What effect would a tax increase have on income?

Question

It would increase net income.
It would not affect gross income.

Answer 1

A tax increase would primarily affect net income rather than gross income. Here's how it works:

1. Gross Income: This is the total income earned before any deductions, including taxes. A tax increase does not change the amount of gross income you earn.

2. Net Income: This is the income remaining after all deductions, including taxes, have been taken out. A tax increase would reduce the amount of net income because you would be paying more in taxes.

Therefore, the correct interpretation would be: "A tax increase would decrease net income while having no effect on gross income."