The passage concludes that "it is not correct that the people of the United States, relative to comparable countries, are the most lightly taxed" even though they have "the lowest tax, as a percent of GDP, of the Western industrialized countries."
Why is this? Because "people in the U.S. pay out of pocket for many goods and services provided from tax revenues elsewhere." This is demonstrated through the example of universal health care which is "supported by tax revenues in every other Western industrialized country." Therefore, the passage claims, as private health care is paid for by the citizens, this constitutes a "tax."
So, what is the flaw in the argument? The passage concludes that the people of the U.S. are not the most lightly taxed because we can equate out of pocket expenses to a "tax." In this way, the author is attempting to extend the definition of the word 'tax' to include these out of pocket expenses. This is directly restated by answer choice B, making it the correct answer.
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