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When people evade income taxes by not declaring taxable

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Re: CR: evade income taxes [#permalink]

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New post 12 Jul 2008, 17:34
Which of the following is neccessary to make the cicious cycle happen?

C breaks the chain!
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Re: CR: evade income taxes [#permalink]

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New post 12 Jul 2008, 18:00
thanks for providing this information

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Re: CR: evade income taxes [#permalink]

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New post 15 Sep 2011, 09:38
greenoak wrote:

We need to find a statement, a negation of which will break the ‘vicious circle’:



missed this one!

This is a basic assumption question. The framing of the question stem makes it difficult to decipher.

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Re: CR: evade income taxes [#permalink]

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New post 15 Sep 2011, 22:07
IMO C

if lamakers were to account of loss of tax through evasion, then they wouldn't need to raise the tax amount..

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Re: CR: evade income taxes [#permalink]

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New post 29 Sep 2011, 07:07
I request everybody to clarify one doubt of mine....

"They do not allow adequately for revenue that will be lost through evasion"

To allow for the lost revenue, wouldn't the lawmakers have to raise the tax rates even further, thus leading faster to the vicious circle?
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Re: CR: evade income taxes [#permalink]

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New post 31 Jul 2012, 02:11
shaaka wrote:
IMO D

Lowering the tax rates or increasing the fine will invite evaders to pay tax properly and vicious cycle will not result.


C is not the answer. Lowering the tax rate would stop the tax invaders from hiding some taxable income. However, this possibility doesn't eliminate the possibility that they would do so in the case that the tax rate is raised and the vicious cycle still happens.

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Re: When people evade income taxes by not declaring taxable [#permalink]

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New post 31 Jul 2012, 11:12
vksunder wrote:
When people evade income taxes by not declaring taxable income, a vicious cycle results. Tax evasion
forces lawmakers to raise income tax rates, which causes the tax burden on non evading taxpayers to become
heavier. This, in turn, encourages even more taxpayers to evade income taxes by hiding taxable income.

The vicious cycle described above could not result unless which of the following were true?

(A) An increase in tax rates tends to function as an incentive for taxpayers to try to increase their pretax
incomes.
(B) Some methods for detecting tax evaders, and thus recovering some tax revenue lost through evasion, bring
in more than they cost, but their success rate varies from years to year.
(C) When lawmakers establish income tax rates in order to generate a certain level of revenue, they do not allow
adequately for revenue that will be lost through evasion.
(D) No one who routinely hides some taxable income can be induced by a lowering of tax rates to stop hiding
such income unless fines for evaders are raised at the same time.
(E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade
taxes.


Please support your answers with a brief explanation



talking about variety, can we evaluate option E?
it says - taxpayers do not differ from each other w.r.t. the rate of taxation that'll cause them to evade taxes.

lets say that a person earns 5 million dollars per annum, but the rate of tax for this income is only 10% meaning that he'll have to pay just $500,000 as taxes per year.
however, a person earns 10 million dollars per year, but the tax rate for him is 50% meaning that he'll have to pay $5 million as taxes.

now, in this case, the person earning 10 million would be obviously tempted to evade taxes as it eats away a huge chunk of his earnings.

also, we are not looking at options that would help us break the cycle.. we want an answer choice that, if true, would have resulted in the cycle not coming into picture.
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Re: When people evade income taxes by not declaring taxable [#permalink]

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New post 10 Aug 2012, 20:57
The answer IMO is C because the question asks which of them have to be true for vicious cycle to continue. Hence the option C which says that authorities do not account for loss of revenue because of tax evasion in their calculation of tax revenue implies that they would raise tax to meet the target and the vicious cycle would ensue.

Also this question is from official guide verbal 2nd edition and OC is C :)

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Re: When people evade income taxes by not declaring taxable [#permalink]

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New post 19 Jan 2013, 01:44
Question: The vicious cycle described above could not result unless which of the following were true?
The question is twisted in interesting way with double negations. Note the use of "could not" along with "Unless"="IF..NOT" or "Except-IF".

You can simplify the question to:
Reworded Question: The vicious cycle described above could result if which of the following were true?

