Logical reasoning PrepTest 116 · Section 3 · Question 15

Incorrect. If the economy was prosperous, incomes would be higher, and thus more money could be collected on a lower tax rate, so this answer resolves the discrepancy. We can therefore rule it out.

Incorrect. By widening the definition, more money would count as income and thus be subject to income tax, so money collected could go up even if the tax rate goes down.

Incorrect. If the tax rate for the wealthiest went up enough to collect more money than was lost by decreasing the tax rate on the rest, then the paradox is resolved.

Correct. Argument or Facts:
Facts

Question Type:
Bizarro Paradox

Stimulus Summary:
1975 — Income tax was reduced 2%
1976 — Income tax was reduced another 2%
1974—1975 — Total income tax collected remained the same
1976 — Total income tax collected went up

Answer Anticipation:
So what's the paradox here? Well, this province decreased the income tax by 2% over two consecutive years. You'd expect them to collect less in income tax after cutting taxes.

However, that's not what happened—it stayed the same, and then it went up. Something has to explain that growth in income tax collected on a smaller tax rate—either because more people moved in, or the economy/employment rate improved, or they got better at fully collecting taxes or preventing people from avoiding them. Any change that explains how more money could be collected at a lower tax rate will resolve this paradox—and thus be incorrect in this Bizarro question.

Answer Explanation:
While this answer may align with an increase in collected income tax, it doesn't explain it. Especially since there's no note on any changes to the other tax rates. We still don't know why/how the total money collected went up despite the tax rate going down, even if other taxes also saw increases. (And this answer doesn't even suggest that other taxes went up, necessarily—if they all stayed the same, but income tax went up, that could completely account for the increase.)

Key Takeaway:
When a change has an unexpected outcome, we can expect answers that resolve this paradox to deal with other changes that can account for that shift.

Incorrect. More taxpayers could account for more taxes despite a lower tax rate.