When people evade income taxes by not declaring taxable income, a vici

I still don't get how not allowing for tax evasion in counting revenue would stop the vicious cycle. According to me, it would just decrease the increase in tax rate to some percentage, and unless taxes are zero(or there is any significant con of evading tax), there's always a possibility of tax evasion. I don't understand how a reduced increase in tax rates is going to stop the cycle.......!!!!

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To be clear, when we choose (C) we are doing a couple of things:

• We're agreeing that if lawmakers allow adequately for tax evasion, they could stop the vicious cycle. NOT allowing adequately for tax evasion is what enables the vicious cycle to result and continue.
• We're identifying what would stop the vicious cycle, not necessarily what would stop tax evasion.

(C) is the best choice because it identifies an action on the part of lawmakers (not tax evaders) that could close one end of the cycle, but that action is not actually being taken. Consequently, the vicious cycle results, just as the author concludes.

In case the language is tripping you up, the phrase "allow for" is NOT the same as "allow." It's much closer to "account for." Here, have some examples of these phrases:

• The parents allowed their children to eat candy outside the house, so they forbade their children from eating candy at home.
• The parents allowed for the fact that their children eat candy outside the house, so they bought less candy to keep at home.
• The parent accounted for the fact that their children eat candy outside the house, so they bought less candy to keep at home.

In the first bullet above, we're strictly talking about permission that is given or not given. In the second two bullets, we're talking about how people plan for certain outcomes, and change their actions accordingly.

I hope this helps!

Hi GMATNINJA, I am still confused with the question "The vicious cycle described above could not result unless which of the following were true?".
Isn't it asking us to find the option which helps in stopping the vicious cycle?
If so, i feel C strongly allows a vicious cycle. Can you help me out?

krishnabalu, see if this portion of the original explanation helps:

Let's think about what would happen if lawmakers DID allow adequately for revenue that will be lost through evasion.

In other words, the lawmakers decide that they need some amount of tax revenue, and they set the tax rates accordingly. In doing so, they ASSUME that some people are going to evade income taxes. But that's okay because the lawmakers accounted for this in their calculations. So even though some people will evade taxes, the government is still getting all of the tax revenue that it expected to get.

In that case, there is no need for additional tax revenue and, thus, no need to increase tax rates! That means that the vicious cycle would be avoided. The vicious cycle described above could not happen unless choice (C) were true, so (C) looks good.

HI GMATNinja,

One clarification I would like to have. Are those options wrong which are not needed to be true for the vicious cycle to break? OR No matter the the wrong option is true or false, the vicious cycle doesn't break? And we are finding an option which has to be true to break the vicious cycle.

akshaykotha, if the vicious cycle could still occur regardless of whether an answer choice is true or false, then that answer choice should be eliminated.

The correct answer is something that has to be true in order for the vicious cycle to occur, not something that has to be true in order to break the vicious cycle.

I hope that helps!

I have read all the post related to this question. But still not understanding option E

What is the meaning of option E and why is it wrong??

I know that this is not a Sentence Correction question, but is the question mark in the question stem correct?

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

As I see it, this is not a question.

Could somebody explain it?

some people evade taxes --> gov't raises taxes, increases tax burden on non-evaders --> more people evade taxes

(A) An increase in tax rates tends to function as an incentive for taxpayers to try to increase their pretax incomes.
could be true, we don't know. This is new information about pretax income.

(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.
New info, not directly relevant to what is talked about in stem

(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 MUST be true because it's stated that the government raise taxes in this "vicious cycle" (there is no alternative in the stem)

(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.
extreme "no one" ... how do we know? We don't know anything about whether tax evaders can or would stop hiding income

(E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade taxes.
Could be true, but not necessarily. We don't know this information.

