PrepTest 121, Section 4, Question 14
A new tax law aimed at encouraging the(80 more words not shown)
If the statements above are(14 more words not shown)
- AIt is a(11 more words not shown)
- BIt will have(12 more words not shown)
- CIt will ultimately(17 more words not shown)
- DIt can provide(23 more words not shown)
- EIt will provide(24 more words not shown)
Reading the argument
They planted trees. They also cleared an even bigger forest to pay for it.
The law's immediate incentive is to reforest cleared land. Its larger purpose is to increase the amount of forested land in the region. Those goals can come apart if getting the tax benefit encourages a company to cut down more forest somewhere else.
That is what happens here. The company buys and replants a cleared tract, earning the tax benefit. But it funds the purchase by clearing a larger tract it had planned to keep in reserve. Looking only at the replanted tract would make the law look successful; including the larger loss changes the picture.
What we’re looking for
We need the conclusion supported by this example. I'd say the incentive can work against the law's purpose even while a company does exactly what earns the tax reduction. We don't need to predict that every company will copy this behavior or that the whole program will cause a massive loss.
Working the answers
- A
The company did reforest cleared land, so the example doesn't show a failure to encourage that activity. The problem is the additional clearing that accompanies it. Reforestation can occur without a net increase in forested land.
- B
There is an effect in this example: the company clears a larger tract than it replants. We aren't given grounds to call the immediate regional effect zero. The purchase and tax savings don't somehow cancel out the unequal amounts of land involved.
- C
The example doesn't establish a long-term balance in which companies plant approximately as much land as they harvest. This company plants a smaller tract and clears a larger one. We also don't have a forecast of other companies' eventual behavior.
- DCorrect
A company can take advantage of the tax incentive while acting against the law's purpose. Replanting the purchased land earns the benefit, but clearing a larger reserve tract to fund that purchase works against increasing forest cover. D makes the limited claim the example supports: the law can motivate this kind of counterproductive behavior.
- E
“Massive” and “ultimately” go beyond this example. We don't know how widely companies will use the incentive this way or what the eventual regional outcome will be. One demonstrated problem supports saying the law can backfire, not predicting a massive decrease in mature forests.
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