Hence you need to eliminate the choices which "breaks" the vicious cycle and choose the choice that does not [break the cycle].

(C) When lawmakers establish income tax rates in order to generate a certain level of revenue, they do not allow adequately for revenue that will be lost through evasion.
-- This is the correct answer choice! This situation will ensure that the vicious cycle is continued.

Hence choice(C) is the answer.
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Re: When people evade income taxes by not declaring taxable [#permalink]

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New post 19 Jan 2013, 01:45
Question: The vicious cycle described above could not result unless which of the following were true?
The question is twisted in interesting way with double negations. Note the use of "could not" along with "Unless"="IF..NOT" or "Except-IF".

You can simplify the question to:
Reworded Question: The vicious cycle described above could result if which of the following were true?

Hence you need to eliminate the choices which "breaks" the vicious cycle and choose the choice that does not [break the cycle].

(C) When lawmakers establish income tax rates in order to generate a certain level of revenue, they do not allow adequately for revenue that will be lost through evasion.
-- This is the correct answer choice! This situation will ensure that the vicious cycle is continued.

Hence choice(C) is the answer.
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Re: When people evade income taxes by not declaring taxable [#permalink]

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New post 19 Jan 2013, 01:45
Question: The vicious cycle described above could not result unless which of the following were true?
The question is twisted in interesting way with double negations. Note the use of "could not" along with "Unless"="IF..NOT" or "Except-IF".

You can simplify the question to:
Reworded Question: The vicious cycle described above could result if which of the following were true?

Hence you need to eliminate the choices which "breaks" the vicious cycle and choose the choice that does not [break the cycle].

(C) When lawmakers establish income tax rates in order to generate a certain level of revenue, they do not allow adequately for revenue that will be lost through evasion.
-- This is the correct answer choice! This situation will ensure that the vicious cycle is continued.

Hence choice(C) is the answer.
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Re: When people evade income taxes by not declaring taxable [#permalink]

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New post 19 Jan 2013, 01:46
Question: The vicious cycle described above could not result unless which of the following were true?
The question is twisted in interesting way with double negations. Note the use of "could not" along with "Unless"="IF..NOT" or "Except-IF".

You can simplify the question to:
Reworded Question: The vicious cycle described above could result if which of the following were true?

Hence you need to eliminate the choices which "breaks" the vicious cycle and choose the choice that does not [break the cycle].

(C) When lawmakers establish income tax rates in order to generate a certain level of revenue, they do not allow adequately for revenue that will be lost through evasion.
-- This is the correct answer choice! This situation will ensure that the vicious cycle is continued.

Hence choice(C) is the answer.
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Re: CR: EVADING TAXPAYERS VS. LAWMAKERS [#permalink]

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New post 19 Jan 2013, 09:04
yavasani wrote:
Cycle : Tax Evasion -> Taxes are raised -> Burden on nonevading tax payers -> more taxpayers evade taxes.
How can we break this cycle. Either by ensuring that there is absolutely no Tax Evasion by tax payers, or some way for lawmakers to not raise taxes at all despite evasion.

lexis wrote:
When people evade income taxes by not declaring taxable income, a vicious cycle results. Tax evasion
forces lawmakers to raise income tax rates, which causes the tax burden on nonevading taxpayers to become
heavier. This, in turn, encourages even more taxpayers to evade income taxes by hiding taxable income.
The vicious cycle described above could not result unless which of the following were true?

(A) An increase in tax rates tends to function as an incentive for taxpayers to try to increase their pretax
incomes.
>> This does not break the chain in any way.

(B) Some methods for detecting tax evaders, and thus recovering some tax revenue lost through evasion, bring
in more than they cost, but their success rate varies from years to year.
>> This can potentially reduce the tax evasion, but not sufficient for law makers to Not raise taxes or avoid evasion completely.

(C) When lawmakers establish income tax rates in order to generate a certain level of revenue, they do not allow adequately for revenue that will be lost through evasion.
>> If they establish rates in such a way that their revenues are met despite evasion, they are likely to not raise taxes which is what we were looking for to break the cycle.

