State revenues from the corporate income tax are seriously threatened

Question

State revenues from the corporate income tax are seriously threatened by the new trend toward decentralization of corporate headquarters. Many of the companies leaving the city and its extensive public transportation system are finding it necessary to purchase costly fleets of executive limousines to transport personnel to and from the far-flung suburbs. Because money spent on these vehicles is deductible from gross corporate income as an expense of doing business, such companies are thus paying lower taxes to the state. We must take action to avoid the loss of these much-needed tax revenues.

Which of the following, if true, most weakens the reasoning on which the argument depends?

(A) Higher personnel transport costs are offset by other savings at the new corporate headquarters.

(B) Tax revenues lost from corporations leaving the state will exceed those gained if company vehicle purchases are restricted.

(C) Increased taxes are paid by the state's automobile manufacturers as a result of rising demand for limousines.

(D) Business executives prefer the convenience of commuting in a well-equipped limousine with a driver.

(E) Corporate relocations to suburbs cause cities numerous economic difficulties.

pd96 · Answer

How is C the correct answer? Isn't it introducing a new topic of automobile manufacturers that is not directly related to the argument?

B, on the other hand makes a strong point of how the new regulation could further reduce revenue.

Sarkar93 · Answer

Hi  pd96 ,

Hope you are doing well !

Option C states that the loss in state revenue from corporate income tax is being offset by automobile manafacturers paying more tax because of the rise in demand of limousines. So basically there is no net loss in revenue for the state as the revenue amount that the state used to earn remains the same, only the source of revenue generation has changed from big corporations to automobile manufacturers. So this weakens the conclusion which states that big corporations are paying less revenue. This is indeed the case but that reduction is getting cancelled out by the gain in tax amount from the automobile manufacturers.

naveenban · Answer

Hi,
Can anyone provide the Official explanation of this answer.
Confused between A and C.

diegoahernandezb · Answer

Hi!

Hope this helps.

The main idea of the argument is: "State revenues from the corporate income tax are decreasing".

The reason behind the decrease is that companies are reducing their taxable income since they are deducting (subtracting) the acquisiton of limousines as an expense.

Therefore, one needs to find an answer that weakens the reasoning and likely we need something related to the taxable income of the companies or to the collection of taxes levied on the taxable income. Let's review our answers:

(A) Higher personnel transport costs are offset by other savings at the new corporate headquarters   -> Incorrect. This action does not affect the taxable income of the companies or the collection of taxes.

(B) Tax revenues lost from corporations leaving the state will exceed those gained if company vehicle purchases are restricted.   -> Incorrect. Seems to be a reverse answer.

(C) Increased taxes are paid by the state's automobile manufacturers as a result of rising demand for limousines.   -> Correct answer. This brings new information to the argument. Although the companies under analysis are reducing their taxable income via deduction, there are other companies whitin the State (state's automobile manufacturers) that will collect a higher taxable income and therefore will be taxed on it. This offsets the lose in taxes from other companies.

(D) Business executives prefer the convenience of commuting in a well-equipped limousine with a driver.   -> Incorrect. Nothing that affects the taxable income nor the taxes.

(E) Corporate relocations to suburbs cause cities numerous economic difficulties.   -> Incorrect. Nothing that affects the taxable income nor the taxes.

Jeringas · Answer

Hi, a little bit confused on why it ́s not B. Can someone challenge my answer, please?

Let’s evaluate the options:
(A) Higher personnel transport costs are offset by other savings at the new corporate headquarters.

This may explain why companies are moving, but it doesn’t weaken the idea that limousine purchases are reducing taxable income.
→ Doesn’t weaken the argument directly.

(B) Tax revenues lost from corporations leaving the state will exceed those gained if company vehicle purchases are restricted.

This directly weakens the idea that restricting vehicle deductions will solve the revenue problem. It suggests such a restriction could backfire, causing even greater loss.
→ ✅ Strongly weakens the argument.

(C) Increased taxes are paid by the state’s automobile manufacturers as a result of rising demand for limousines.

