Q11 - Raising the tax rate on essential

[meredith.segal]

This question is regarding the tax rate on essential goods.

While I agree that there is no other better answer, I am puzzled by the correctness of Answer C. The officials' prediction is that the tax will result in "a substantial increase" in revenues. Thus, whether sales of luxury goods increased a bit (unlikely) or decreased a bit, substantial revenues could still result. What am I missing?

Thanks!

[bbirdwell]

Perhaps I can help you understand this one. It's an odd question type, but works essentially like an Identify the Flaw question or an Assumption question. We'll need to identify the conclusion and premises and try to anticipate any logical gaps necessary to connect the two (i.e. assumptions).

On questions like this one, the correct answer will usually phrase an assumption as a question, the answer to which would naturally allow us to more readily evaluate the merits of the conclusion (a "yes" would solidify the conclusion while a "no" would call it into question or destroy it entirely).

In this argument, we have the following elements:

--raising taxes on essential goods always turns low- and middle tax-payers against govt

--for this reason, a tax on luxury items has been proposed

--officials claim that the luxury tax will:
1. result in a substantial increase in govt revenues
2. only affect wealthy individuals and corporations

What are some possible gaps in this logic? The first phrase that comes to attention is probably "substantial increase." We might wonder whether the new tax will affect the sales of luxury items -- if people don't want to pay a tax and sales of such items drop, will a "substantial increase" in revenue still result?

We might also wonder whether the new tax might affect the low- and middle- tax-payers indirectly somehow. Or whether the new tax will not turn the upper- tax-payers against the government.

Finally, when we go to the choices, we must be sure to remember the two critical points of the claim above, which we are to be evaluating.

(A) is irrelevant to points 1. and 2.
(B) is irrelevant -- a comparison to the other tax is not a critical part of the claim
(C) calls attention to the first point of the claim. If the sale of luxury goods do NOT continue at the current rate, but in fact drop, then perhaps the officials predictions (ostensibly projecting from the current rate) will not be accurate.
(D) is irrelevant to the claim. Whether or not support is WON is unimportant.
(E) the proportion of individuals to corporations is of no relevance to either claim.

(C) is the best answer.

In answer to your hesitance about (C), you are correct that it is still *possible* for "substantial revenues" to occur. The key point is that answering this question will help you to better evaluate that claim. If sales will not be affected, the claim is more likely to be true than if sales will be affected negatively. Doesn't make the claim impossible, or need to. Merely needs to draw attention to a critical point.

Hope that helps!

[skapur777]

I put B. Is B incorrect because it doesn't matter if revenues are comparable because they are not REPLACING the tax and trying to help out the low-middle income people that way, rather they just want to increase revenue. So it could be less than the amount they gain from essential goods yet still be deemed 'substantial'?

Hard question!

[bbirdwell]

Essentially, yeah. The other tax will remain in affect. The officials want the luxury tax because it will add substantial revenue.

So, yes -- it doesn't matter whether it's comparable to the current tax. It just matters whether it's substantial on its own.

(C) gets to this issue by saying "What if sales drop when the tax goes into effect?"

[peterbobolis]

it's the different application of the word "rate" that tripped me up; we're talking about tax rates and, in answer C, also sales rates...tricky indeed!

[keonheecho]

The reasoning behind B and C still bother me...can someone please help me out?

I don't really see how B is irrelevant to the argument. Wouldn't this question verify whether or not the tax will substantially increase the revenues? If the revenues are comparable to those generated by taxes on essential goods, then there would not be a substantial increase--if the two revenues are not comparable, there would be a substantial increase. Is this incorrect? I don't really see how this is irrelevant...the only thing that I notice that may make the answer choice irrelevant is the fact that the stimulus is talking about government revenues, while B is only talking about revenues in general.

Also, C still does not really seem to necessarily be correct to me...Even if the sales differ or even decrease, isn't it still possible for the revenue to be higher? After all, the luxury items are much more expensive than essential items, and the taxes would probably be even higher as a result...

Thank you for your help!

[eiwon21]

So (B) would be right if it said "Will revenues generated by the proposed tax be comparable to those that would be generated by RAISING THE TAX RATE ON ESSENTIAL GOODS"?

As for (C), it is a valid answer because answering it could either weaken or strengthen the argument by pointing to an assumption that the argument rests on -- that sales of luxury items will not change so drastically as to affect revenues negatively with the new tax, right?

[freddyraymond747]

Well, I have read somewhere that increase in tax rates will ultimately affect the revenue. The importance of an increase in rates is described in a an article on forum droit du travail with the help of an example. The article was suggested by my friend.

[ohthatpatrick]

Let me tidy up some of the last few questions.

It seemed like people were construing the conclusion (incorrectly) as "we predict this luxury tax will make at least as much as the essential tax."

The prediction has two claims to it:
1. the luxury tax will result in a substantial increase in gov revenue (compared to not having the luxury tax)

2. only wealthy individuals and corporations will be affected

You can Weaken this prediction by undermining either claim. I, for example, was anticipating that maybe they would talk about the low/middle class people who work FOR companies that make yachts / private planes / jewels / etc. .... these employees might be affected by the tax, which would undermine the 2nd claim.

(B) doesn't matter, because whether the luxury tax brings in more/less/same revenue, compared to current taxes on essential, we can't directly judge whether that's a substantial or insubstantial increase. Even if you say the luxury tax would bring in more revenue than what is currently generated by taxes on essential goods, you don't have any information about how substantial the current tax on essential goods is. Since taxing essential goods apparently makes citizens so angry, it's very possible that the current tax rate on that is very low.

(C) is a pretty weak answer, I'm not gonna lie. But it's attacking the idea that we'll get a substantial increase in tax revenue by suggesting that the hefty taxes may dissuade rich people from buying these luxury items. LSAT loves to weaken a Plan by showing how it leads to an unintended backfire.

If we start taxing luxury items, and rich people start buying less of them as a result, then we won't really get the substantial uptick in tax revenue we were hoping for.

[kimhyungjoon]

Stem
An unusual question stem, but the stimulus should contain an argument and we would have to find an assumption. Also, look for a "prediction" in case it's hard to find a conclusion.

Stimulus
Prediction: Proposed tax on luxury goods will bring substantial increase in government revenues + affect only wealthy individuals and corporations
P1: Because raising tax on essential goods turns low/mid income taxpayers against the government

Prephrase
Will the luxury tax not affect revenues from other taxes? For instance, if the rich spend less on luxury goods, wouldn't that have a trickle down effect on the lower income groups that work for companies that manufacture luxury goods, who might end up with decreased pay and thus spend less on essential goods, which is the "traditional means of increasing government revenues?"

Answer choice
A. Ceteris paribus, since this is a new tax, the revenue should increase regardless of the tax rate.
B. Similar to A
C. This implies that if it was known that the tax would expire after a short period, those who buy luxury goods may withhold purchase entirely, which will bring no increase in tax revenue.
D. How could lower income taxpayers' support of the plan affect the revenues?
E. As long as it affects both groups (and not the lower tax paying ones) and it brings increased tax revenue, which of the two groups pays more tax isn't relevant to the prediction.

Lesson
Interesting/complicated question stems should not necessarily be causes for concern since they may give you added hints as to what to look for in a stimulus. Minus the stem pointing toward "prediction" it would have been difficult to pinpoint the conclusion in the stimulus.