(D) No one who routinely hides some taxable income can be induced by a lowering of tax rates to stop hiding
such income unless fines for evaders are raised at the same time.
>> If fines are raised potentiall evasion can be reduced, but we dont know if it can be eliminated 100%.

(E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade
taxes.
>> Even if taxpayers differ, ie. people with higher rates evade more often than people with lower rates. We still cant break the cycle.


thumbs up for nice explaination! ;-D

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Re: When people evade income taxes by not declaring taxable [#permalink]

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Blue Book CR69

Weaken
Conclusion: Bad cycle results if people escape tax. How so?
Premise: People escape, forces lawmakers to raise tax rate, everyone (even the good ones) suffers, and cause more people to escape tax.
Thinking: Looking at premise should tell you that there are 2 out of 2 choices only: eliminate evaders or lawmakers should not raise tax rate due to evasion.

Not A: Increase in tax rate is good since it allows increase in pretax. This is still under the condition that tax rate is raised.
Not B: Success rate of method detecting evaders shows unreliable. This will still cause the cycle since there are remaining evaders not caught.
It's C: Lawmakers determine tax rate without accounting for lost revenue due to evasion. Lawmakers will not raise tax rate due to evasion.
Not D: People who escape tax cannot be prevented by lowering tax, can only be prevented if evaders are fined. But, the method is no guarantee that evasion will be prevented.
Not E: People have the same tax rate will cause them to evade. This still causes the cycle since people escape tax.

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Re: When people evade income taxes by not declaring taxable [#permalink]

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New post 26 Aug 2013, 21:59
Prethinking : P: People evade taxes by not declaring taxable income .
P: Lawmakers raise income taxes due to less tax income collected ---- > results in some people who do not evade taxes to evade it
C: More people evade taxes !!

How this cycle would result ? If lawmakers when setting rates would not take into account certain income not coming it ..

My prethinking is correct to answer C but when i read the other answers i am confused . Could someone explain the other choices to me ???

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Re: When people evade income taxes by not declaring taxable [#permalink]

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New post 09 Feb 2014, 12:18
Hello,

Can anyone explain why not E ?

If taxpayers wouldn't differ from each other with respect to the rate of taxation that will cause them to evade
taxes, than at some rate they would altogether evade tax and there wouldn't be any cycle.

Please explain why E is not correct.

Thank you.

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When people evade income taxes by not declaring taxable income, a vici [#permalink]

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New post 23 Mar 2014, 02:05
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The Official Guide for GMAT Verbal Review 2015

Practice Question
Question No.: CR 69
Page: 144

When people evade income taxes by not declaring taxable income, a vicious cycle results. Tax evasion forces lawmakers to raise income tax rates, which causes the tax burden on non evading taxpayers to become heavier. This, in turn, encourages even more taxpayers to evade income taxes by hiding taxable income.

The vicious cycle described above could not result unless which of the following were true?

(A) An increase in tax rates tends to function as an incentive for taxpayers to try to increase their pretax incomes.

(B) Some methods for detecting tax evaders, and thus recovering some tax revenue lost through evasion, bring in more than they cost, but their success rate varies from year to year.

(C) When lawmakers establish income tax rates in order to generate a certain level of revenue, they do not allow adequately for revenue that will be lost through evasion.

(D) No one who routinely hides some taxable income can be induced by a lowering of tax rates to stop hiding such income unless fines for evaders are raised at the same time.

(E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade taxes.

[Reveal] Spoiler:
Can you please rectify me?
[spoiler=]Conclusion - People when evade income tax - --> a vicious cycle occurs --->

Consequences/ Basis -Evading forces lawmakers to raise tax rates Causes tax burden on non evading tax payers ---> which in turn encourages more evading

Jump - evading - lawmakers increased tax rate - more evading

Prethink - Lawmakers failed to analyze the consequence of increased tax rate

Here is my problem - Between C and E I chose E [ The official answer is C]
Where I am mistaking ? -- The question asked something specific and giving me trouble


I am suffering particularly for this type of assumption where question is specific .

