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Economist: Sales taxes do not provide a fair alternative to income taxes. Low-income households must spend nearly all of their...

GMAT Critical Reasoning : (CR) Questions

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Critical Reasoning
Logically Completes
MEDIUM
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Economist: Sales taxes do not provide a fair alternative to income taxes. Low-income households must spend nearly all of their disposable income on consumption items they need to live, while high-income households can afford to buy those items and then put a substantial amount of their earnings into savings. Hence a sales tax

Which of the following most logically completes the argument?

A
could result in households with different incomes paying different amounts of taxes
B
could tax a smaller percentage of the earnings of high-income households than of low-income households
C
would put a disproportionately high burden on the purchasers of the most expensive consumption items
D
should be applied only to the wealthiest households
E
should not be used to tax any consumption items
Solution

Passage Analysis:

Text from PassageAnalysis
Economist: Sales taxes do not provide a fair alternative to income taxes.
  • What it says: Sales taxes aren't a fair replacement for income taxes
  • What it does: States the main position that the economist is taking
  • What it is: Author's main claim
Low-income households must spend nearly all of their disposable income on consumption items they need to live, while high-income households can afford to buy those items and then put a substantial amount of their earnings into savings.
  • What it says: Poor families spend almost everything they earn on necessities, but rich families can buy what they need and still save money
  • What it does: Provides the key factual difference between income groups that supports the opening claim
  • What it is: Supporting premise
  • Visualization: Low-income household: Earns $30,000 → Spends $28,000 on necessities, saves $2,000
    High-income household: Earns $100,000 → Spends $40,000 on necessities, saves $60,000
Hence a sales tax
  • What it says: This is setting up the conclusion about what sales taxes do (incomplete sentence)
  • What it does: Signals that we're about to get the logical conclusion based on the spending pattern difference
  • What it is: Conclusion indicator (incomplete)

Argument Flow:

The economist starts with their main position that sales taxes aren't fair, then explains how different income groups spend money differently, and is leading to a conclusion about why sales taxes create unfairness

Main Conclusion:

The passage is incomplete, but the conclusion will explain how sales taxes disproportionately affect different income groups based on their spending patterns

Logical Structure:

The argument uses the different spending behaviors (low-income spends everything, high-income can save) to show that sales taxes will hit these groups differently, making them unfair compared to income taxes

Prethinking:

Question type:

Logically Completes - We need to find the conclusion that logically follows from the premises about spending patterns of different income groups

Precision of Claims

The argument makes specific claims about spending behavior: low-income households spend 'nearly all' disposable income on necessities, while high-income households can afford necessities 'and then put substantial amount into savings'

Strategy

Since this is a 'logically completes' question, we need to find what conclusion naturally follows from the spending pattern differences. The economist argues sales taxes aren't fair because of how different income groups spend money. Low-income people spend almost everything on taxable items, while high-income people can save much of their money (avoiding sales tax on saved portions). So we need a conclusion that explains how this creates unfairness in sales tax burden.

Answer Choices Explained
A
could result in households with different incomes paying different amounts of taxes
'could result in households with different incomes paying different amounts of taxes' - This doesn't logically complete the argument because it's obvious that different income levels would pay different absolute amounts under any tax system. The argument is about fairness and proportionality, not absolute amounts. This misses the core issue of how sales taxes disproportionately burden different income groups as a percentage of their earnings.
B
could tax a smaller percentage of the earnings of high-income households than of low-income households
'could tax a smaller percentage of the earnings of high-income households than of low-income households' - This perfectly completes the argument! Since low-income households must spend nearly all their disposable income on consumption items (which get sales-taxed), almost their entire earnings face taxation. Meanwhile, high-income households can save substantial amounts, meaning only a portion of their earnings gets exposed to sales tax. This creates the unfairness the economist identifies.
C
would put a disproportionately high burden on the purchasers of the most expensive consumption items
'would put a disproportionately high burden on the purchasers of the most expensive consumption items' - This contradicts the argument's logic. Expensive items are typically purchased by high-income households, so this would suggest sales taxes burden the wealthy more, not the poor. The argument clearly establishes that low-income households face the greater burden.
D
should be applied only to the wealthiest households
'should be applied only to the wealthiest households' - This is a policy recommendation that doesn't follow from the premises. The argument explains why sales taxes create unfairness, but doesn't logically lead to applying them only to wealthy households. This jumps to a specific solution rather than completing the explanation of the problem.
E
should not be used to tax any consumption items
'should not be used to tax any consumption items' - While this might align with the economist's view that sales taxes aren't fair, it doesn't logically complete the 'Hence' statement. The premises about spending patterns don't directly lead to eliminating all consumption taxes - they lead to understanding how sales taxes affect different income groups differently.
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