Question

Read the following short passages and choose the best answers to the questions following the passage.

Supporters of the recently introduced tax on sales of new luxury cars had argued that a tax of this type would be an equitable way to increase government revenues because the admittedly heavy tax burden would fall only on wealthy people and neither they nor anyone else would suffer any economic hardships. In fact, however, 30 percent of the workers employed by manufacturers of luxury cars have lost their jobs as a direct result of this tax.

The information given, if true, most strongly supports which of the following statements?

Options

• Taxes can be equitable only if their burden is evenly distributed over the entire population

• Because many people never buy luxury items, imposing a tax on luxury items is the kind of legislative action that does not cost incumbent legislators much popular support.

• The new tax would produce a net gain in tax revenue for the government only if the yearly total revenue that it generates exceeds the total of the yearly tax-revenue decrease resulting from the workers’ loss of jobs.

• The market for luxury cars would have collapsed even if new tax on luxury cars had been lower.

Answer 1

The new tax would produce a net gain in tax revenue for the government only if the yearly total revenue that it generates exceeds the total of the yearly tax-revenue decrease resulting from the workers’ loss of jobs.

Explanation:

The government will suffer a loss of revenue from the workers, loss of jobs in the wake of the new tax.  However, if the new tax revenue exceeds this loss, the government stands to receive a net gain in revenue.  So, (c) is most strongly supported by the information supplied in the passage. Statements "Taxes can be equitable only if their burden is evenly distributed over the entire population." is contradictory,  while "Because many people never buy luxury items, imposing a tax on luxury items is the kind of legislative action that does not cost incumbent legislators much popular support." and "The market for luxury cars would have collapsed even if new tax on luxury cars had been lower" are out of context.