Please help :roll:

Last edited by hazelnut on 28 Jun 2017, 21:16, edited 5 times in total.
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Re: When people evade income taxes by not declaring taxable income, a vici [#permalink]

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New post 25 Mar 2014, 18:25
gmat2013s wrote:
When people evade income taxes by not declaring
taxable income, a vicious cycle results. Tax evasion
forces lawmakers to raise income tax rates, which
causes the tax burden on non evading taxpayers to
become heavier. This, in turn, encourages even more
taxpayers to evade income taxes by hiding taxable
income.

The vicious cycle described above could not result
unless which of the following were true?

Conclusion - People when evade income tax - --> a vicious cycle occurs --->

Consequences/ Basis -Evading forces lawmakers to raise tax rates Causes tax burden on non evading tax payers ---> which in turn encourages more evading

Jump - evading - lawmakers increased tax rate - more evading

Prethink - Lawmakers failed to analyze the consequence of increased tax rate

Here is my problem - Between C and E I chose E [ The official answer is C]
Where I am mistaking ? -- The question asked something specific and giving me trouble


(A) An increase in tax rates tends to function as an
incentive for taxpayers to try to increase their
pretax incomes. --------------> OFS
(B) Some methods for detecting tax evaders, and
thus recovering some tax revenue lost through
evasion, bring in more than they cost, but their
success rate varies from year to year.--------------> M8 be true but not discussed
(C) When lawmakers establish income tax rates in
order to generate a certain level of revenue,
they do not allow adequately for revenue that will
be lost through evasion.----------> m8 be true but not in the way of author want
(0) No one who routinely hides some taxable
income can be induced by a lowering of tax
rates to stop hiding such income unless fines for
evaders are raised at the same time.-----> OFS
(E) Taxpayers do not differ from each other with
respect to the rate of taxation that will cause
them to evade taxes.------------> Negation - Taxpayers will differ from each other W.R.T the rate of taxation that will cause them to evade taxes ---> VC cycle will not occur - breaking of Con ---> Correct -->

Can you please rectify me?

I am suffering particularly for this type of assumption where question is specific .

Please help :roll:


Hi gmat2013s,

I would rather like to have a chat with you to help you on this. But given our limitations, let's try to use this forum.

First of all, what is the definition of an assumption?

Based on that definition and the given question stem, what do you think is the conclusion here?

I am looking forward to the answers to both the questions above?

Thanks,
Chiranjeev
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Re: When people evade income taxes by not declaring taxable income, a vici [#permalink]

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New post 27 Mar 2014, 10:59
egmat wrote:
gmat2013s wrote:
When people evade income taxes by not declaring
taxable income, a vicious cycle results. Tax evasion
forces lawmakers to raise income tax rates, which
causes the tax burden on non evading taxpayers to
become heavier. This, in turn, encourages even more
taxpayers to evade income taxes by hiding taxable
income.

The vicious cycle described above could not result
unless which of the following were true?

Conclusion - People when evade income tax - --> a vicious cycle occurs --->

Consequences/ Basis -Evading forces lawmakers to raise tax rates Causes tax burden on non evading tax payers ---> which in turn encourages more evading

Jump - evading - lawmakers increased tax rate - more evading

Prethink - Lawmakers failed to analyze the consequence of increased tax rate

Here is my problem - Between C and E I chose E [ The official answer is C]
Where I am mistaking ? -- The question asked something specific and giving me trouble


(A) An increase in tax rates tends to function as an
incentive for taxpayers to try to increase their
pretax incomes. --------------> OFS
(B) Some methods for detecting tax evaders, and
thus recovering some tax revenue lost through
evasion, bring in more than they cost, but their
success rate varies from year to year.--------------> M8 be true but not discussed
(C) When lawmakers establish income tax rates in
order to generate a certain level of revenue,
they do not allow adequately for revenue that will
be lost through evasion.----------> m8 be true but not in the way of author want
(0) No one who routinely hides some taxable
income can be induced by a lowering of tax
rates to stop hiding such income unless fines for
evaders are raised at the same time.-----> OFS
(E) Taxpayers do not differ from each other with
respect to the rate of taxation that will cause
them to evade taxes.------------> Negation - Taxpayers will differ from each other W.R.T the rate of taxation that will cause them to evade taxes ---> VC cycle will not occur - breaking of Con ---> Correct -->

Can you please rectify me?

