It is currently 23 Mar 2018, 23:33

GMAT Club Daily Prep

Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

Events & Promotions

Events & Promotions in June
Open Detailed Calendar

When people evade income taxes by not declaring taxable

Author Message
TAGS:

Hide Tags

e-GMAT Representative
Joined: 02 Nov 2011
Posts: 2463

Show Tags

04 Apr 2014, 01:04
gmat2013s wrote:
Hallo Chiranjev

Sorry for not specifically mentioning the conclusion part , yes , I have changed the conclusion to " VC rsults "
Question asked - to find the condition unless which VC would not result .
Assumption - If the assumption is defined as something in the absence of which the conclusion will not hold, then
Negation of Option C -During increasing of tax rates if lawmakers allow to incorporate revenue that can be lost through evasion then VC will not occur .

To avoid VC they should incorporate the revenue that can be lost through evasion . If they do not allow then VS would result .

So to occur VC - option C must be true

Option E Negation - Now I understood even if Taxpayers differ from each other with respect to the rate of taxation still VC will result as there is no connection of tax evasion followed by increased tax rate and more evasion - to -disagreement / agreement with the payable tax rates .

Thanks for showing the correct approach and importance of negation .

Will wait to have suggestion from you .
Regards
Sreshtha

Wow Sreshtha! Awesome comeback!

You are precisely correct now. Amazing job

Thanks,
Chiranjeev
_________________

| '4 out of Top 5' Instructors on gmatclub | 70 point improvement guarantee | www.e-gmat.com

Intern
Joined: 21 Nov 2012
Posts: 17
Schools: Duke '15

Show Tags

05 Apr 2014, 08:20
Thank you Chiranjeev

Intern
Joined: 27 Nov 2013
Posts: 16

Show Tags

30 Jun 2014, 07:01
1
This post was
BOOKMARKED
Official Guide for GMAT Verbal Review, 2nd Edition

Practice Question
Question No.: 69
Page: 144
Difficulty:

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.
(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.

Dear Mike,

The OA for this question is C. This went over my head!!! Was unable to pick the answer at all! Please guide!!

Thank you
Regards
Soumya
Magoosh GMAT Instructor
Joined: 28 Dec 2011
Posts: 4677

Show Tags

02 Jul 2014, 12:51
2
KUDOS
Expert's post
Soumyasrinivas wrote:
Official Guide for GMAT Verbal Review, 2nd Edition

Practice Question
Question No.: 69
Page: 144
Difficulty:

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.
(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.

Dear Mike,

The OA for this question is C. This went over my head!!! Was unable to pick the answer at all! Please guide!!

Thank you
Regards
Soumya

Dear Soumya,
Thank you very much for giving such precise information about the source of this question. I am happy to help.

http://magoosh.com/gmat/2012/gmat-supply-and-demand/

So for this question, there's a vicious loop.
1) People don't want to pay so much in taxes, so they illegally hide taxable income, and evade taxes.
2) Lawmakers don't get as much as they were expecting from the tax revenue, because of evasion, so they raise taxes.
3) Now, taxes are higher, and people have even more incentive to hide taxable income and evade taxes.

There are two parties, the lawyers and the tax payers, and each one, for totally rational and understandable reasons, responds to the action of the other in way that exacerbates the problem. That's a vicious loop.

Now, the prompt is difficult: "The vicious cycle described above could not result unless which of the following were true?" This is hard because of the double-negative construction ("not" + "unless"). In other words, this means: "In order for the vicious cycle to occur, which of the following MUST be true?"

In other words, for the correct answer, if it is true, the vicious cycle can happen, but if it's not true, the vicious cycle couldn't happen. Negating it makes the vicious cycle impossible. That's very important.

For incorrect answers, the vicious cycle could still occur even if we negate the answer: the answer is not strictly necessary for the cycle to occur.

To test the answers, we will need to negate them. The one which, when negated, makes the vicious cycle impossible, is the correct answer.

