Sales taxes tend to be regressive, affecting poor people more severely

Question

Sales taxes tend to be regressive, affecting poor people more severely than wealthy people. When all purchases of consumer goods are taxed at a fixed percentage of the purchase price, poor people pay a larger proportion of their income in sales taxes than wealthy people do.

It can be correctly inferred on the basis of the statements above that which of the following is true?

(A) Poor people constitute a larger proportion of the taxpaying population than wealthy people do.

(B) Poor people spend a larger proportion of their income on purchases of consumer goods than wealthy people do.

(C) Wealthy people pay, on average, a larger amount of sales taxes than poor people do.

(D) The total amount spent by all poor people on purchases of consumer goods exceeds the total amount spent by all wealthy people on consumer goods.

(E) The average purchase price of consumer goods bought by wealthy people is higher than that of consumer goods bought by poor people.

KarishmaB · Accepted Answer

When all purchases of consumer goods are taxed at a fixed percentage of the purchase price, poor people pay a larger proportion of their income in sales taxes than wealthy people do.

The obvious point here is why? Why should poor people pay a larger proportion? If everyone is paying say 10%, poor people are also paying 10% and so are rich. So if poor people are spending $100, they are paying $10 and if rich are spending $1000, they are paying $100. As a proportion of their income, they are paying same tax.
Until and unless, poor are spending more of their income on consumer goods and rich are spending less. I took an extreme example here to make sense immediately to me - say poor are spending the entire $100 they are earning on consumer goods and paying $10 tax (so 10% of their income) while rich are saving half their income and spending only half on which they pay 10% tax. So they are paying no tax on half of their income and hence as a proportion of their income, tax paid is much less than 10%.

(A) Poor people constitute a larger proportion of the taxpaying population than wealthy people do.

Not known. How many of the tax payers are rich and how many are poor is unknown.

(B) Poor people spend a larger proportion of their income on purchases of consumer goods than wealthy people do.

This matches the logic we discussed above. Poor people must be spending a larger proportion of their income on consumer goods to end up paying a larger proportion of their income as tax. Else everyone would be paying the same 10% of their spend as tax.

(C) Wealthy people pay, on average, a larger amount of sales taxes than poor people do.

Quite probably true but not implied from the argument. The argument doesn't tell us that wealthy spend more on consumer goods (and hence pay higher tax). The argument does not tell us that the poor spend $100 per person on consumer goods and wealthy spend $1000 per person. It just says that poor people pay a larger proportion of their income as tax.

(D) The total amount spent by all poor people on purchases of consumer goods exceeds the total amount spent by all wealthy people on consumer goods.

This depends on the number of poor, the number of rich, the avg spend of poor and the avg spend of rich. We don't know any of these figures and hence we cannot deduce this.

(E) The average purchase price of consumer goods bought by wealthy people is higher than that of consumer goods bought by poor people.

Again, probably true but the argument does not imply this. It tells us nothing about the average purchase price of consumer goods.

Answer (B)

cssk · Answer

+B.

This is a percentage inference question. All that I do to answer such questions is to pay strong attention to the details of the argument. For example, I shall not choose an answer choice that talks about absolute quantities or numbers when the argument only tells me about proportions or percentages. Let's look at details now.

Sales taxes tend to be regressive, affecting poor people more severely than wealthy people. When all purchases of consumer goods are taxed at a fixed percentage of the purchase price, poor people pay a larger proportion of their income in sales taxes than wealthy people do.
It can be correctly inferred on the basis of the statements above that which of the following is true?
(A) Poor people constitute a larger proportion of the taxpaying population than wealthy people do. The argument does not mention anything about the proportions of poor and wealthy people. 
(B) Poor people spend a larger proportion of their income on purchases of consumer goods than wealthy people do. Correct. Since poor people pay larger proportion of their income in sales taxes than do wealthy people, it is true that poor spend larger proportion of their income on purchasing consumer goods than do wealthy people. 
(C) Wealthy people pay, on average, a larger amount of sales taxes than poor people do. How can we infer the actual amount of sales taxes? Wrong. 
(D) The total amount spent by all poor people on purchases of consumer goods exceeds the total amount spent by all wealthy people on consumer goods. Again the total amount spent. Same as C. 
(E) The average purchase price of consumer goods bought by wealthy people is higher than that of consumer goods bought by poor people. Average is an absolute quantity. Same as C and D. Wrong.

