PrepTest 103, Section 1, Question 18
Politician: A government that taxes incomes at a(57 more words not shown)
Which one of the following(12 more words not shown)
- Astating a general(10 more words not shown)
- Bproviding evidence that(12 more words not shown)
- Carguing that the(17 more words not shown)
- Dundermining the credibility(11 more words not shown)
- Eattacking the politician's(11 more words not shown)
Reading the argument
At a zero-percent tax rate, the government collects zero from that tax. No matter how much income people earn, zero percent of it is still zero.
That exposes the problem with “the lower the rate, the more revenue.” We can accept, for purposes of the argument, that a 100-percent rate would stop economic activity and bring in nothing. It doesn't follow that every reduction keeps increasing revenue all the way down to zero.
The best rate could be somewhere between the endpoints. We haven't determined where, and we don't need to. Knowing that one extreme produces no revenue doesn't establish an always-lower-is-better rule.
The economist tests the politician's rule at the other extreme. If lower rates always generated more revenue, then the lowest possible rate—zero—would generate the most. But that result is plainly wrong.
What we’re looking for
The question asks us to describe the economist's strategy. Our prediction is to apply the politician's own rule to an extreme case and show that it gives an impossible result.
Working the answers
- A
The economist doesn't offer a competing general theory of taxation. The response takes the politician's own claim about lower rates and tests what it would imply at zero percent. The contradiction between that implication and collecting nothing is the point, rather than a new general principle replacing the politician's.
- B
No real-world policy results are presented. We hear about no country that adopted the advice and no disappointing revenue figures. The response works by considering what the proposed rule implies, not by reporting an actual experiment.
- CCorrect
The politician's principle is that lowering the income-tax rate increases revenue. The “limiting case” is taking that rate all the way down to zero. Applying the principle there would make zero the revenue-maximizing rate, even though a zero-percent tax collects nothing.
That absurd result shows that the principle cannot be right as stated. We don't need to identify the actual best rate to expose its failure at this endpoint.
- D
The economist criticizes the conclusion by showing its consequence. The response does not question the politician's education, competence, or personal credibility as a substitute for examining the argument. It explains what goes wrong in the reasoning itself.
- E
The response leaves the 100-percent premise alone. It doesn't claim that economic activity would continue at that rate or that the government would collect revenue anyway. It challenges the jump from that premise to the broader claim that lower rates always yield more revenue.
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