Question

Economist: Some policymakers believe that our country's continued economic growth requires a higher level of personal savings than we currently have. A recent legislative proposal would allow individuals to set up savings accounts in which interest earned would be exempt from taxes until money is withdrawn from the account. 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. Yet, when similar tax incentive programs were tried in the past, virtually all of the money invested through them was diverted from other personal savings, and the overall level of personal savings was unchanged. The author criticizes the proposed tax incentive program by

Answer 1

The options are:

A). Challenging a premise on which the proposal is based.

B). Pointing out a disagreement among policymakers.

C). Demonstrating that the proposal's implementation is not feasible.

D). Questioning the judgment of the proposal's backers by citing past cases in which they had advocated programs that have proved ineffective.

E). Disputing the assumption that a program to encourage personal savings is needed.

Answer:

A). Challenging a premise on which the proposal is based.

Step-by-step explanation:

The author critiques the suggested program of tax incentives by 'questioning the very premise on which the suggestion is based.' In the given proposal, the claim is based on the premise that if people are exempted from paying taxes on their savings accounts, they will be encouraged for saving more money. However, the author rebuts this premise by displaying the failure of such programs previously where people just attempted to redirect their money in order to get them into the tax-exempted accounts instead of saving more. Thus, the percentage of money saved by people remained unaltered. Hence, option A is the correct answer.