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With Proposition 13, if you bought your house 11 years ago for $75,000

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IanStewart

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10 Sep 2010, 05:57

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ahsanmalik12

Identical properties will not be taxed different...They'll be taxed only if the economical status is not balanced. Please go through the passage. The two houses it refers to are not equivalent in value. One of them is 11 yrs old...

The passage tells us the houses are identical. The passage can't be wrong on this point. Nowhere do we learn how old the houses are - they might both be 200 years old for all we know. We only know that one was bought 11 years ago, not that it was built 11 years ago.

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15 Sep 2010, 16:10

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amitjash

OA is potential candidate but can someone explain why other choices fail???

With Proposition 13, if you bought your house 11 years ago for $75,000, your property tax would be approximately $914 a year (1 percent of $75,000 increased by 2 percent each year for 11 years); and if your neighbor bought an identical house next door to you for $200,000 this year, his tax would be $2,000 (1 percent of $200,000). Without Proposition 13, both you and your neighbor would pay $6,000 a year in property taxes (3 percent of $200,000).
Which of the following is the conclusion for which the author most likely is arguing in the passage above?
(A) Proposition 13 is unconstitutional because it imposes an unequal tax on properties of equal value.
(B) If Proposition 13 is repealed, every homeowner is likely to experience a substantial increase in property taxes.
(C) By preventing inflation from driving up property values, Proposition 13 has saved homeowners thousands of dollars in property taxes.
(D) If Proposition 13 is not repealed, identical properties will continue to be taxed at different rates.
(E) Proposition 13 has benefited some homeowners more than others.

B is the correct answer. You guys are missing a few key points here. B does not say that every homeowner will certainly experience a substantial increase in property taxes, only that it is likely. Consider the following.

House with a cost of $100,000 (I think you guys allowed yourself to be distracted by the fact that 2 separate values were given in the stimulus) when you bought it 5 years ago but is currently worth $200,000. Focus on the difference in the calculation of property taxes with and without Prop 13.

With Prop 13: 1% of the historical cost/purchase price in the first year, 1% increase every year. Property Tax = 1% of $100K = $1K in the first year. $1K x1.01 (increase by 1%) = $1,010 in the 2nd year. $1,010 x 1.01 = $1,020...and so forth. Today (5 years later), your tax would be around $1,040.

Without Prop 13: 3% of the current value each year. Your tax rate today, if Prop 13 is repealed, would be 3% of $200K = $6,000. How do I know it's based on current value and not historical cost? The stimulus states that without Prop 13, my neighbor and I will both pay $6K in taxes, which equates to 3% x $200K, even though he bought his house this year for $200K and I bought mine 11 years ago for only $75K. But what if I just bought my house this year for $200K? Same thing... instead of property taxes of only 1% of $200K, I would have to pay taxes of 3% of $200K.

Very clearly, a repeal of Prop 13 will likely result in a substantial increase in property taxes for every homeowner. It would take many, many years before the amount of tax imposed under Prop 13 even comes close to the uniform $6K per year to be imposed without Prop 13. Taking it a step further, the author is likely arguing in favor of Prop 13 by arguing that its repeal will result in a substantial increase in property taxes.

D is wrong because regardless of whether Prop 13 is repealed or not, all properties, whether identical or not, will be taxed at identical tax rates: either 1% of historical cost/purchase price in the first year plus 1% increase each year, or 3% of the current value each year (be careful not to confuse tax amounts, which can vary, with tax rates, which will be the same for all).

IanStewart

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15 Sep 2010, 23:02

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Xmarksthespot

Very clearly, a repeal of Prop 13 will likely result in a substantial increase in property taxes for every homeowner.

You're making an assumption here, namely that all properties are taxed at the same rates as those in the example given. There's no reason, from the information in the passage, to think that should be true. It is very possible that houses of different prices are taxed at different rates; indeed that's something one might naturally expect to be the case. This is why B is not a good answer to the question: to establish that *every* homeowner will see their property tax increase, the best examples to provide would be that of a very expensive house and of a very cheap house. The examples given prove very little about what will happen to 'every' homeowner, so if the conclusion is that every homeowner will see their tax go up, the argument is a very poor one. If, instead, the conclusion is that identical houses are taxed at different rates under Prop 13, the evidence is perfect.

