M6A1: Understanding Charts

Interpretation of data requires analysis skills in which one has to have the ability to interpreted charts and picture presentations. It is argued that a picture is able communicate more than words. Images or picture presentation can portray a lot of information at a glance. The reader has to point out what every presentation means including an analysis of both extremes. In the document presented in this case, the issue of tax collection with respect to business cycle is addressed both in text and chart presentation. The information provides a variation in income tax from other taxes and various expansions as well as contractions in the economy.

In this presentation, income taxes portray the highest extremity than both sales tax and personal income. Personal income appears to be more constant while the taxes go through a system of variations. These variations could be related to business cycles (Gerald, Robert & Geoffrey, 2008). Business cycles may not certainly affect the personal income but influences the government decision to change the tax structure as a way of creating funds to finance its activities during times of economic depression. Economic depression would free personal income leading to shrinkage in the personal income to a lower extreme than sales tax. When the economy is at the boom period, personal income is highest and this initiates an increase in income tax. This means that income tax is more affected by business cycles than sales tax (Carroll, Holtz-Eakin, Rider & Harvey Rosen, 2000). The reason behind this is that business cycles greatly affect personal incomes than the effect created on sales. This is why income tax varies more greatly than any other taxes in the economy. Income tax falls significantly during economic depression periods because firms fire employees or shrink their incomes to avoid losses. During the boom periods, more jobs are created creating a change to generate more funds through income taxes.

References

Gerald Auten, Robert Carroll & Geoffrey Gee. (2008). The 2001 and 2003 Tax Rate Reductions: An Overview and Estimate of the Taxable Income Response. National Tax Journal, Vol. 61 No.3 , 345-364.

Robert Carroll, Douglas Holtz-Eakin, Mark Rider & Harvey Rosen. (2000). Income Taxes and Entrepreneurs: Use of Labor. Journal of Labor Economics, Vol.18 No.2 , 324-351.