Urban planner: The mayor of Dismaston supports a new tax code that wou

Question

Urban planner: The mayor of Dismaston supports a new tax code that would assess local businesses on the property value of their site rather than on their income or profits; the mayor argues that this change will not contribute to any loss in tax revenue for the city. Several city council members disagree, citing similar changes to tax code that were unsuccessful in cities similar to Dismaston. The council members’ argument is without merit, though, because property values rise steadily each year, while business incomes fluctuate wildly with the national economy.

Which of the following is an assumption on which the argument depends?

(A) The new tax code would not apply to the significant number of online business associated with the city that have no physical presence on a piece of property in the city.

(B) In previous years, the successes and failures of many previous Dismaston tax codes to generate income have been mirrored by similar tax codes in the the same cities similar to Dismaston in other respects.

(C) A small number of store fronts in the downtown neighborhood are vacant: under the new code, these businesses are likely to owe higher taxes than they have paid, unless some loophole is written into the law.

(D) The annual percentage rise in real estate values in Dismaston has been consistently more than the average annual growth rate percentages across all businesses with properties in Dismaston.

(E) In any year, some unsuccessful businesses will close and other businesses, some quite promising, will open, but total amount of property in the city is fixed and unchanging, providing greater stability.

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For the GMAT CR questions, it's crucial to understand assumptions and the Negation Test for them. For a discussion of these issues, as well as the OE of this question, see:
https://magoosh.com/gmat/2016/gmat-crit ... questions/

Mike

mikemcgarry · Accepted Answer

Dear hellosanthosh2k2 , I'm happy to respond.

First of all, this is tricky. We are finding the assumption to the argument, but which argument? The major makes an original argument. Then the city council makes a conflicting argument. Then the urban planner , the speaker here, makes the argument that, " council members’ argument is without merit ." This is the argument that we are trying to support: we are trying to find the assumption of the urban planner's argument , the argument against the city council's claim. I'll also say: to really get into the logic of GMAT CR, you can't think in terms of abstract logic: instead, you have to think like a business person. See: GMAT Critical Reasoning and Outside Knowledge Suppose a business person has to choose between option A and option B. Suppose he chooses option A and gains $10,000, but if he had chosen option B, he would have made $50,000. In business terms, he lost money by choosing A. If his boss were reprimanding him for choosing A rather than B (suppose there was some data that this person had overlooked about the advantage of B), then telling his boss, " But A still made money " would be a useless and pointless defense and the boss is going to get madder if she hears that. If you make a choice that makes you less money than you could have made, then for all intents and purposes, you have lost that money. Thus, if (D) is false, if business profits rise faster than real estate, then by choosing this plan, Dismaston would be making less money in terms of tax income than it could have made, and the city council would be in every position to tell the mayor that his plan, his choice of taxing property, resulted in Dismaston losing money it could have made. That's a loss and the city council could accuse the mayor on this basis. At that point, it would be completely useless for the mayor to object, "Even though we made less money, we still made money." Now, let's think about (E). Here's (E): (E) In any year, some unsuccessful businesses will close and other businesses, some quite promising, will open, but total amount of property in the city is fixed and unchanging, providing greater stability . So, from this we know property is fixed, so presumably income from property tax would be fixed. How does that compare to business income? What does this choice imply about business income? We know some unsuccessful (i.e. low income, low profit) business close (a small loss), and other open (a gain). Some of the ones that open are very successful ==> high income, high profit ==> high gain in the current tax structure. So, overall, business has some loss and some gain. How does the net result of gain & loss in revenue from income/profit tax compare to the relatively constant value of property tax? It's really unclear! It could be that the income/revenue has a net gain, so that it does better than the fixed constant of property tax, or it could be that the latter comes out to a net loss, so that the fixed constant value of property tax is better. We don't know which way it will go. If we have no idea whether a statement is strengthener or a weakener, then it most certainly can't be an assumption of the argument. Does all this make sense? Mike

Harley1980 · Answer

Hello, Omar.