Vicious cycle:
lawmakers establish tax rates --> people evade taxes --> to compensate, lawmakers raise tax rates --> people evade taxes again --> to compensate, lawmakers raise tax rates again --> people evade taxes again --> to compensate, lawmakers raise taxes again --> ad infinitum

Apply the NEGATION TEST.
When the correct answer is negated, the vicious cycle will not occur.
C, negated:
When lawmakers establish income tax rates in order to generate a certain level of revenue, they allow adequately for revenue that will be lost through evasion.
This negation implies the following scenario:
To meet its needs, the government must collect $100 million in income taxes.
When they establish tax rates, lawmakers anticipate that $20 million will be lost to tax evasion, so they establish a tax rate that will yield $120 million.
Thus, when people evade paying $20 million in taxes, the government still collects the $100 million it needs.
Since the government collects all the money it needs, there is no need to raise tax rates.
The result:
NO VICIOUS CYCLE.

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?

The cycle is: tax evaded (1) --> tax rate increases (2) --> more burden on nonevading tax payers --> more people evading tax
So the assumption is that the rate of tax increase is proportion to the revenue lost by tax evasion. That's is the connection btw (1) and (2). To break the cycle, attack this link

(A) An increase in tax rates tends to function as an incentive for taxpayers to try to increase their pretax incomes. if so, the nonevading taxpayers then must pay even higher tax, which in turn puts more pressure on them

(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 so, the lost through tax evasion is not recovered effectively, so the tax rate increase is not preventable

(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. This will break the chain

(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 the fine increases, then the people who hide their income should hide even more, leading to more tax evasion

(E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade taxes. So what. If the threshold is the same for everyone, as soon as the tax increase that much, some of them will try to evade tax

I still don't get this. I thought the question wanted us to identify a statement, which if true, would result in the continuation of the cycle.

Hi AndrewN

I thought of option D like this :

People who are not hiding are being awarded by lower taxes. So people are being given a reason to NOT evade. This potentially can break the chain. To add to this, if you evade, you would be penalized as you would have to pay more tax.

So if I put myself in the shoes of someone is looking to evade taxes, I would actually just have one choice. To not evade taxes and get a tax benefit. Why would someone, in their sound mind, would evade taxes and get in an even higher debt if there is a provision in which when he chooses to pay, he gets a tax benefit?

This whole line of thought made me confident that option D should definitely break the chain.

Where did I go wrong ?

Your confidence was based on a string of assumptions, Namangupta1997. I think option (D) is in trouble from the first two words: no one. Really? Does it have to be true that because not a single person... the vicious cycle results?

Sure, people might have a reason not to avoid paying taxes if those taxes were lower and the fines for evasion were higher, but when you write that if you evade, you would be penalized as you would have to pay more tax, you are assuming that someone guilty of tax evasion would get caught. Depending on that risk, many people might rather pay no taxes at all by not declaring taxable income than pay even reduced taxes. Although answer choice (D) makes for a could-be-true scenario, it does not deliver on the must-be-true framework of the question stem: could not result unless which of the following were true.

I say this often in my CR posts, and I will reiterate: when you follow one-step-removed reasoning, you can get sidetracked really fast. The correct answer should not take finagling to justify.

Thank you for thinking to ask.

- Andrew

The language of the argument makes it difficult to understand. So, let's unpack it step by step.

When people evade income taxes by not declaring taxable income, a vicious cycle results. Conclusion. This is causal. People evade taxes (cause) - results in a vicious cycle (effect).
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. - It just explains the vicious cycle.

Let's also unpack the question stem. "The vicious cycle described above could not result unless which of the following were true?" As mikemcgarry also explained, it is double negative. E.g., A banana is not an uncommon fruit. When we have a double negative, they cancel, creating a positive. So, the outcome is A banana is a common fruit. Likewise, in our question stem, the outcome of a double negative is in raw form: "The vicious cycle described could result if which of the following were true." or "For the vicious cycle to occur, which of the following must be true."

