly total revenue" produced by the new tax. If the yearly total revenue produced by the new tax is greater than "the total of any yearly tax-revenue decrease resulting from the workers' loss of jobs", then the new tax will produce a net gain in tax revenue for the government.

I hope that helps!

nahid78 · Answer

What does the word Equitable imply here, given that 20 % of the workers have lost their job.

abhimahna · Answer

Hey  nahid78  ,

As per the argument, proponents said imposing the tax laws will be equitable(fair) to increase the revenue of government as only wealthy people will have to pay those huge taxes.

But then author also pointed out that 20% of the workers have also lost the jobs.

Note that our scope is limited to increasing the revenue of the government via these laws. Now, if we are saying government is getting the benefit even after the loss, that means overall benefit is greater than the loss we are getting. This is what option B is doing.

Remember: Despite the fact that workers are loosing jobs, author mentioned it equitable. So, we need to only revolve around this point. We should not go beyond this and think how can this be equitable. Author has mentioned some facts and we need to consider them a source of truth.

Does that make sense?

IQuantToCry · Answer

Proponents of the recently introduced tax on sales of new luxury boats had argued that a tax of this sort would be an equitable way to increase government revenue because the admittedly heavy tax burden would fall only on wealthy people and neither they nor anyone else would suffer any economic hardship. In fact, however, 20 percent of the workers employed by manufacturers of luxury boats have lost their jobs as a direct result of this tax.

If the answer is not D, then why draw the contrast? Why is the loss of manufacturing jobs the only deficit the plan has to cover?

someone please help

If the answer is not D, then why draw the contrast? Why is the loss of manufacturing jobs the only deficit the plan has to cover?

someone please help

GMATNinja · Answer

I'm not sure that I understand your question completely, but I'll give it a shot! Which contrast are referring to? The author mentions that 20% of workers employed by manufacturers of luxury boats have lost their jobs as a direct result of this tax. This isn't a contrast; it's an observation of an unintended consequence of the tax. And remember, the question asks: So, as the OA explanation points out, our task is to pick the choice that is best supported by the passage. The passage never states or suggests that luxury boats were largely bought by people who were not wealthy. In fact, the passage suggests the opposite: "...a tax of this sort would be an equitable way to increase government revenue because the admittedly heavy tax burden would fall only on wealthy people and neither they nor anyone else would suffer any economic hardship." I may have misunderstood your question, but I hope this helps anyway! Fantastic username, by the way!

mallya12 · Answer

Aren't we supposed to derive information from the argument in the inference question? The next tax gain for the government isn't mentioned in the argument.

I thought in inference question we use the facts or combine facts to draw something. But the net tax again is a totally new concept.

What I thought before jumping into the answer choices is that some wealthy people must have stopped buying luxury boats due to the increase in tax. So the sales must have been low. Therefore, people lost jobs.

Also, what does option C mean? and why is it wrong?

Please clarify my doubt.

GMATNinja · Answer

To answer this inference question, we do need to use the information in the passage. That does not mean that the concepts in the correct answer choice need to be explored in the passage -- instead, we just need to see which of the statements would be supported if the information in the passage were true.

So you are correct that "net tax gain for the government" is not specifically addressed in the passage, but we can infer that (B) is correct based on the given information (that proponents expect this tax to increase government revenue, but that 20% of luxury boat manufacturing workers lost their jobs as an unexpected consequence of the tax). For a more thorough explanation of why (B) is the correct answer, please see  this  post.

Let's take a look at (C):
 
"Incumbent legislators" are elected officials who are already in office. A "legislative action" could be something like supporting or voting for a new law. Doing so could cost the legislator popular support if that new law happens to be very unpopular among voters.

For example, let's say that I am an elected official representing a district where most of the residents are filthy rich and like to spend their money on fancy yachts. I then support a new law that would create a huge tax on the sale of luxury boats (i.e. fancy yachts). If the law is passed, the people in my district might be upset because they would then have to pay a lot of extra tax money whenever they buy yachts. In this example, the new law is unpopular among voters in my district. Supporting the law would be a "legislative action" that would likely cost me some "popular support".

Now back to choice (C):

According to (C) imposing a sales tax would not cost incumbent legislators much popular support. Why not? Because "many people never buy luxury items (LI)". Since those people never buy LI,  they  certainly aren't going to care whether a sales tax on LI's is imposed.

