Question

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?


(A) The market for luxury boats would have collapsed even if the new tax on luxury boats had been lower.

(B) 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 any yearly tax-revenue decrease resulting from the workers' loss of jobs.

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

(D) Before the tax was instituted, luxury boats were largely bought by people who were not wealthy.

(E) Taxes can be equitable only if their burden is evenly distributed over the entire population.

Answer 1

Answer: Option (B) is correct.

Step-by-step explanation:

The new tax on sales of these luxury boats considered to be a reasonable way to boost government revenue thereby tax burden would most likely fall only on the wealthy individual and therefore neither they nor any other individual would suffer.

But 20% of employees hired by manufacturers of these luxury boats lost their jobs as a result of the respective tax.

If true, the following will most strongly support the above arguments: The tax would induce a net gain in revenue created by tax for the state only if yearly revenue that it creates goes beyond the total of yearly tax-revenue decline resulting from employees loss of jobs.