GMAT Critical Reasoning
Businesses are suffering because of a lack of money available for development loans. To help businesses, the government plans to modify the income-tax structure in order to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts, because as more money is deposited in such accounts, more money becomes available to borrowers.
Which of the following, if true, raises the most serious doubt regarding the effectiveness of the government's plan to increase the amount of money available for development loans for businesses?
- A When levels of personal retirement savings increase, consumer borrowing always increases correspondingly.
- B The increased tax revenue the government would receive as a result of business expansion would not offset the loss in revenue from personal income taxes during the first year of the plan.
- C Even with tax incentives, some people will choose not to increase their levels of retirement savings.
- D Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules.
- E The modified tax structure would give all taxpayers, regardless of their incomes, the same tax savings for a given increase in their retirement savings.
Correct Answer: A