But does the passage  support  this statement? There is absolutely nothing in the passage suggesting that "many people never buy luxury items." Also, even if it's true that  many  people never buy LI's, many OTHER people might buy LI's all the time. In fact, MOST people might buy LI's regularly. So even if many people never buy LI's, imposing a sales tax on LI's could still cost incumbent legislators plenty of popular support.

There is nothing in the passage to support either part of choice (C), so we can eliminate that one.

I hope this helps!

Krishchamp · Answer

Hey so i still have a doubt in option D.
According to option luxury boats were purchased by not wealthy people before. So now after the tax increase, the burden would be more on these people than on wealthy people and thus such a situation of increased burden might have led to 20% increase in job loss from not wealthy people class. I mean this could still explain and support the argument right that why such a tax system would have been flawed because it failed to target rich class.

GMATNinja · Answer

Take another look at the exact wording of the question:

The information given, if true, most strongly supports which of the following?  
Our job isn't to  support and explain  the passage, our job is to find the answer choice that is best  supported BY  the passage.

As explained in  this post ,  based on the information in the passage , we cannot assume that the people who decided not to buy luxury boats because of the tax were not wealthy. Even if we could, we would not be able to assume that luxury boats were LARGELY bought by people who were not wealthy before the tax was instituted -- this is why (D) cannot be the correct answer to this question.

I hope that helps!

egmat · Answer

The correct answer - Option B.

Passage Analysis:

As per proponents of the luxury tax -

1. The tax is a fair (equitable) way to increase revenue for the government  because 
2. The heavy tax burden will fall only on wealthy people (who can handle it!) and nobody else would suffer any economic hardship

However,
20% of workers employed by luxury boat manufacturers have lost their jobs because of the tax. (i.e. other people have suffered because of this tax).

Pre-thinking

The tax was introduced with the objective of increasing revenue for the government.

But the plan will work only if

the total tax revenue obtained from the tax on luxury boats > any tax decrease due to workers becoming unemployed (the government will miss out on any income tax they would have otherwise got from the workers)

If the above is not true, the luxury boat tax would not have earned money for the government, overall (net).

Option Choice Analysis

(A) The market for luxury boats would have collapsed even if the new tax on luxury boats had been lower.
This cannot be inferred. For all we know, the collapse of the market (which led to job loss) occurred specifically because wealthy people (who buy luxury boats) preferred not to buy boats at an increased price, as was caused by the tax. Maybe if the tax was a little lower, many of these people may have bought boats.

(B) The new tax would produce a net gain in tax revenue for the government only if the yearly total revenue that it generates exceeds the total of any yearly tax-revenue decrease resulting from the workers' loss of jobs. 
Correct. As per pre-thinking. A net gain is possible only if the revenue from boat tax is greater than/exceeds revenue lost due to job loss.

(C) Because many people never buy luxury items, imposing a sales tax on luxury items is the kind of legislative action that does not cost incumbent legislators much popular support.
Irrelevant. We have no data to infer anything about popularity/support, etc.

(D) Before the tax was instituted, luxury boats were largely bought by people who were not wealthy.
It is not necessarily true. we cannot definitely (with 100% say) that the market collapsed because the segment of people who were not wealthy but would have bought luxury boats were the main customers, and they decided not to buy because of the increased price (due to tax). For all we know, this segment was tiny/non-existent and the wealthy people decided not to buy.

(E) Taxes can be equitable only if their burden is evenly distributed over the entire population.
Out of scope.

Hope this helps.
Regards

M838TE · Answer

GMATNinja  @empowergmat
At first thought, I went for answer that explains the assumption of the proponents in the passage that led to the 20% loss of employment.
I was left with and E after process of elimination. still, I chose the wrong answer because I thought B did not really capture or drew any conclusion from the information: 20% of people lost their jobs. Whole time I was looking for something that imply a miscalculation of the proponent as the inference...
is this just me? I mean I guess if you read the question really fast, you might just look for how the action of the tax policy maker could be true...but I was trying to figure out why I got this question wrong...
Is this just me ?

Proponents of the recently introduced tax on sales of new luxury boats

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Proponents of the recently introduced tax on sales of new luxury boats

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