Luxury Services Tax?

Question:

I'd like to know why a tax on luxury goods exists yet there seem to be no examples of a tax on luxury services such as having a maid, a membership to a golf club or a first class airplane ticket. Also, if we take 'luxury' to mean non-essential, what is the merit or lack of merit in having a tax on other non-essential services like interior design or photography?

Answer:

Like any other taxes, people have different views on luxury tax. Some might view it as a way to raise government revenues without having large impacts on the less wealthy. Others might disagree with this progressive taxation and argue that the luxury tax will depress the economy and job growth. To your question, luxury services likely are dissimilar from luxury goods in terms of substituability (there may be more competition in services) and conspicuousness (it may be more difficult to show off how much one spent in services because they are less durable and more private). These factors may contribute to taxing luxury services substantially reducing economic activities, which would not be popular with workers in the affected industries and consumers. The political process of picking which service sectors to tax is also going to be difficult since there is a large pool of candidate sectors.

Answered by
  • Assistant Professor
Last updated on
February 3, 2024

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