Xmarksthespot

D is wrong because regardless of whether Prop 13 is repealed or not, all properties, whether identical or not, will be taxed at identical tax rates: either 1% of historical cost/purchase price in the first year plus 1% increase each year, or 3% of the current value each year (be careful not to confuse tax amounts, which can vary, with tax rates, which will be the same for all).

You've just explained why D is the right answer: the tax rates are not identical. 3% of the current value is not the same as 1% plus the annual increase. There is no confusion here between amounts and rates.

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16 Sep 2010, 01:53

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IanStewart

ahsanmalik12

Ian you are missing one point. He clearly mentioned 'if you bought your house 11 years ago for $75,000, your property tax would be approximately $914 a year'. The author is generalizing the comparison between two similar things at two different times. Since he has not emphasized on - which houses, it is irrelevant to neglect 'B' just because it is generalizing just two identical houses to all the houses.

Eg. Suppose X is paying 10% income tax and his father used to pay 8% 10 years back ( under preposition 13). If this preposition is not into effect, x and his father will have to pay 15% tax. This completely support B.

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Xmarksthespot

Very clearly, a repeal of Prop 13 will likely result in a substantial increase in property taxes for every homeowner.

Xmarksthespot

I think I see what your problem is. Take a step back and determine what the question is asking you to do. The question is NOT asking you to determine the validity or invalidity of the stimulus. It is asking you to determine the conclusion the author is likely trying to prove based on the way he/she has laid out the premises. What are the key premises (stated and unstated)?

1) Under Prop 13, the tax rate is 1% of purchase price in the first year and a 1% increase in the first year's tax amount in the 2nd year, a 1% tax amount on the 2nd year's tax amount in the 3rd year, and so on. What is the proof of this? Note that the way the author has framed his argument if you had bought your house 11 years ago for $75K, under Prop 13, your tax today would be $914. It goes on to say how the $914 came to be computed as such. Under Prop 13, your neighbor's tax rate on the house he bought today would be 1% of the purchase price of $200K. Do you notice how it's the same tax rate in the first year that applied to your house in the first year?

2) If Prop 13 is repealed, the tax rate would be 3% of the current market value of the house. As proof of this, the author says that without Prop 13, you and your neighbor will both pay 3% of $200K, which is $6K. This in spite of the fact that you bought your house for only $75K, and 11 years ago at that, while your neighbor bought his house this year for $200K. The author goes on to say that your neighbor's house is identical to yours and located right next to yours. Do you see what he's trying to imply there? He is basically saying that your house has the same value as your neighbor's house, hence you both pay 3% of $200K. Whether or not this is a valid assumption is irrelevant to the question as the question is asking you to determine what the author is trying to prove.

Look at choice B: If Proposition 13 is repealed, every homeowner is likely to experience a substantial increase in property taxes.

In real life, is there reason to doubt this conclusion, maybe even based on the points you raised? Certainly. But again, the question is not asking you to determine whether the conclusion or premises are valid. It is asking you what the author is likely trying to prove based on the way he has structured his premises and argument. As shown above, this is the likely argument he is trying to prove.

Now look at choice D: If Proposition 13 is not repealed, identical properties will continue to be taxed at different rates.

What premises does the author offer to prove this conclusion? None at all. Let's break it down. Based on the premises offered by the author, what will happen if Proposition 13 is not repealed? Then the current tax rate (1% of purchase price in the first year, 1% increase each year) will continue to be imposed. Nowhere in the author's argument does he imply that identical properties are taxed at different rates. In fact, he only gives 2 examples (your house and your neighbor's house), and both of them are taxed at identical rates (both 1% in the first year). You can argue that 2 houses can hardly be representative of all houses, as I think you are trying to do, but that is not your job here. Your job is to identify what the author is trying to prove.

