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#14 - Economist: Some policymakers believe that our

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Complete Question Explanation

Must be True. The correct answer choice is (B)

The economist is basically arguing that no matter the program, the overall level of personal savings does not change – the only thing affected is where that money ends up.

Answer choice (A): There is no evidence in the passage about motives of those backing the tax-incentive proposal.

Answer choice (B): This is the correct answer choice. If no additional money is being invested, money is just changing hands and there will be no way to compensate for the lost tax revenues – this is true no matter how small the actual loss is.

Answer choice (C): The current program only generates small tax revenues losses – we don’t know what would happen in a different program that caused greater loss.

Answer choice (D): This is too sweeping. We only know economic growth would be enhanced by more savings, we don’t have enough evidence to conclude the economy will be in danger otherwise.

Answer choice (E): This is also too sweeping. We only know about the effectiveness of this tax-inventive program. Surely the government has other ways it could encourage saving. For example, they could offer to never tax savings or offer a free car to everyone who saves a certain amount, etc.
Echx73
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TeamPowerScore,

I am going through the PowerScore LSAT LR Question Type Training Volume 1 book. I am only able to see an explanation for the answer selection, just which answer is correct. I know going through every answer would take way too much of your time, so I will just ask a few.

MBT Page 34 Q#45 The correct answer is B. The proposed tax incentive is unlikely to attract enough additional money into personal savings accounts to make up for the attendant loss in tax revenue. I crossed this off as a possible correct answer because I could prove the the first part of the answer, but I could not prove " to make up for the attendant loss in tax revenue part of the question. Can you fill me in on what I am missing?

Sincerely, I thank you so much for your help!

Eric
Nikki Siclunov
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Eric,

According to the stimulus, the tax-incentive program (similar to a Traditional IRA, btw) is unlikely to increase how much people save, because they basically shift the money they would have put into their regular Savings accounts into the IRA. People aren't saving more money, they are just taking advantage of the tax break. Meanwhile, this is costing the country tax revenue, because the IRA savings are exempt from income taxation until the money is withdrawn.

If all of this is true, then the cost of the program (loss in tax revenues) probably outweighs the benefits (attract enough additional money into personal savings accounts) - a prephrase that agrees with answer choice (B).

Does that make sense?

Thanks!
Nikki Siclunov
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bk1111
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Administrator wrote:
Answer choice (C): The current program only generates small tax revenues losses – we don’t know what would happen in a different program that caused greater loss.


Hi, can someone explain why C is incorrect. Specifically, how do we know the current program discussed in the stimulus only generates a small tax revenues loss?
Jennifer Janowsky
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Hi, bk1111! In the stimulus, it is mentioned here that the current program only generates a small tax revenues loss: "Backers of this proposal claim that its implementation would increase the amount of money available for banks to loan at a relatively small cost to the government in lost tax revenues."

Therefore, it is mentioned that the current program resulted in a small loss, but nothing about the large tax loss mentioned in the answer choice: "(C) A tax-incentive program that resulted in substantial loss of tax revenues would be likely to generate a large increase in personal savings."

Hope this clears it up for you a little bit!