What is a potential negative effect when income tax is increased?

When income tax is increased, it directly reduces the amount of money that individuals take home, also known as disposable income. Disposable income is the portion of an individual's income that is available for spending and saving after taxes have been deducted. With less disposable income, consumers may be forced to cut back on their spending, particularly on non-essential items. This decreased consumer spending can lead to lower sales for businesses, as they experience a drop in demand for goods and services.

In contrast, the other options describe scenarios that are generally not associated with an increase in income tax. For example, an increase in income tax does not raise disposable income (which is why this option is incorrect), nor does it generally lead to increased employment opportunities, as businesses might reduce hiring or cut back on jobs due to falling sales. Similarly, higher taxes do not enhance customer spending on luxury goods; rather, consumers may prioritize essential purchases over luxury items when they have less disposable income.