Focusing on what the question is really asking for helps avoid confusion when answering these types of questions. Again, this question is not asking you to determine whether the author's premises are valid, or whether his assumptions are valid. It's asking you to identify the conclusion that he is likely trying to prove, based on the premises he offered.

Also, regarding your second response (bolded), you are completely lost there, my friend. Look at choice D again: If Proposition 13 is not repealed, identical properties will continue to be taxed at different rates. This answer choice is confined to a situation where Prop 13 is not repealed, and is not referring to the difference between the tax rate under Prop 13 (1% plus 1% increase) and the tax rate if Prop 13 is repealed (3%).

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16 Sep 2010, 08:30

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Xmarksthespot

I don't know why you've chosen to adopt such a patronizing tone in your response, but I'd appreciate if you did not misrepresent what I've said. I've emphasized this point all along. If you want to determine the conclusion the argument is leading to, you must consider why the passage is structured as it is - that is, why the example of two identical homes is used. Establishing that two homes worth $200,000 will see their tax increase without Prop 13 proves only that homes worth roughly $200,000 will likely see their tax increase. For homes worth $20,000 or $2,000,000, the situation might be markedly different. If you want to think the author is arguing that every homeowner will see his or her tax increase, you have to assume that the author is incompetent at structuring an argument, and that's not an assumption you ever want to make on the GMAT.

Xmarksthespot

1) Under Prop 13, the tax rate is 1% of purchase price in the first year and a 1% increase in the first year's tax amount in the 2nd year, a 1% tax amount on the 2nd year's tax amount in the 3rd year, and so on. What is the proof of this? Note that the way the author has framed his argument if you had bought your house 11 years ago for $75K, under Prop 13, your tax today would be $914. It goes on to say how the $914 came to be computed as such. Under Prop 13, your neighbor's tax rate on the house he bought today would be 1% of the purchase price of $200K. Do you notice how it's the same tax rate in the first year that applied to your house in the first year?

It's calculated by the same formula, but not at the same rate. Those are quite different things; a formula is not a rate. The only reasonable interpretation I can assign to the phrase 'tax rate' here is 'dollars of tax per dollar of home value' (since "1% plus 2% increase per year" is not a rate). One house is taxed at $914 per $200,000 of value, or 0.46%, the other at $2000 per $200,000 of value, or 1%. If instead you want to interpret 'tax rate' as 'tax per dollar of purchase price', again the tax rate is different for the identical houses.

Xmarksthespot

2) If Prop 13 is repealed, the tax rate would be 3% of the current market value of the house. As proof of this, the author says that without Prop 13, you and your neighbor will both pay 3% of $200K, which is $6K. This in spite of the fact that you bought your house for only $75K, and 11 years ago at that, while your neighbor bought his house this year for $200K. The author goes on to say that your neighbor's house is identical to yours and located right next to yours. Do you see what he's trying to imply there? He is basically saying that your house has the same value as your neighbor's house, hence you both pay 3% of $200K. Whether or not this is a valid assumption is irrelevant to the question as the question is asking you to determine what the author is trying to prove.

I don't understand why you continue to imply that I've somehow questioned the validity of the author's premises and assumptions. I have nowhere done that. The author tells us directly (it's not, as you say, something 'implied') that the two identical houses will be taxed identically if Prop 13 is repealed. As we learned earlier in the passage, the two identical houses are not taxed identically under Prop 13.

Xmarksthespot

Look at choice B: If Proposition 13 is repealed, every homeowner is likely to experience a substantial increase in property taxes.

In real life, is there reason to doubt this conclusion, maybe even based on the points you raised? Certainly. But again, the question is not asking you to determine whether the conclusion or premises are valid. It is asking you what the author is likely trying to prove based on the way he has structured his premises and argument. As shown above, this is the likely argument he is trying to prove.