I am suffering particularly for this type of assumption where question is specific .

Please help :roll:


Hi gmat2013s,

I would rather like to have a chat with you to help you on this. But given our limitations, let's try to use this forum.

First of all, what is the definition of an assumption?

Based on that definition and the given question stem, what do you think is the conclusion here?

I am looking forward to the answers to both the questions above?

Thanks,
Chiranjeev



Hallo Chiranjeev

I will try to connect your questions with this argument to understand if there is really some error in my approach and understanding.

I want to learn maximum from this :)

Definition of assumption - A supporting premise which must be true to reach the conclusion .

Its a bridge between premise and conclusion .

When the bridge will be poorly made [ flawed assumption ] ---> It is unlikely to reach at the conclusion .
When assumption is valid --> Conclusion can be accepted as true or believable

Conclusion - ABC test / why test

Why VC results ?
1. People evade tax by not declaring taxable income
2. lawmakers forced to raise tax rate ---> raising burden to tax payers ---> more evasion --> VC occurs.

Question - VC could not occur unless which of the following statement is valid means if any of the following assumption is not valid then VC could not occur .

or - if any of the assumption is flawed or poorly made[ not true ] then the conclusion breaks [ VC couldn't occur]

Prethink - Lawmakers failed to understand that more tax raise can result more evasion --> loss of more money [ so failure of lawmakers in understanding the effect of tax raise is responsible for VC]

(A) An increase in tax rates tends to function as an
incentive for taxpayers to try to increase their
pretax incomes. --------------> Talks about the effect of increased tax rates [ not the underlying assumption which forces the lawmakers to raise tax ]
(B) Some methods for detecting tax evaders, and
thus recovering some tax revenue lost through
evasion, bring in more than they cost, but their
success rate varies from year to year.--------------> M8 be true but not discussed, also concerned about a subset [ not the entire super set]
(C) When lawmakers establish income tax rates in
order to generate a certain level of revenue,
they do not allow adequately for revenue that will
be lost through evasion.----------> if this is true occurrence of Vicious cycle is also true
(0) No one who routinely hides some taxable
income can be induced by a lowering of tax
rates to stop hiding such income unless fines for
evaders are raised at the same time.-----> OFS
(E) Taxpayers do not differ from each other with
respect to the rate of taxation that will cause
them to evade taxes.------------> No effect on the conclusion - irrelevant

I will be happy if the analysis is ok at all .

Thanks Chiranjeev for your concern .

Will wait to hear from you .

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Re: When people evade income taxes by not declaring taxable income, a vici [#permalink]

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New post 31 Mar 2014, 07:32
gmat2013s wrote:
egmat wrote:
gmat2013s wrote:
When people evade income taxes by not declaring
taxable income, a vicious cycle results. Tax evasion
forces lawmakers to raise income tax rates, which
causes the tax burden on non evading taxpayers to
become heavier. This, in turn, encourages even more
taxpayers to evade income taxes by hiding taxable
income.

The vicious cycle described above could not result
unless which of the following were true?

Conclusion - People when evade income tax - --> a vicious cycle occurs --->

Consequences/ Basis -Evading forces lawmakers to raise tax rates Causes tax burden on non evading tax payers ---> which in turn encourages more evading

Jump - evading - lawmakers increased tax rate - more evading

Prethink - Lawmakers failed to analyze the consequence of increased tax rate

Here is my problem - Between C and E I chose E [ The official answer is C]
Where I am mistaking ? -- The question asked something specific and giving me trouble


(A) An increase in tax rates tends to function as an
incentive for taxpayers to try to increase their
pretax incomes. --------------> OFS
(B) Some methods for detecting tax evaders, and
thus recovering some tax revenue lost through
evasion, bring in more than they cost, but their
success rate varies from year to year.--------------> M8 be true but not discussed
(C) When lawmakers establish income tax rates in
order to generate a certain level of revenue,
they do not allow adequately for revenue that will
be lost through evasion.----------> m8 be true but not in the way of author want
(0) No one who routinely hides some taxable
income can be induced by a lowering of tax
rates to stop hiding such income unless fines for
evaders are raised at the same time.-----> OFS
(E) Taxpayers do not differ from each other with
respect to the rate of taxation that will cause
them to evade taxes.------------> Negation - Taxpayers will differ from each other W.R.T the rate of taxation that will cause them to evade taxes ---> VC cycle will not occur - breaking of Con ---> Correct -->

Can you please rectify me?