This shows a potential offsetting benefit to the state, but it doesn’t refute the logic that limousine deductions lower corporate taxes.
→ Somewhat weakens, but less directly.

(D) Business executives prefer the convenience of commuting in a well-equipped limousine with a driver.

Describes a preference, but does not challenge the logic of the deduction reducing state tax revenue.
→ Irrelevant.

(E) Corporate relocations to suburbs cause cities numerous economic difficulties.

Talks about other economic impacts, not the tax revenue mechanism.
→ Irrelevant to weakening the specific reasoning.

✅ Correct answer: (B)
It directly challenges the assumption that limiting deductions will benefit state tax revenues, thereby weakening the argument’s foundation.

ManifestDreamMBA · Answer

Even I have similar reasoning

State revenues from the corporate income tax  are seriously threatened by the new trend toward decentralization of corporate headquarters. Many of the companies leaving the city and its extensive public transportation system are finding it necessary to purchase costly fleets of executive limousines to transport personnel to and from the far-flung suburbs. Because money spent on these vehicles is deductible from gross corporate income as an expense of doing business, such companies are thus paying lower taxes to the state. We  must take action to avoid the loss of these much-needed tax revenues .

Because of the highlighted components above, it doesn't matter if state’s automobile manufacturers are paying more taxes. the concern is the corporate income taxes are being evaded owing to the deductions from gross revenue. Which makes B stronger weakener against C

Experts please share feedback    MartyMurray   GMATNinja   DmitryFarber

eklavyarjun · Answer

the question seems wrong to me. 
A) If the cost has been offset by other savings, the overall profit of the companies will not change and thus, the taxes paid will also not come down
C) Automobile companies are paying more corporate tax as a result of rising revenues due to increased demands for their cars which means there is no overall loss of tax revenue for the state (assuming that the rate of tax is same for both type of companies since they are both corporates at the end of the day)

In each case, there is no loss of corporate tax for the state. There is no error in either of the options.

Kindly comment.

Rishmadhu · Answer

To determine which option most effectively weakens the reasoning of the argument, we need to identify the argument's central claim and then find evidence that undermines its logic. The argument suggests that state tax revenues are threatened because companies are relocating and deducting limousine expenses, thereby paying lower taxes. To weaken this, we need to show that the tax revenue is not actually diminished or is compensated by other means.

Let's evaluate each option:

(A) Higher personnel transport costs are offset by other savings at the new corporate headquarters.

This option suggests that while transport costs may increase, other savings at the new headquarters may balance out or even exceed these costs. However, the argument focuses on the specific deduction related to limousine expenses, so this option does not directly address the impact of deductible expenses on tax revenues.
(B) Tax revenues lost from corporations leaving the state will exceed those gained if company vehicle purchases are restricted.

This option suggests that restricting vehicle purchases would not solve the problem because the tax revenue loss from companies leaving the state is greater than any gain from limiting deductions. This does not directly address the argument's focus on deductions from limousine purchases, but rather highlights a broader tax revenue issue. It does not effectively weaken the argument's reasoning regarding deductions.
(C) Increased taxes are paid by the state's automobile manufacturers as a result of rising demand for limousines.

This option introduces a new source of tax revenue: the increased demand for limousines boosts the state's automobile manufacturers' tax contributions. If the increased tax from manufacturers compensates for the loss from corporate deductions, the argument's claim that tax revenues are seriously threatened is weakened. Therefore, this option effectively weakens the argument.
(D) Business executives prefer the convenience of commuting in a well-equipped limousine with a driver.

This option merely provides a reason for executives choosing limousines; it does not address the issue of tax deductions or revenue loss for the state.
(E) Corporate relocations to suburbs cause cities numerous economic difficulties.

This option shifts focus to general economic issues for cities rather than addressing the specific tax revenue issue due to deductions. It does not weaken the argument about corporate income tax revenues.
Therefore, the correct answer is (C) because it provides an alternative source of tax revenue that offsets the loss from limousine-related deductions.

State revenues from the corporate income tax are seriously threatened

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State revenues from the corporate income tax are seriously threatened

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