See comments above. An author arguing for the conclusion in B would not choose the specific examples in the passage. An author arguing for D would.

Xmarksthespot

Also, regarding your second response (bolded), you are completely lost there, my friend. Look at choice D again: If Proposition 13 is not repealed, identical properties will continue to be taxed at different rates. This answer choice is confined to a situation where Prop 13 is not repealed, and is not referring to the difference between the tax rate under Prop 13 (1% plus 1% increase) and the tax rate if Prop 13 is repealed (3%).

I have a typo in my previous post: where I wrote '3%', I meant '1%'; that is, I meant to draw a comparison between 1% of the home's current value, and 1% of the eleven-year-old purchase price, increased by 2% each year.

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16 Sep 2010, 21:45

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If you want to think the author is arguing that every homeowner will see his or her tax increase, you have to assume that the author is incompetent at structuring an argument, and that's not an assumption you ever want to make on the GMAT.

- So I guess there are no such things as questions that ask you to identify an error in the reasoning of the author or to identify a weakness in the argument, right?

It's calculated by the same [i]formula, but not at the same rate. Those are quite different things; a formula is not a rate. The only reasonable interpretation I can assign to the phrase 'tax rate' here is 'dollars of tax per dollar of home value' (since "1% plus 2% increase per year" is not a rate). One house is taxed at $914 per $200,000 of value, or 0.46%, the other at $2000 per $200,000 of value, or 1%. If instead you want to interpret 'tax rate' as 'tax per dollar of purchase price', again the tax rate is different for the identical houses.[/i]

- You have got it backwards.

- Scenario 1 (Prop 13): Tax rate is 1%. Formula is tax rate x purchase price in the first year, 1% increase each year thereafter.
- Scenario 2 (No Prop 13): Tax rate is 3%. Formula is tax rate x current value for each year.

Tax rates are exactly identical in either scenario. 1% is not a formula. 3% is not a formula. They are both rates. Pretty simple to see this, really. Are different rates given by the author? Obviously. 1% is different from 3%. But within either scenario (Scenario 1 with Prop 13, Scenario 2 Prop 13 is repealed), there are no differences in rates. Either all are taxed at a 1% rate for Scenario 1 (with a 1% increase each year, with the increase based on the tax for the previous year), or all are taxed at a 3% rate each year, the 3% based on the current value.

Also, you do not get $914 by multiplying $200K by .46%. You get it by multiplying $75K by 1% = $750 in the first year; in the second year, it will be $750 plus ($750 x 1%) = $757.50; in the 3rd year, it will be $757.50 plus ($757.50 x 1%); and so forth, until you get to the 11th year. .46% is not the tax rate.

For your neighbor, the taxes under Prop 13 will be as follows: $200K x 1% = $2K in the first year; $2K plus ($2K x 1%) = $2,020 in the 2nd year; and so forth.

Again, notice how in the first year, under Prop 13, both you and your neighbor will pay tax equivalent to 1% of the purchase price. Although the author does not explicitly state anything about what the neighbor will pay in the 2nd year and onwards, it can easily be inferred from the way he presents his premises that he will also be subject to the 1% increase each year under Prop 13. That is essentially what he is trying to prove by comparing your taxes with his.

So, what the author is essentially arguing for is this: If Prop 13 is repealed, not only will your tax rate increase from 1% (with annual increases of 1% of the previous year's tax amount) to 3%, it will also increase because the 3% will be applied to current value of the property each year. So, a house that was bought for $75K 11 years ago but is worth $200K (current fair market value) today will be taxed based not on $75k, but on $200K. Under Prop 13, the tax for that house will be only $914 this year. If Prop 13 is repealed, the tax for that same house will be $6K. Your tax will increase. B captures the essence of this argument.

I don't understand why you continue to imply that I've somehow questioned the validity of the author's premises and assumptions. I have nowhere done that. The author tells us directly (it's not, as you say, something 'implied') that the two identical houses will be taxed identically if Prop 13 is repealed. As we learned earlier in the passage, the two identical houses are not taxed identically under Prop 13.