Now, let's look at the answers.
(A) An increase in tax rates tends to function as an incentive for taxpayers to try to increase their pretax incomes.
Negation: increasing taxes does not motivate folks to make more money. Going out and making more money is not necessarily an easy thing to do, and it's a little beyond the scope. When the tax rate increase, the argument suggests people respond with more tax evasion. Maybe some people respond by trying to get higher paying jobs, whether this occurs or not does not appear to affect the vicious cycle. This is incorrect.

(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.
If the methods for detecting tax evaders consistently cost more than the money they recovered, then there would be no reason to conduct them, and they would have no affect on the argument. This is incorrect.

(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 lawmakers included tax evasion in their calculations when they set taxes, then they would just set the taxes once, taking tax evasion into account, and when real people evaded their taxes, the lawmakers would still get exactly what they predicted they would, so they would not absolutely no incentive to raise taxes any further. This would drastically break the vicious cycle. If this is not true, there is no vicious cycle, so this must be absolutely necessary for the cycle to occur. This is correct.

(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.
The opposite of none is some. Suppose some folks, maybe 1% of the population, could be induced to stop hiding taxable income if the tax rate went down --- suppose they were motivated to do so, even if penalties didn't change. Well, that alone would not break the vicious cycle, because as long as most people are still evading, the lawmakers will not get the tax revenue they were expected, so they will raise taxes, and one taxes go up, even this 1% would adopt the behavior of hiding taxable income. The vicious cycle only depends on people's behavior when taxes go up, not when they go down. This is incorrect.

(E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade taxes.
The argument directly implies that this is not true. If the taxes are at one level, and some people evade taxes, and then the taxes go up, and more people evade, it means that the new evaders were not motivated to evade taxes at the previous tax level, but at the new tax level they are motivated to evade. That means, these new evaders are motivated to evade at a different level from that of the folks who were evading at the previous, lower tax level. If the argument directly implies that a statement is false, then that statement cannot be necessary to the argument. This is incorrect.

The only possible answer is (C).

Does all this make sense?
Mike
_________________

Mike McGarry
Magoosh Test Prep

Education is not the filling of a pail, but the lighting of a fire. — William Butler Yeats (1865 – 1939)

Intern
Joined: 27 Nov 2013
Posts: 16

Show Tags

03 Jul 2014, 06:00
mikemcgarry wrote:
Soumyasrinivas wrote:
Official Guide for GMAT Verbal Review, 2nd Edition

Practice Question
Question No.: 69
Page: 144
Difficulty:

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.
(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.

Dear Mike,

The OA for this question is C. This went over my head!!! Was unable to pick the answer at all! Please guide!!

Thank you
Regards
Soumya

Dear Soumya,
Thank you very much for giving such precise information about the source of this question. I am happy to help.

So for this question, there's a vicious loop.
1) People don't want to pay so much in taxes, so they illegally hide taxable income, and evade taxes.
2) Lawmakers don't get as much as they were expecting from the tax revenue, because of evasion, so they raise taxes.
3) Now, taxes are higher, and people have even more incentive to hide taxable income and evade taxes.

There are two parties, the lawyers and the tax payers, and each one, for totally rational and understandable reasons, responds to the action of the other in way that exacerbates the problem. That's a vicious loop.

Now, the prompt is difficult: "The vicious cycle described above could not result unless which of the following were true?" This is hard because of the double-negative construction ("not" + "unless"). In other words, this means: "In order for the vicious cycle to occur, which of the following MUST be true?"

In other words, for the correct answer, if it is true, the vicious cycle can happen, but if it's not true, the vicious cycle couldn't happen. Negating it makes the vicious cycle impossible. That's very important.

For incorrect answers, the vicious cycle could still occur even if we negate the answer: the answer is not strictly necessary for the cycle to occur.

To test the answers, we will need to negate them. The one which, when negated, makes the vicious cycle impossible, is the correct answer.

Now, let's look at the answers.
(A) An increase in tax rates tends to function as an incentive for taxpayers to try to increase their pretax incomes.
Negation: increasing taxes does not motivate folks to make more money. Going out and making more money is not necessarily an easy thing to do, and it's a little beyond the scope. When the tax rate increase, the argument suggests people respond with more tax evasion. Maybe some people respond by trying to get higher paying jobs, whether this occurs or not does not appear to affect the vicious cycle. This is incorrect.