So, we are trying to find an assumption (assumption by its function is a strengthener)

What kind of argument are we trying to find an assumption? Causal argument.
What is an assumption in the causal argument? There is no alternate reason. If there is an option that says that the lawmakers raise the taxes because of the budget deficit. That shares an alternate reason and breaks the conclusion. So, we need to shield or safeguard the argument against this alternate cause. How can we do that? By saying, "The budget deficit is not a reason to increase the taxes.

There is another way to find an assumption, which is to reinforce the argument, which is what option C does. It says that the lawmakers did not take into account the lost revenue. Which is good for the argument, and the vicious cycle continues.

How?
For example - We have a population of 340 million, and the lawmakers plan to collect $3 trillion or more in taxes. This approximately translates to $9000 per person. So lawmakers say as everyone's average income is $100,000, they have a 9% tax (sorry, I am taking a very straightforward example. I know it's not that simple, but the discussion point here is to make us understand the issue). After a year, they found they only collected $1.5 trillion. Oh, they missed that 50% of the people in this country don't pay taxes. So now they have increased the tax to 18%. After a year, they still reach only $2 trillion. Oh, they pissed off some people with increased taxes, so now 65% of people don't pay taxes....and this cycle continues.

Instead, if the lawmakers had done the opposite, which is to consider the leakage and set the tax - that would have stopped the vicious cycle. How? Ok, we have a population of 340 million. 50% of whom we know don't pay taxes. So, the tax-paying population is 170 million. Oh, what is the unemployment rate? Say it's 5%? What percentage of people are below the poverty line? Say 10% .....blah blah....Okay, so taking variables into account, let's set the tax of 10% for this income bracket, 15% for this income bracket, ....by the way, 35% for this income bracket, and so on..,...There is a good chance that the lawmakers could break the vicious cycle.

If you have understood so far, let's look at the options -

(A) An increase in tax rates tends to function as an incentive for taxpayers to try to increase their pretax incomes. -
Negate it. An increase in tax rate doesn't work as an incentive. So, people may evade more, which will strengthen the conclusion. The assumption is something which, when negated, should shatter the conclusion and not strengthen it. At best, it is a weakener.

(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. This is saying some methods bring more than their cost. So, there is a net positive effect in reducing the number of tax evaders, thus avoiding the vicious cycle. In this case, the assumption will let the vicious cycle (effect) happen and not stop it. This is a straightforward weakener.
If you are in love with negation (it is not a good idea to try on every option as it wastes time. It is best to try on two final shortlisted options at max), then let's do a negation test.
Negation - No method brings more than its cost. So, there is no way to have a positive effect, so the vicious cycle will continue. Option, when negated, will be an assumption if it shatters the conclusion. Contrary to that, this strengthens it. So, it's not our assumption. Weakener.

(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 ok for the argument. It means lawmakers don't consider the loss of revenue, which is okay for the conclusion. It aids or reinforces the causal argument that tax evasion (cause) leads to a vicious cycle (effect). If we negate it, it'll shatter the conclusion. If the lawmakers consider the leakage, then the vicious cycle stops. This is our assumption as it aids or reinforces the conclusion, and its negation shatters it.

(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 no one is some, which can be at least 2. Ok, so two people are induced by lower taxes. So what? Is that sufficient to bridge the gap? No. So the lawmakers can still increase the tax. This is out of scope.

(E) Taxpayers do not differ from each other with respect to the rate of taxation that will cause them to evade taxes. - The argument implies that they differ from each other. That's why some people get pissed off at 10%, some may at 15%, some may at 35% and so on. Had they been getting pissed off at, say, 10%, then everyone would not pay tax, and there is no cycle at all as no one now pays taxes. It weakens the conclusion.

Great question it filled me with joy when I got it right. That being said I took 3:49 to solve it. I was doing this as part of a strengthen questions quiz so did not really think about negating the assumption explicitly. I landed with option A and option C and finally I chose C where it had to be absolutely true over A for the conclusion to hold. I kept pondering over A for a bit and that cost me some extra time and a couple missed questions at the end.