- The bolded is what I was referring to when I said the author was implying that the houses will be taxed identically, even under Prop 13, which is the exact opposite of what you're saying. 1% of the purchase price in the first year, 1% increase each year. See previous explanation above.

Also, regarding your second response (bolded), you are completely lost there, my friend. Look at choice D again: If Proposition 13 is not repealed, identical properties will continue to be taxed at different rates. This answer choice is confined to a situation where Prop 13 is not repealed, and is not referring to the difference between the tax rate under Prop 13 (1% plus 1% increase) and the tax rate if Prop 13 is repealed (3%).[/quote]

I have a typo in my previous post: where I wrote '3%', I meant '1%'; that is, I meant to draw a comparison between 1% of the home's current value, and 1% of the eleven-year-old purchase price, increased by 2% each year.

Nope, you can't attribute this to a typo. I have reproduced our exchange below:

Xmarksthespot wrote:
D is wrong because regardless of whether Prop 13 is repealed or not, all properties, whether identical or not, will be taxed at identical tax rates: either 1% of historical cost/purchase price in the first year plus 1% increase each year, or 3% of the current value each year (be careful not to confuse tax amounts, which can vary, with tax rates, which will be the same for all).

You wrote:
You've just explained why D is the right answer: the tax rates are not identical. 3% of the current value is not the same as 1% plus the annual increase. There is no confusion here between amounts and rates.

Anyway, this will be my final post on this topic. I'm moving on. Good luck.

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sanjayism

With Proposition 13, if you bought your house 11 years ago for $75,000, your property tax would be approximately $914 a year (1 percent of $75,000 increased by 2 percent each year for 11 years); and if your neighbor bought an identical house next door to you for $200,000 this year, his tax would be $2,000 (1 percent of $200,000). Without Proposition 13, both you and your neighbor would pay $6,000 a year in property taxes (3 percent of $200,000).

Which of the following is the conclusion for which the author most likely is arguing in the passage above?

(A) Proposition 13 is unconstitutional because it imposes an unequal tax on properties of equal value.
Author believes the opposite, in my view.

(B) If Proposition 13 is repealed, every homeowner is likely to experience a substantial increase in property taxes.

If the property depreciated substantially after the purchase, say from $75000 to $100, then the new homeowner will enjoy the benefit of the repeal and this statement would be false. But, we need to consider the intent of the author, who is using a real time scenario, in which the property price has actually appreciated a great deal and is likely to grow further. In this situation, paying 3% of the variable property price would definitely be more expensive than that from the scheme of proposition 13. Thus, I can safely assume that the author most likely wants to make this conclusion.

(C) By preventing inflation from driving up property values, Proposition 13 has saved homeowners thousands of dollars in property taxes.

What a check!! 75000 to 200000.

(D) If Proposition 13 is not repealed, identical properties will continue to be taxed at different rates.

This will be true only if the property is purchased at two different point in time. If two people buy identical properties at the same time, they will pay the same taxes. If the statement said "may" instead of "will", it would be more plausible.

(E) Proposition 13 has benefited some homeowners more than others.

In terms of the exact figure, may be. A house worth $100M would have saved more money, right. But, in terms of percentage, not likely. The case author presented seems to benefit everybody equally w.r.t the valuation of the property and the tax the owner is liable to pay.

Difficult question.

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Hey Asseem.

Let me see if I can help.

In general - good spot. the word 'every' is a key one to watch out for as it is often a signifier of a response that is too extreme.

HOWEVER - that is not the case here.

The key thing to understanding this is (as is often the case) to look closely at the question being asked.

Here it asks 'which argument is the author most likely trying to support'

What we are NOT looking for is 'which is the logical conclusion'

As we are just looking for the author's intentions, our burden of proof is lower. We can see which makes most sense from the evidence we have.

In this case it is clearly B. All the others make no sense at all

Does that help?

