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Question: One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.
The conclusion above would be properly drawn if which of the following were assumed as a premise?
(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.
(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.
(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.
(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.
Answer: A
Explanation:
(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels. The given statement is correct because if low income earners were to spend all their money outside the jurisdiction, while the high income earners were to spend some of it in the jurisdiction, the conclusion made in the statement would be wrong. This statement makes an assumption regarding the spending habits of the two groups, and if it were true, the statement would be true as well.
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes. The given statement is incorrect because the federal income tax doesn’t favor citizens with high incomes, whereas the state sales tax doesn’t favor citizens with low incomes.
(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low. The given statement is incorrect because it is not about whether the people can afford to pay the tax or not. The main focus is why there would be a higher annual percentage rate of taxation when income is lower.
(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society. The given statement is incorrect because the statement is irrelevant and this topic is not discussed anywhere in the argument.
(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax. The given statement is incorrect because the statement is irrelevant and this topic is not discussed anywhere in the argument.
“One state adds a 7 percent sales tax to the price of most products purchased”- is a question of critical reasoning in a section of GMAT Verbal Reasoning. It examines the logical reasoning of the candidate in the test. The Critical Reasoning question type is used to measure critical business skills. GMAT Critical Reasoning questions assess a distinct set of qualities associated with logic. The students preparing for the GMAT will experience the argument analysis of Critical Reasoning for the first time to substantiate their logic.
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