This is the conclusion of the argument.

"The council members’ argument is without merit, though, because property values rise steadily each year, while business incomes fluctuate wildly with the national economy."

This is a correct conclusion if business incomes fluctuate more in the lower direction. 
But if business fluctuates more in the growth direction then the conclusion is wrong .
In other words, we should understand what we have in average: business income growth bigger than property average growth or vice versa.

In D we clearly see that growth of property will grow faster than the growth of business incomes.

A is wrong because we don't know exactly how many online businesses in this city. 
For example, the city has 99.99% of tax revenue from offline businesses and 0.01% from online. Then city doesn't care about taxes from online.
But if the city has 99,99% of tax revenue from online businesses than argument A creates a problem. 
So for argument A to be correct we need to know the ratio of online to offline businesses.

OmarFirdaus · Answer

Dear Mike, 
Could you please ellaborate why D is correct.

My assessment was that, what if Business total income or profit in city was 1000M $ ( with 1% average annual growth) compared to 100M $ ( with 2% annual growth rate). Then such a growth would not be beneficial for new tax code.

However if city has significant number of online business with no property ( let o.business is 60-70% of total businesses) than they would not be paying as per new tax code and overall tax will be low.

Negating A i.e. would falsify the conclusion and mayor plan will backfire.

The new tax code would apply to the significant number of online business associated with the city that have no physical presence on a piece of property in the city.

Kindly share some wisdom

mikemcgarry · Answer

Dear Omar, I see that Harley1980 already gave you a good response, and I am happy to respond as well. :-)

What is very tricky about this argument is that there are layers of arguments packed inside one another. 1) The mayor makes an argument for his tax plan. 2) The city council may a counterargument against (1) 3) The author of the prompt makes a counterargument against (2), essentially supporting (1) The target of any GMAT CR prompt (assumption, strengthen, weaken, etc.) is ALWAYS the argument of the author of the prompt argument . Here, we are asked to find an assumption for (3), which necessarily would support (1) as well. We are not trying to damage the mayor's plan----we are trying to support it, because (3) supports (1). Does all this make sense? Mike :-)

OmarFirdaus · Answer

Got it ............
Thanks HARLEY & MIKE.

chesstitans · Answer

D is a very common pattern in gmat. A is also another pattern, and in this question, A is a trap n/c A does not concern directly with the revenues or profits from taxes.
B,C,E are definitely out of scope.

Ravindra.here · Answer

mikemcgarry Wonderful question Mike No doubt you are the best. Though it took me around 4 minutes to solve it, but the time was worth spent on the question(( the answer was correct

) Was confused a bit between D and E but the tired negation on E and wasnt getting any good conclusion destruction D is a clear winner here My takeaways (D) The annual percentage rise in real estate values in Dismaston has been consistently more than the average annual growth rate percentages across all businesses with properties in Dismaston. Given in the question property values rise steadily each year, while business incomes fluctuate wildly with the national economy. Here anual percentage rise of real estate values (( properties )) is consistent means that property value rise every year consistently. the average annual growth rate of businesses with properties signifies the business income fuctuations (( An average encapsulates the total sum/ total number , now this could mean that sometimes the numbers contributing to the sum can be high and some time low in all they are not consistent, but fluctuating negating this breaks the conclusion provided by urban planner P.s. wonderful question Mike

hellosanthosh2k2 · Answer

Hi  mikemcgarry 
 
 I have one question. The Mayor's argument is "this change will not contribute to any loss in tax revenue for the city", so as per choice D, " The annual percentage rise in real estate values in Dismaston has been consistently more...", even if businesses make more growth, as long as amount of property and value of the properties raise, city can continue to get revenue as the mayor claims. I am not able to see how negation of D weakens the argument.

Had mayor argued that new tax code based on property tax would be better than tax code based on businesses profits, choice D would have been perfect assumption.

I felt choice E is the assumption. Please help me eliminate E.

