GMAT Critical Reasoning - The Tax System of the Republic of Grootland Encourages Borrowing by Granting its Taxpayers

Question: Which of the following, if true, is the most logical completion of the argument below?
The tax system of the Republic of Grootland encourages borrowing by granting its taxpayers tax relief for interest paid on loans. The system also discourages saving by taxing any interest earned on savings. Nevertheless, it is clear that Grootland's tax system does not consistently favor borrowing over saving, for if it did, there would be no __________.

(A) tax relief in Grootland for those portions of a taxpayer's income, if any, that are set aside to increase that taxpayer's total savings
(B) tax relief in Grootland for the processing fees that taxpayers pay to lend institutions when obtaining certain kinds of loans
(C) tax relief in Grootland for interest that taxpayers are charged on the unpaid balance in credit card accounts
(D) taxes due in Grootland on the cash value of gifts received by taxpayers from banks trying to encourage people to open savings accounts
(E) taxes due in Grootland on the amount that a taxpayer has invested in interest-bearing savings accounts

“The tax system of the Republic of Grootland encourages borrowing by granting its taxpayers” – is a GMAT Critical question. To answer the question, a candidate can by either finding a piece of evidence that would weaken the argument or logical flaws in the argument. GMAT critical reasoning tests the logical and analytical skills of the candidates. This topic requires candidates to find the argument's strengths and weaknesses or the logical flaw in the argument. The GMAT CR section contains 10 -13 GMAT critical reasoning questions out of 36 GMAT verbal questions.

Answer: A
Explanation: The GMAT's critical reasoning part evaluates a candidate's logical and analytical abilities. To arrive at a logically sound response, the applicant must employ reasoning and deduction skills.

The text states,
The system levies taxes on saving while reducing taxes on borrowing.
This rule isn't regularly enforced, though, or it wouldn't…
Now we must identify a choice that runs counter to the policy. We must find a choice that displays:
- tax the borrowed money
- or a tax break for the savings

Let's examine each choice individually.

A: Correct
A: The correct choice, option A, offers tax assistance to boost savings. The paragraph makes it quite evident that the nation does not always favour borrowing over saving; therefore, tax relief on income shouldn't exist. The right response is this.

B: Incorrect
This reduces taxes by lowering borrowing costs. If tax breaks were offered for borrowing, more people would choose to borrow rather than save.
Consequently, this approach would fail.

C: Incorrect
This offers tax relief for interest on CC balances that are not yet paid. In the end, this is also borrowing. On the other hand, the nation does not encourage constant borrowing. As a result, the alleviation system is ineffective.

D: Incorrect
These taxes are rewards for saving money. How will someone promote conserving money if they are taxed on the presents they receive? This won't work either. The erroneous answer is D.

E: Incorrect
The money from taxes is put into a savings account. The banks also charge taxes on this savings account. As a result, this sentence likewise couldn't be correct. E is in error.

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