Proponents of the recently introduced tax on sales of new luxury boats had argued that a tax of this sort...
GMAT Critical Reasoning : (CR) Questions
Proponents of the recently introduced tax on sales of new luxury boats had argued that a tax of this sort would be an equitable way to increase government revenue because the admittedly heavy tax burden would fall only on wealthy people and neither they nor anyone else would suffer any economic hardship. In fact, however, 20 percent of the workers employed by manufacturers of luxury boats have lost their jobs as a direct result of this tax.
The information given, if true, most strongly supports which of the following?
Passage Visualization
| Passage Statement | Visualization and Linkage |
|---|---|
| Proponents of the recently introduced tax on sales of new luxury boats had argued that a tax of this sort would be an equitable way to increase government revenue | Establishes: Policy Goal
Example: Government needs $50 million in new revenue, chooses luxury boat tax as "fair" method |
| because the admittedly heavy tax burden would fall only on wealthy people | Establishes: Target Population
Example: $100,000 boat now costs $140,000 due to 40% tax - only wealthy can afford either price |
| and neither they nor anyone else would suffer any economic hardship | Establishes: Harm Prediction
Example: Predicted wealthy buyers would simply pay more, no other impacts |
| In fact, however, 20 percent of the workers employed by manufacturers of luxury boats have lost their jobs as a direct result of this tax | Establishes: Actual Outcome
Example: Luxury boat factory with 1,000 workers now has 800 - 200 people lost jobs due to reduced demand from tax |
| Overall Implication | PARADOX REVEALED: Tax designed to avoid economic hardship actually caused significant hardship to unintended victims (workers, not wealthy buyers). The "equitable" policy created inequitable consequences by harming those it was supposed to protect from burden. |
Valid Inferences
Inference: The proponents' prediction that no one would suffer economic hardship from this tax was incorrect.
Supporting Logic: Since the proponents explicitly predicted that "neither they [wealthy people] nor anyone else would suffer any economic hardship," and since 20 percent of luxury boat manufacturing workers lost their jobs as a direct result of this tax, the proponents' prediction has been proven false by the actual economic consequences.
Clarification Note: The passage establishes that real hardship occurred (job losses) in direct contradiction to the prediction of no hardship. However, it does not provide information about whether the tax succeeded in raising government revenue as intended.
This choice suggests the luxury boat market would have collapsed regardless of the tax level. However, the passage doesn't provide any information about what would have happened with a lower tax rate. We only know that the current 'admittedly heavy' tax caused job losses, but we can't conclude anything about alternative scenarios with different tax levels.
This choice correctly identifies that for the tax to achieve its revenue goal, it must generate more money than it costs the government through lost tax revenue from unemployed workers. Since 20% of luxury boat workers lost jobs due to the tax, these workers will pay less income tax and may require government benefits. The passage supports this logical relationship between the tax's intended benefit (revenue increase) and its unintended cost (revenue decrease from unemployment).
This choice discusses political ramifications for legislators, but the passage doesn't mention anything about popular support, elections, or political consequences. The passage focuses solely on economic impacts, not political considerations.
This choice contradicts the passage, which clearly states the tax burden 'would fall only on wealthy people.' If luxury boats were largely bought by non-wealthy people before the tax, then the proponents' argument about targeting wealthy buyers would be fundamentally flawed. The passage doesn't suggest this targeting was wrong.
This choice makes a broad philosophical statement about tax equity requiring even distribution across the entire population. However, the passage doesn't discuss general principles of taxation or suggest that all equitable taxes must burden everyone equally. The passage focuses on the specific consequences of this particular tax.