Thanks

hellosanthosh2k2 · Answer

Hi  mikemcgarry , Thank you for detailed explanation, it makes lot of sense. +1 to you

Ganeshmantri · Answer

Hey  Harley1980  and  mikemcgarry ,

I still have a question regarding option E.

Premise 1 (by the mayor): "the mayor argues that this change will not contribute to any loss in tax revenue for the city"
Premise 2 (by the urban planner) : "property values rise steadily each year, while business incomes fluctuate wildly"

D: Definitely supports one of the premises, Not a wrong answer 
BUT 
E: - but total amount of property in the city has been fixed and unchanging.. 
Doesn't this strengthen the planners argument that property values rise each year, and if the amount of property is fixed, income would also rise each year.. ?
Also, if we negate it, lets say property amount has been changing - this definitely weakens the argument if the amount of property reduces.

Anyways, to me E looks to be a better strengthener to the 'urban planners' argument than D.

Kindly shed some light. Thanks!

RiyaJ0032 · Answer

Hi!  mikemcgarry

(D) is incomplete as an assumption

because when you look at (A),
you understand that there are essentially 2 assumptions needed for the argument - "there will be no loss in tax revenue"

i) that the rise in property values > rise in business profits
ii) if there are a "significant" number of online businesses, then for us to not lose tax revenue, we cannot apply the new tax code on these businesses
 ,

(D) looked more of a strengthener than an assumption
because even if we negate (D) , the conclusion won't really fall

because this option says "growth rate" is more, that does not mean that the absolute value of the real estate is more than the business profits, it could be more or less

but if (A) is negated, then because of their "significant" numbers, we can be sure that there would be a decline in tax revenue

If any expert could please help with this, thank you!
 DmitryFarber 
 MartyMurray 
 GMATNinjaTwo 
 KarishmaB

DmitryFarberMPrep · Answer

RiyaJ0032

A couple of things to watch out for:

*The right answer to an assumption question does not have to be "complete" and represent ALL the assumptions the author is making. That would be a sufficient assumption, and I've never seen a GMAT question ask for that. Unless they state otherwise, they are looking for any necessary assumption, so don't try to compare assumptions based on how much they cover. Either they are needed or not. One should be needed and the four wrong answers should not--that's it.

*Be careful about assuming we know or need to know the specific numbers. In this case, we don't know how the current tax system works, what the rates are, etc. For A, we don't know what the negation would mean. If the law DOES apply to online businesses, does it apply some sort of minimum tax? We can't assume any revenue is lost there. For D, sure, we don't know the current values. But since we don't know anything about either tax system, that doesn't matter. Presumably, they could make a system that replicates or increases current tax revenues. Then as long as the real estate values grow faster than those wildly fluctuating business incomes, there's no reason to expect a loss.

In your defense, I think this question gets into more gritty business detail than a real GMAT question would. There are too many unknowns to make D feel truly necessary. It's the best shot we have, so I'd still pick it, but normally it should be really clear that one answer is definitely needed and the rest are not.

RiyaJ0032 · Answer

Hello  DmitryFarber !

Thanks a ton for the crystal clear explanation

just wanted to point out one thing - 
" If the law DOES apply to online businesses, does it apply some sort of minimum tax?"

from the given argument, it is clear that the law does apply to online business - "  a new tax code that would assess local businesses on the property value of their site rather than on their income or profits"

this means, previously all these local businesses (online + offline) were being taxed on their profits, now it's on real estate 
 unless we assume that these online businesses do not make any profits, we can be sure, there is no revenue lost

but that is illogical to assume, there must definitely be some profit coming from these online businesses 
 and if they have a "significant" number, then it can be that the new tax code (if it does not apply to online businesses) might result in some lost revenue despite growing real estate prices

DmitryFarberMPrep · Answer

My point is that since the law doesn't seem to apply to online-only businesses, we don't know what it would mean for it to do so. It may be that for a law to *apply* to a business, it must have some stipulation about that kind of business, and we don't know what that would be. Nothing we've been told would preclude the law from including a minimum alternative tax based on neither property value nor profits. It could also mean that there are online businesses that are connected to properties OUTSIDE the city, but which could still be taxed on the basis of their property values.