I am suffering particularly for this type of assumption where question is specific .

Please help :roll:


Hi gmat2013s,

I would rather like to have a chat with you to help you on this. But given our limitations, let's try to use this forum.

First of all, what is the definition of an assumption?

Based on that definition and the given question stem, what do you think is the conclusion here?

I am looking forward to the answers to both the questions above?

Thanks,
Chiranjeev



Hallo Chiranjeev

I will try to connect your questions with this argument to understand if there is really some error in my approach and understanding.

I want to learn maximum from this :)

Definition of assumption - A supporting premise which must be true to reach the conclusion .

Its a bridge between premise and conclusion .

When the bridge will be poorly made [ flawed assumption ] ---> It is unlikely to reach at the conclusion .
When assumption is valid --> Conclusion can be accepted as true or believable

Conclusion - ABC test / why test

Why VC results ?
1. People evade tax by not declaring taxable income
2. lawmakers forced to raise tax rate ---> raising burden to tax payers ---> more evasion --> VC occurs.

Question - VC could not occur unless which of the following statement is valid means if any of the following assumption is not valid then VC could not occur .

or - if any of the assumption is flawed or poorly made[ not true ] then the conclusion breaks [ VC couldn't occur]

Prethink - Lawmakers failed to understand that more tax raise can result more evasion --> loss of more money [ so failure of lawmakers in understanding the effect of tax raise is responsible for VC]

(A) An increase in tax rates tends to function as an
incentive for taxpayers to try to increase their
pretax incomes. --------------> Talks about the effect of increased tax rates [ not the underlying assumption which forces the lawmakers to raise tax ]
(B) Some methods for detecting tax evaders, and
thus recovering some tax revenue lost through
evasion, bring in more than they cost, but their
success rate varies from year to year.--------------> M8 be true but not discussed, also concerned about a subset [ not the entire super set]
(C) When lawmakers establish income tax rates in
order to generate a certain level of revenue,
they do not allow adequately for revenue that will
be lost through evasion.----------> if this is true occurrence of Vicious cycle is also true
(0) No one who routinely hides some taxable
income can be induced by a lowering of tax
rates to stop hiding such income unless fines for
evaders are raised at the same time.-----> OFS
(E) Taxpayers do not differ from each other with
respect to the rate of taxation that will cause
them to evade taxes.------------> No effect on the conclusion - irrelevant

I will be happy if the analysis is ok at all .

Thanks Chiranjeev for your concern .

Will wait to hear from you .


Hi gmat2013s,

Thanks for the detailed analysis. I see a lot of changes from your initial analysis.

First of all, your initial conclusion was: People when evade income tax - --> a vicious cycle occurs --->
Now, your conclusion seems to be (you haven't stated it clearly, so it "seems to be"): Vicious cycle

By the way, you are now correct in conclusion identification. If the assumption is defined as something in the absence of which the conclusion will not hold, then as the question stem says here, we are looking for an option statement without which vicious cycle wont hold. So, the occurrence of vicious cycle is the conclusion.

Now, I also see that you agree with the official answer C. However, since your explanations for accepting option C and rejecting option E are so succinct that I cannot really understand your true logic behind these.

Why do you think without option C, vicious cycle will not result? In other words, why without option C (i.e. if we negate the assumption), the conclusion breaks down?

Also, why do you think option E does not have any impact on the conclusion?

Thanks,
Chiranjeev
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Re: When people evade income taxes by not declaring taxable income, a vici   [#permalink] 31 Mar 2014, 07:32

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