What characterizes a luxury tax?

A luxury tax is specifically designed to target non-essential goods, which typically include luxury items that are not necessary for basic living. This type of tax is often aimed at higher-priced items, such as expensive cars, jewelry, boats, and other luxury services, making it a tool for redistributing wealth since it generally affects high-income earners who are more likely to purchase these luxury goods.

By focusing on non-essential items, a luxury tax can serve as a mechanism to generate additional revenue for governments while influencing spending behaviors. The rationale behind this tax is that those who are economically well-off can afford to contribute more towards public finances through taxes on their discretionary spending.

In contrast, taxes that apply to all goods and services equally do not fit the definition of a luxury tax, since they do not discriminate between necessary and luxury purchases. Similarly, a tax solely on real estate would not be classified as a luxury tax, as it pertains only to property rather than a broader range of non-essential goods and services. Additionally, targeting essential goods would contradict the fundamental concept of a luxury tax, as it is meant to apply to items that are not necessary for everyday life.