In any case, since "tax code" refers to the entire body of tax law, the argument can't rely on the law simply not applying to these businesses. In other words, A doesn't mean that the old law remains in effect--it just means that the city's tax law wouldn't apply to these businesses at all. That hardly seems necessary to the argument. Negating it says that the law DOES apply, whatever that means, and that in itself doesn't hurt the argument. The fact that there are many online-only businesses might be a problem, but applying some sort of law to them is not.

RiyaJ0032 · Answer

Hello !  DmitryFarber

"A doesn't mean that the old law remains in effect--it just means that the city's tax law wouldn't apply to these businesses at all. That hardly seems necessary to the argument. Negating it says that the law DOES apply, whatever that means, and that in itself doesn't hurt the argument"

I think I have now completely understood why (A) isn't necessary for the argument to hold

Your explanations are so to the point and crystal clear, removing any ambiguous assumptions one might develop while reading an option

Thanks again!

Vibhatu · Answer

someone please explain why A is not the answer? thanks in advance!!

DmitryFarberMPrep · Answer

The posts above get into quite a bit of detail about A, so let us know if you have a specific question/objection about it. I can quote my initial take, but I'll also reiterate that this question isn't quite up to official quality, in that D doesn't seem strictly necessary:

Here's my explanation from above:

" Be careful about assuming we know or need to know the specific numbers. In this case, we don't know how the current tax system works, what the rates are, etc. For A, we don't know what the negation would mean. If the law DOES apply to online businesses, does it apply some sort of minimum tax? We can't assume any revenue is lost there. For D, sure, we don't know the current values. But since we don't know anything about either tax system, that doesn't matter. Presumably, they could make a system that replicates or increases current tax revenues. Then as long as the real estate values grow faster than those wildly fluctuating business incomes, there's no reason to expect a loss."

PSKhore · Answer

The correct answer is (D)  
The annual percentage rise in real estate values in Dismaston has been consistently more than the average annual growth rate percentages across all businesses with properties in Dismaston.

Explanation: 
The argument relies on the assumption that even if business incomes fluctuate, the overall tax revenue will remain stable or increase because property values are steadily rising. This is because the new tax code will be based on property value, and since property values are consistently rising, the city is likely to collect at least the same amount of tax revenue, if not more. Therefore, option (D) accurately reflects this assumption.

Why other options are incorrect:

(A)This option is not necessarily an assumption the argument depends on. While it might be true that some online businesses have no physical presence and would not be taxed under the new code, the argument focuses on the overall trend of property values and its impact on tax revenue, regardless of the specific taxation of online businesses.

(B)This option is not a direct support for the argument. The argument is about the current tax code and its impact, not past failures of similar tax codes in other cities. While past failures might be used as evidence by the council members, they do not invalidate the argument based on the steady rise of property values.

(C)This option is irrelevant to the argument's central point. The vacancy of storefronts and potential tax increases for these businesses are secondary considerations. The argument focuses on the overall impact of the new tax code based on the trend of property values.

(E)This option is not a strong assumption supporting the argument. While the total amount of property may be fixed, the argument does not rely on this assumption. The focus is on the rate of increase in property values, which is what matters for determining tax revenue under the new code. A fixed amount of property with a steady increase in value would still result in increased tax revenue.

Source: AI Overview

anuragskashyap · Answer

I have some doubts regarding A and D.
We are discarding A because it is not considering the ratio of online to offline business.
BUT, similarly negating D--> "value not consistently more than average", so value might be equal, right?
In case of equal, it is not attacking the conclusion.
Both A and D have something issue. I had the confusion between these two, and as A clearly mentioned about significant number of online business that means, it will impact on the new method. That's why i have chosen A.

Urban planner: The mayor of Dismaston supports a new tax code that wou

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