James

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neelesh

Considering the information in the passage in the information to be true. understand the passage first
The passage mentions that with proposition 13
Rate of the house 11 years ago - 75,000$
(Tax is 1 % first year of 75,000$ and 2% for each year of the 11 years.)

Rate of the similar house today - 200,000$(This is inflated price of the same property after 11 years)
(Tax is 1% first year of 200,000 and 2% for the years after that)

But if the proposition 13 is removed -
Then the tax, irrespective of the time when the house is bought, will be 3% of the current rate of house.

The options
(A) Proposition 13 is unconstitutional because it imposes an unequal tax on properties of equal value.
This is not what the passage implies. It is not unconstitutional. Although it does not impose unequal tax on properties of same value. The tax rather is dependent on the year of purchase and rate of the house in year it was bough. Since this is not true this can be rejected

(B) If Proposition 13 is repealed, every homeowner is likely to experience a substantial increase in property taxes.
This is actually true. If proposition 13 is removed Every homeowner irrespective of when he bough the house will experience a increase in property taxes. i.e. - From 2% to 3 %. Since this can be inferred from the passage this is true.

(C) By preventing inflation from driving up property values, Proposition 13 has saved homeowners thousands of dollars in property taxes.
From the passage we can infer that that is not true. Proposition 13 did not prevent inflation. From the first article we can see that the price went up from 75000$ to 200,000$ in 11 years and the tax was accordingly valued. But proposition 13 did not prevent inflation. Since this is not true this is incorrect

(D) If Proposition 13 is not repealed, identical properties will continue to be taxed at different rates.
Again Proposition 13 does not tax identical properties at different rate unless they are bought at different years. The proposition 13 would have charged the same price for 2 different houses bought the same year. Since this not true this can be rejected

(E) Proposition 13 has benefited some homeowners more than others.
You cannot tell how many homeowners has proposition 13 benefited. What ifmost home owners bought their house 11 years ago and no one is now buying homes. Since you cannot tell the the number from the passage this can be rejected.

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The author seems to be defending Proposition 13. Without it, you and your neighbour will pay the same taxes even though you have owned your house for many years. I agree with the author; this is unreasonable. As you can see, every homeowners tax will also increase if we remove Proposition 13, irrespective of when you bought your house.

Obviously he is defending Prop 13.

Only B sounds as if to defend the argument. If it is repealed (which as you can see is a bad idea, so dont vote for it) you will all get higher taxes. This is also in line with our inferences of the prompt.

First of all, D does not sound as if Prop 13 is defended ("if it is not repealed..."). Dont forget its actually a good thing that houses are taxed at different rates depending on certain factors. Also, two neighbouring houses might not be identical. Identical implies that houses are exactly the same in every aspect. Just the fact that one house is bought 11 years earlier makes them unidentical even if once built as twin-houses.

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Wow this ia a wonderful question yes definitely how i narrowed down was the taxing if changed would definitely increase the tax paid by everyone thus i narrowed down into thia singular option the trick is to pin down to the simplest option that makes sense therefore IMO B

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kyatin

Walker between B and E ...I would still go with B

Read question stem again....what is author likely arguing for?

The tone of the arguments is not about "some people getting benefited more than others"

It is more about increase in tax due to repealing of proposition 13.

Posted from my mobile device

I had the same reasoning while going with option B. The author clearly emphasise of the money aspect due to repealing of proposition 13. Both the parties will have to pay more tax if proposition 13 is taken away.

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walker

I also picked D. But it is B.
+1 for Q

With Proposition 13, if you bought your house 11 years ago for $75,000, your property tax would be approximately $914 a year (1 percent of $75,000 increased by 2 percent each year for 11 years); and if your neighbor bought an identical house next door to you for $200,000 this year, his tax would be $2,000 (1 percent of $200,000). Without Proposition 13, both you and your neighbor would pay $6,000 a year in property taxes (3 percent of $200,000).

Which of the following is the conclusion for which the author most likely is arguing in the passage above?
"conclusion" is a "must be true" statement.