(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.
If the methods for detecting tax evaders consistently cost more than the money they recovered, then there would be no reason to conduct them, and they would have no affect on the argument. This is incorrect.

(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 lawmakers included tax evasion in their calculations when they set taxes, then they would just set the taxes once, taking tax evasion into account, and when real people evaded their taxes, the lawmakers would still get exactly what they predicted they would, so they would not absolutely no incentive to raise taxes any further. This would drastically break the vicious cycle. If this is not true, there is no vicious cycle, so this must be absolutely necessary for the cycle to occur. This is correct.

(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.
The opposite of none is some. Suppose some folks, maybe 1% of the population, could be induced to stop hiding taxable income if the tax rate went down --- suppose they were motivated to do so, even if penalties didn't change. Well, that alone would not break the vicious cycle, because as long as most people are still evading, the lawmakers will not get the tax revenue they were expected, so they will raise taxes, and one taxes go up, even this 1% would adopt the behavior of hiding taxable income. The vicious cycle only depends on people's behavior when taxes go up, not when they go down. This is incorrect.

(E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade taxes.
The argument directly implies that this is not true. If the taxes are at one level, and some people evade taxes, and then the taxes go up, and more people evade, it means that the new evaders were not motivated to evade taxes at the previous tax level, but at the new tax level they are motivated to evade. That means, these new evaders are motivated to evade at a different level from that of the folks who were evading at the previous, lower tax level. If the argument directly implies that a statement is false, then that statement cannot be necessary to the argument. This is incorrect.

The only possible answer is (C).

Does all this make sense?
Mike

Dear Mike,

Cannot thank you enough for the fabulous explanation. Its crystal clear!
And as always, your article about GMAT Supply and Demand is very insightful and of great help!

Thank you!!!

Warm Regards
Manager
Joined: 29 May 2013
Posts: 87
GMAT 1: 710 Q49 V38
GPA: 4

Show Tags

11 Aug 2014, 14:34
saurya_s wrote:
Here are the choices:

(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

Can somebody explain what does the question mean? I think it means 'if which of the following were true, then the vicious cycle will not happen?'

The question means , which of the following answers if not true will provide that the vicious cycle will not happen. Alternatively if the answer choice is true then the vicious cycle will happen.
Manager
Joined: 17 Mar 2014
Posts: 161
Location: United States
GPA: 3.97

Show Tags

03 Oct 2014, 08:03
saurya_s wrote:
Here are the choices:

(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

Can somebody explain what does the question mean? I think it means 'if which of the following were true, then the vicious cycle will not happen?'

The question stem is asking -

Which of the following is true, would not result in vicious cycle, OR wouldn't have resulted in the vicious cycle in the first place. i.e. Taxes > Tax Evaders > Less revenue > More tax rate > More evaders > Lesser revenue or about the same.. and this goes on..

If in the first place, lawmakers would have considered "that there will be ppl evading taxes", then they would have come up with a high tax rate in the first place and would have gotten the same revenues they expected. And this wouldn't have resulted in a tax rate increase - the next year (because last year, they got the revenue they expected).

However, I do find B and D as contenders. B can be omitted because "the success rate varies". D?? - if we have lower tax rates and higher fines for evasion, wouldn't that have lower evasion?
_________________

KUDOS!!!, I need them too

Intern
Joined: 06 Jan 2015
Posts: 14

Show Tags

28 Jan 2015, 06:16
Damn! I need to read more carefully. I read it wrongly as a Weaken question.
Senior Manager
Joined: 01 Nov 2013
Posts: 335
GMAT 1: 690 Q45 V39
WE: General Management (Energy and Utilities)

Show Tags

18 Mar 2015, 02:49
wunderbar03 wrote:
Official Guide for GMAT Verbal Review, 2nd Edition

Practice Question
Question No.: 69
Page: 144
Difficulty:

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.
(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.

Cause and effect series; C identifies that the cause exists
_________________

Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.

