The more money you have - and the more money you spend on unnecessary things like art and fancy cars - the more money you have to spare to support government programs. That's the theory behind the luxury tax, which is a type of sales tax that is imposed on unnecessary or frivolous items at the state/province and national level in many areas. If you would like to learn more about what luxury taxes mean and the effect they have on the economy, read on.

Go to Investopedia to learn more about how luxury tax is defined.

Everyone needs the basics to survive, which includes food, shelter, medicine, and some may argue air conditioning and heating. However, there are many more things available in stores than just the basics. We don't need DVDs or cigarettes or beer or jewelry, but we buy it anyway because we want to have it. It gives us status over other people who cannot afford to buy these things. Some of these things, especially the higher end models, are subject to a luxury tax.

The reasoning behind a luxury tax is that if you can afford to upgrade from a basic Toyota Camry to a Range Rover, you obviously have more money than you know what to do with and can therefore spare some for the government above and beyond what you already pay in income and sales taxes. Because a luxury tax only directly affects the rich individual who is buying a giant mansion, it doesn't place any more burdens on the subsets of the population who are struggling to make ends meet.

There is some argument, however, among economists that large luxury taxes do have a detrimental affect on the lower income earners as well as the higher income earners. Though people on the poverty line might not have the money to buy jeweled watches, taxing jeweled watches to the point where rich people decide to fill their needs with something else means that the lower income shopkeepers and manufacturers of the jeweled watches also suffer and a black market may arise, forcing the government to spend extra money to curb it.

So what kinds of things are subject to a luxury tax? Well, it depends on where you live, as each government has the power to decide what should and should not be taxed. Purchases commonly affected by a luxury tax include upscale cottages, real estate over a certain amount, high end imported cars, jewelry, and items governments want to discourage the use of, such as alcohol and cigarettes. Because of this, luxury taxes are sometimes known as "sin taxes" or "excise taxes." Check with local retailers to see whether the purchase you are considering is subject to a luxury tax. This page is compliments of Tzaferis Personal Injury Lawyers. All support for our website is appreciated!

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