(A) Proposition 13 is unconstitutional because it imposes an unequal tax on properties of equal value. - "unconstitutional" is an additional information.
(B) If Proposition 13 is repealed, every homeowner is likely to experience a substantial increase in property taxes. - there are no visible contradictions. the best by POE.
(C) By preventing inflation from driving up property values, Proposition 13 has saved homeowners thousands of dollars in property taxes. - "preventing inflation" is an additional information.
(D) If Proposition 13 is not repealed, identical properties will continue to be taxed at different rates. - properties is generalization of houses (Please, correct me if I'm wrong). We cannot infer it from the passage. Is commercial property also taxed in different rates?
(E) Proposition 13 has benefited some homeowners more than others. - I'm not sure but it seems to be incomplete and "has benefited" is not clear here for me.

With all due respect, sorry I have some doubt on the OA, and I think both B and D have some problem as below:
For B, it says every homeowner is likely to experience a substantial increase in property taxes. Is the word (every) too extreme? Besides, see such a case: if you bought your house 11 years ago at the price $200,000, and someone bought the identical house at the price $75,000 (even more cheaper) this year (I mean the price of the same house declined), thus will you experience an (increase) in tax if Prop 13 is repealed? I think no, but rather you might experience a (decrease) in tax as the price of the house declined dramatically.

For D, under Prop 13, if the 2 identical houses are bought at the same year, they will be taxed at same rate. But if they were bought at different years, they were taxed at different rate, cuz the calculation way=1% and increased by 2% each year afterwards). But this choice does not say when the 2 identical houses were bought.

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24 Aug 2023, 18:31

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if you consider 11% of 7500 it is 7575 which is more than 6000 so people who bought before 11 years are benefitted and people who bought recently are at a loss. I think ans is E

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11 Nov 2023, 05:06

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How is (B) correct? Assume that the property tax is for more than 30 years; such homeowners would definitely feel the heat of proposition 13

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08 Dec 2023, 09:03

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neelesh

P. S. I found this question easy may be because I am an accountant so I read all the above explanations and found that most of them have wrongly interpreted the calculation of $914. So sharing my understanding here for clarity.

Premise 1: With Proposition 13, if you bought your house 11 years ago for $75,000, your property tax would be approximately $914 a year (1 percent of $75,000 increased by 2 percent each year for 11 years)

Calculation 1:
First year of purchase, tax paid = 1% of 75k = $750
Second year, tax paid = 1% of 75k = $750 + 2% increase which means 750*(0.02) i.e. $15 = $765
Third year to 11th year = 2% increase each year refers to absolute value increase in tax which is +$15 to previous year tax
Therefore, total tax paid for 12 years = $750 + $15*11 = $750+$165 = $915 (they have written approximately $914)
In the 12th year, tax paid = $914

Premise 2: If your neighbor bought an identical house next door to you for $200,000 this year, his tax would be $2,000 (1 percent of $200,000)
First year of purchase, tax paid = 1% of 200k = $2,000

Time period: Current Year refers to New buyer's 1st year of tax paid = Old buyer's 12th year of tax paid
Difference in taxes = $914 vs $2,000
Conclusion: With Proposition 13, in the current year, Old Buyer is paying less taxes than the new buyer.

Premise 3: Without Proposition 13, both you and your neighbor would pay $6,000 a year in property taxes (3 percent of $200,000).
Takeaway 1: Because both houses are identical (Premise 2: if your neighbor bought an identical house next door to you), the new buyer's taxable value represents the Current Market Value of the house.
Takeaway 2: With Proposition 13 taxes were paid on the Cost Price of the House whereas Without Proposition 13, the taxes will be paid on the Current Market Value of the House (In taxation terms, we call Current Market Value as Stamp Duty Value).

Takeaway 3: The tax rate for both old and new buyer is increased but for the old buyer even the taxable value is increased.
Calculation 2: Old buyer paid $914 (1.22% of $75k), now he will pay $6,000 (3% of 200k)
New buyer paid $2,000 (1% of 200k), now he will pay $6,000 (3% of 200k)

Answer: We can clearly see that both old buyer and new buyer will get penalized more if Proposition 13 is repealed. Now let's look at the options.