Hope that helps.

semwal · Answer

Sales taxes tend to be regressive, affecting poor people more severely than wealthy people. When all purchases of consumer goods are taxed at a fixed percentage of the purchase price, .
It can be correctly inferred on the basis of the statements above that which of the following is true?
(A) Poor people constitute a larger proportion of the taxpaying population than wealthy people do.   IRRELEVANT 
(B) Poor people spend a larger proportion of their income on purchases of consumer goods than wealthy people do.  CORRECT.... EVEN LOGICALLY GENERALLY CONSUMER GOODS WILL NOT BE MUCH DIFFERENT BETWEEN RICH AND POOR ...... BUT SINCE POOR EARN LESS...THEY WOULD spend a larger proportion of their income on purchases of consumer goods. AND THE CONCLUSION SAYS THAT poor people pay a larger proportion of their income in sales taxes than wealthy people do......THIS IS THE CORRECT ANSWER ... 
(C) Wealthy people pay, on average, a larger amount of sales taxes than poor people do. MAY NOT BE CORRECT 
(D) The total amount spent by all poor people on purchases of consumer goods exceeds the total amount spent by all wealthy people on consumer goods. MAY NOT BE TRUE 
(E) The average purchase price of consumer goods bought by wealthy people is higher than that of consumer goods bought by poor people. MAY NOT BE TRUE

AKG1593 · Answer

B should be the answer.That's because the argument says the percentage of poor households' income paid in sales tax is higher than that of rich households.It means that the poor households must be spending a higher %age of income on purchasing consumer goods than rich households do.
Suppose,a poor house earns $1000 and spends 50% i.e. $500 on consumption goods.Assuming a tax rate of 10%, tax liability will be $50 i.e. 5% of total income.
Again,suppose a rich house earns $10,000 and spends $1,000 on consumption goods i.e. 10%.Its tax liability will be $100 i.e.1% of total income.The absolute amt. is higher for a rich house($100) but the %age is higher for the poor one(5%).
The % of income spent on goods is also higher for poor house (50% as compared to 10% for a rich one.)

Posted from my mobile device

u1983 · Answer

We can write millions of lines of explanation. But If we look closely  Option B  is the only one that is related to the topic of the argument : proportion of spending of demographic groups ( rich & poor) relative to their income . So   Option B   it is .

Abhishek009 · Answer

The key word here (Highligted in the stimulus) is the most important point as  Regressive = Taxing a proportionally greater amount from those on lower incomes.

Antonyms for regressive = progressive

Thus the only option (B) seems clear...

cathygeorge123 · Answer

Sales taxes tend to be regressive, affecting poor people more severely than wealthy people. When all purchases of consumer goods are taxed at a fixed percentage of the purchase price, poor people pay a larger proportion of their income in sales taxes than wealthy people do.

It can be correctly inferred on the basis of the statements above that which of the following is true?

(A) Poor people constitute a larger proportion of the taxpaying population than wealthy people do.

(B) Poor people spend a larger proportion of their income on purchases of consumer goods than wealthy people do.

(C) Wealthy people pay, on average, a larger amount of sales taxes than poor people do.

(D) The total amount spent by all poor people on purchases of consumer goods exceeds the total amount spent by all wealthy people on consumer goods.

(E) The average purchase price of consumer goods bought by wealthy people is higher than that of consumer goods bought by poor people.

Analysis:

- Let's assume Sales tax = 10 % of all purchases of consumer goods.
- Let's say all cost of consumer goods come up to $100
- Sales tax= $10

Note: *(in this context let's just assume we are talking about two people POOR and WEALTHY who each spend $100 for consumer goods(over what period of time etc does not matter here*)

- POOR: Income : $100. Percentage of Income spent on sales tax = 10%
- WEALTHY: Income : $1000. Percentage of Income spent on sales tax=1%

(B) easily fits this argument.

jaisonsunny77 · Answer

The passage can be summarized as follows:

(i) Sales tax ----> affects poor people more severely
(ii) poor people pay larger proportion of their income in sales tax as compared to what rich people pay.

It can be correctly inferred on the basis of the statements above that which of the following is true?

(A) Poor people constitute a larger proportion of the taxpaying population than wealthy people do. - We do not have information regarding the population of any category of people mentioned in the passage. Hence, eliminate (A).

(B) Poor people spend a larger proportion of their income on purchases of consumer goods than wealthy people do. - From premise (ii), we do know that poor people spend a larger proportion of their income in sales tax, which is based on the fixed price of a consumer good. We can therefore reasonably infer that the poor people spend a larger proportion of their income on the purchase of a consumer good than wealthy people. Hence, (B) is the right answer choice.

(C) Wealthy people pay, on average, a larger amount of sales taxes than poor people do. - The passage does not provide any generic information about the amount of sales taxes paid by a particular category of people. Hence, eliminate (C).

(D) The total amount spent by all poor people on purchases of consumer goods exceeds the total amount spent by all wealthy people on consumer goods. -We do not have any specific information in the passage that supports any statements made about 'the total amount' spent by any category of people. Hence, eliminate (D).

(E) The average purchase price of consumer goods bought by wealthy people is higher than that of consumer goods bought by poor people. - the passage does not mention this in any way at all. Hence, eliminate (E).

If you find this explanation helpful, please do give it a kudos

VerbalBot · Answer

Automated notice from GMAT Club VerbalBot:

A member just gave Kudos to this thread, showing it’s still useful. I’ve bumped it to the top so more people can benefit. Feel free to add your own questions or solutions.

This post was generated automatically.

Sales taxes tend to be regressive, affecting poor people more severely

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

GMAT Critical Reasoning (CR) Questions

Sales taxes tend to be regressive, affecting poor people more severely

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia