PrepTest 116, Section 3, Question 15
In 1975, a province reduced its personal income(54 more words not shown)
Each of the following, if(11 more words not shown)
- AThe years 1975(12 more words not shown)
- BThe definition of(17 more words not shown)
- CThe personal income(14 more words not shown)
- DThe province's total(10 more words not shown)
- EA large number(13 more words not shown)
Reading the argument
A smaller percentage of a bigger income can still mean more tax dollars.
The tax rates fell for most taxpayers, but the amount collected stayed level and then rose. That's not automatically a contradiction. Imagine someone's income rising from $60,000 to $100,000 while the tax rate falls from 10 percent to 8 percent. The tax paid rises from $6,000 to $8,000. Those are illustrative numbers, but they show why the percentage and the dollars can move in different directions.
I'd consider two explanations here. Perhaps the economy grew and people earned more. Or perhaps rates rose for the taxpayers who weren't included in the cuts. The passage says most taxpayers received reductions, which leaves open the possibility of higher rates for a smaller group.
What we’re looking for
Now notice EXCEPT. Four answers should help explain the figures, and we want the one that doesn't. Our two predictions give us a start, but other explanations could work too. For each choice, ask how it could keep personal income tax collections from falling despite the reduced rates.
Working the answers
- A
A prosperous economy could mean people earned more income. The government could then collect as much or more money while taking a smaller percentage of each person's earnings. That is the larger-income possibility we considered, so A helps explain the result and isn't the exception.
- B
This expands what counts as taxable personal income. Now investment income is included too. Even with a lower rate, applying the tax to a larger amount of income could produce more revenue. This is another way to enlarge the amount being taxed, without requiring the same earnings to be taxed at a higher rate.
- C
This matches the other prediction. Rates could fall for most people while rising for the wealthiest individuals. Higher collections from that smaller group could offset the reductions elsewhere. The original statements don't say everyone received a tax cut, so C is compatible with them and helps explain the total.
- DCorrect
We need to explain the money collected from personal income taxes. A rise in revenue from all taxes doesn't tell us why that particular source stayed steady or increased. The total includes other taxes, which could rise for separate reasons.
Even if other tax collections followed the same pattern, simply reporting another increase wouldn't explain the mechanism behind the personal income tax figures. D tells us another result and leaves our question unanswered.
- E
More residents can mean more taxpayers. Even if each paid at a lower rate, collecting personal income tax from a larger population could keep the total steady or push it upward. Think of expanding from ten people contributing to a hundred. The lower rate doesn't by itself tell us the total must fall. E supplies a possible explanation, so we eliminate it.
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