(A) Proposition 13 is unconstitutional because it imposes an unequal tax on properties of equal value. - As per Calculation 1, we can see that old buyer is paying 1.22% ($914/$75k) of Cost price of the house ($75k) whereas new buyer is paying 1% of Cost price of the house ($200k). It is clear that tax rates are different and even the taxable value of property is different. Therefore, this answer is incorrect.

(B) If Proposition 13 is repealed, every homeowner is likely to experience a substantial increase in property taxes. - As per Calculation 2, we can see that both old and new buyer are getting penalized more. Old buyer is paying more tax on higher value whereas new buyer is only paying higher taxes than before. Therefore, this option reflects the accurate picture.

(C) By preventing inflation from driving up property values, Proposition 13 has saved homeowners thousands of dollars in property taxes. - Proposition 13 has not prevented price appreciate in property. It is a tax law which is allowing buyers to pay taxes based on the their cost price. Without this tax law, the buyers will have to pay taxes based on the current market value of the house (which will reflect inflation + price appreciation). Incorrect.

(D) If Proposition 13 is not repealed, identical properties will continue to be taxed at different rates. - As per Calculation 1 & 2, we can see that both old buyer and new buyer are paying taxes on current market value of the property at equal rate of 3%. Therefore, this answer is incorrect.

(E) Proposition 13 has benefited some homeowners more than others - As per Calculation 1 & 2, we can see that old buyer will pay $6,000 - $914 = $5,086 additional tax and the new buyer will pay $6,000 - $2,000 = $4,000 additional tax. Both the old and new buyer are getting penalized. Therefore, this answer is also incorrect.

Therefore, option B is the correct answer.

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08 Dec 2023, 12:47

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mialanknox

(D) If Proposition 13 is not repealed, identical properties will continue to be taxed at different rates. - As per Calculation 1 & 2, we can see that both old buyer and new buyer are paying taxes on current market value of the property at equal rate of 3%. Therefore, this answer is incorrect.

I'm not posting here any more for reasons I've outlined elsewhere, but since you've replied to me directly, I'll make an exception to clarify what I wrote earlier. First, when you address answer D, you've described what would happen if Prop 13 is repealed, but answer D describes what would happen if Prop 13 is not repealed.

There is one very important takeaway from this problem, one that I'm noticing is relevant to a large number of Data Insights problems in the new official GMAT Focus material -- it is crucially important to understand precisely what the question is asking. I have the impression that some people in this thread are trying to find an answer to the question "what must be true on the basis of the above?", but the question is different; it asks "Which of the following is the conclusion for which the author most likely is arguing in the passage above?" So we want to think about why the author would have chosen the specific evidence included in the passage, and what conclusion would correctly follow from that evidence. If the author were arguing, as answer B says, that "every homeowner is likely to experience a substantial increase in property taxes", the author probably wouldn't use as evidence two homes of identical value. What of $5 million homes, or $50,000 homes? The argument tells us nothing about those homes. The evidence does persuade us, however, that identically valued homes will be assessed different tax if Prop 13 does not go into effect, which is what D says.

You might imagine a simpler argument:

At Hospital X, all doctors take a test which perfectly measures their skill as doctors. Under the hospital's current salary scheme, one doctor with 10 years experience who got an F on this test would be paid $150,000, while a newly hired doctor who got an F on the test would be paid $100,000. Under a proposed new salary scheme, both doctors would be paid $75,000. The author is most likely arguing for what conclusion?
A) something irrelevant
B) All doctors will be paid less under the new scheme.
C) something irrelevant
D) Some doctors of equal skill will be paid different amounts if the new scheme is not implemented.
E) something irrelevant

The answer here can only be D (answer B is far too sweeping a conclusion on such paltry evidence), but this is essentially identical to the question in this thread.