Half of Metroburg's operating budget comes from a payroll tax of 2% on salaries paid to people who work in...
GMAT Critical Reasoning : (CR) Questions
Half of Metroburg's operating budget comes from a payroll tax of \(2\%\) on salaries paid to people who work in the city. Recently a financial services company, one of Metroburg's largest private-sector employers, announced that it will be relocating just outside the city. All the company's employees, amounting to \(1\%\) of all people now employed in Metroburg, will be employed at the new location.
From the information given, which of the following can most properly be concluded?
Passage Visualization
| Passage Statement | Visualization and Linkage |
|---|---|
| Half of Metroburg's operating budget comes from a payroll tax of 2 percent on salaries paid to people who work in the city. | Establishes: Revenue dependency on payroll tax
|
| Recently a financial services company, one of Metroburg's largest private-sector employers, announced that it will be relocating just outside the city. | Establishes: Major employer leaving city limits
|
| All the company's employees, amounting to 1 percent of all people now employed in Metroburg, will be employed at the new location. | Establishes: Quantified workforce loss
|
| Overall Implication | Budget Revenue Reduction Pattern:
|
Valid Inferences
Inference: Metroburg's operating budget will decrease as a direct result of the company's relocation.
Supporting Logic: Since half of Metroburg's budget comes from payroll taxes on people working in the city, and the relocating company employs 1% of the city's workforce who will no longer work within city limits, the city will lose 1% of its payroll tax revenue. This translates to a reduction of 0.5% of the total operating budget (1% of the 50% that comes from payroll taxes).
Clarification Note: The inference is limited to the mathematical certainty of budget reduction, not the magnitude of impact or the city's ability to compensate through other revenue sources or budget adjustments.
Unless other employers add a substantial number of jobs in Metroburg, the company's relocation is likely to result in a \(1\%\) reduction in the revenue for the city's operating budget.
This choice makes a specific claim about a '1 percent reduction in the revenue for the city's operating budget.' However, this is incorrect. Since the payroll tax represents only half of the city's budget, losing 1% of the workforce would result in approximately 0.5% reduction in total budget revenue (1% of the 50% that comes from payroll tax), not 1%. The math doesn't support this conclusion.
Although the company's relocation will have a negative effect on the city's tax revenue, the company's departure will not lead to any increase in the unemployment rate among city residents.
This choice makes two claims: that there will be a negative effect on tax revenue (correct) and that unemployment among city residents won't increase (unsupported). The passage doesn't provide information about whether the employees live in the city or whether they'll find other jobs. We cannot conclude anything about unemployment rates from the given information.
One of the benefits that the company will realize from its relocation is a reduction in the taxes paid by itself and its employees.
This choice assumes the company will realize tax benefits from relocating, but the passage doesn't provide information about the company's motivations or the tax structure outside the city. We cannot infer the company's benefits from the relocation based solely on the information given.
Revenue from the payroll tax will decline by \(1\%\) if there is no increase in jobs within the city to compensate, fully or partially, for the company's departure.
This choice states that 'Revenue from the payroll tax will decline by 1 percent.' While the direction is correct, the specific percentage claim is unsupported. The passage tells us 1% of workers are leaving, but we don't know if their salaries represent exactly 1% of the total payroll tax base. Different employees might earn different salaries.
The company's relocation will tend to increase the proportion of jobs in Metroburg that are in the public sector, unless it results in a contraction of the public-sector payroll.
This choice correctly identifies a mathematical relationship that must follow from the given information. When 1% of the workforce (private-sector employees) leaves the city, and assuming public sector employment remains constant, the proportion of public sector jobs relative to total jobs in the city will increase. The 'unless' clause appropriately acknowledges that this depends on public sector employment not contracting. This is a valid logical inference that follows directly from the passage.