PrepTest 121, Section 4, Question 16
Economist: A tax is effective if it raises(33 more words not shown)
Which one of the following(12 more words not shown)
- AThe tax on(21 more words not shown)
- BThe tax on(22 more words not shown)
- CThe tax on(20 more words not shown)
- DThe tax on(27 more words not shown)
- EThe tax on(23 more words not shown)
Reading the argument
Watch the word “and.” Raising money is not enough to apply the economist's rule for an effective tax. The tax must also reach everyone it targets without burdening anyone else.
Imagine a tax aimed at smokers. To fit that rule, it needs to raise revenue, affect all the targeted smokers, and leave people outside the target group alone. Maybe we would judge a tax by other standards in real life. Here, we're applying the standards the economist gives us.
The rule for an ineffective tax also has two parts: it raises no revenue and costs a significant amount to enforce. An expensive tax that brings in money doesn't fit that description. Neither does a tax that brings in nothing but costs almost nothing to enforce.
What we’re looking for
We need the inference most strongly supported by these principles. Look for an answer that supplies every part of one rule. Having half of the effective-tax description and half of the ineffective-tax description won't work. Also, these are ways to establish effectiveness or ineffectiveness, not statements that cover every possible tax. When an answer fails a rule, we may simply lack enough information to classify it.
Working the answers
- A
“Most, but not all” misses the targeting requirement. Even if the cigarette tax raises revenue, some targeted people escape its burden. The stated rule therefore doesn't establish that the tax is effective. That doesn't prove the tax ineffective; it means A hasn't supplied what we need for its conclusion.
- B
A modest amount of revenue is still revenue—even one dollar would count. The rule for ineffectiveness requires no revenue as well as significant enforcement costs. B gives us the cost but fails the no-revenue condition. We cannot combine a piece of each rule and announce that the tax is ineffective.
- CCorrect
We already have significant enforcement costs. If the gasoline tax also raises no revenue, we have both parts of the ineffective-tax rule. That is exactly the conditional conclusion C draws.
- D
The coal tax gets the targeting part right: it burdens every targeted person and nobody else. But does it raise revenue? D never tells us. Excellent targeting doesn't supply that missing fact, so the effective-tax rule cannot establish D's conclusion.
- E
Bringing in no revenue supplies one part of the ineffective-tax rule. But the other part is significant enforcement costs, and E explicitly says the steel tax lacks those costs. We cannot call it ineffective using the rule given. Nor does that automatically make it effective; neither complete rule has been established.
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