I hated every minute of training, but I said, 'Don't quit. Suffer now and live the rest of your life as a champion.-Mohammad Ali

Intern
Joined: 13 Nov 2014
Posts: 43
Location: United States
Concentration: Marketing, Finance
GMAT 1: 640 Q47 V30
GPA: 3.5

Show Tags

07 May 2015, 21:56
wunderbar03 wrote:
Official Guide for GMAT Verbal Review, 2nd Edition

Practice Question
Question No.: 69
Page: 144
Difficulty:

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.
(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.

Struggled, didn't understand the question stem correctly. If understood, then the answer would be an easy one.

C , after understanding the question stem properply. Unless is the key here in the question stem.
Senior Manager
Joined: 03 May 2015
Posts: 256
Location: South Africa
GPA: 3.49
WE: Web Development (Insurance)

Show Tags

05 Jun 2016, 22:59
wunderbar03 wrote:
Official Guide for GMAT Verbal Review, 2nd Edition

Practice Question
Question No.: 69
Page: 144
Difficulty:

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.
(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.

Premise : Cycle - Lawmakers raise tax to negate the loss of tax evaders, causing more people to evade tax.

Assumption : If you look closely, it is very simple. It is a cause and effect question. The author states that evading of tax is causing the increase in raised taxes. But what if the lawmakers took that factor. Then there is no cycle; just lawmakers raising taxes ( This question is making me depressed)

Only C fits the bill. There is no cycle if the factor is already a part of the cause.
_________________

Kudos if I helped

Director
Joined: 04 Jun 2016
Posts: 636
GMAT 1: 750 Q49 V43

Show Tags

17 Jun 2016, 02:02
1
KUDOS
1
This post was
BOOKMARKED

Explaination :-
It is always advisable to break the argument into premise and conclusion in simple language. Lets do it quickly
Premise 1) Tax evasion by cheaters increases the tax burden on honest taxpayers who pay tax properly.
Premise 2) This increased tax burden encourages honest taxpayers to become cheaters and start to evade income taxes themselves.
Conclusion) Therefore by not paying tax, cheaters convert honest people into cheater. This causes a vicious cycle.

Now the conclusion rest on good taxpayers becoming bad cheaters.
What if:- the lawmakers already know that many cheaters will not pay tax and the lawmakers simply have made the tax structure in such a clever way that the loss in revenue caused by non taxpaying cheaters is already compensated by some other method. In other words the lawmaker already know how much income tax will they will get.
Since the collected income tax is within their estimate, there is no reason for the lawmaker to increase the tax rate . Since there is no change in ta rate ,thus the honest people will not become cheaters and thus there will be no vicious cycle. IN OTHER WORDS :- IF LAWMAKER DO NOT HAVE OTHER METHOD TO COMPENSATE FOT THE LOST REVENUES THEN ONLY THIS VICIOUS CYCLE WILL HAPPEN.

Question ask us :- The vicious cycle described above COULD NOT result UNLESS which of the following WERE TRUE ??
(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.

YES.... WHEN LAWMKER DID NOT COMPENSATE FOR LOST REVENUE,THEY WILL BE STUNNED AFTER SEEING COLLECTION FROM INCOME TAX. THEY WOULD BE EXPECTING 25 MILLION IN TAX BUT THEY WILL GET ONLY 5 MILLION. THEY WILL THINK :- OH GOD I CANNOT RUN THIS GOVERNMENT SUCH LESS MONEY. I NEED TO INCREASE THE TAX NEXT YEAR TO GET SOME MORE MONEY FROM INCOME TAX.

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.
(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.
_________________

Posting an answer without an explanation is "GOD COMPLEX". The world doesn't need any more gods. Please explain you answers properly.
FINAL GOODBYE :- 17th SEPTEMBER 2016. .. 16 March 2017 - I am back but for all purposes please consider me semi-retired.

Intern
Joined: 29 Nov 2015
Posts: 6
Location: India
WE: Sales (Consumer Products)

Show Tags

06 Oct 2017, 01:28
1
This post was
BOOKMARKED
I am not getting what type of Critical Reasoning question it is?
Evaluate/ Line of reasoning???
Re: When people evade income taxes by not declaring taxable   [#permalink] 06 Oct 2017, 01:28

Go to page   Previous    1   2   3   [ 53 posts ]

Display posts from previous: Sort by