ADM 624 Module 8 DQ 2

The Impact of Luxury and Sins Taxes

Student’s Name

Institution

Luxury Taxes and Its Impact

The luxury tax is a tax that is charged on luxury goods that are not essential. The luxury tax is often modeled after the sales tax or Value Added Taxes that is charged as the percentages on all the items (Bowmaker, 2006). However, it mainly affects wealthy since they are the people who are most likely to buy luxuries like expensive cars, boats, private jet, and jewelry. The luxury taxes can be charged on Veblen good whose demand increases with the demand since the luxury good has a high-income elasticity of good (Bowmaker, 2006).

The impact of luxury taxes does not affect most of the people since they are not wealthy, therefore, a minority are subjected to this tax regime (Bowmaker, 2006). However, over time, the definition of luxury changes leading to more and more individual affected by the tax. The government views the revenue from luxury tax as essential as it would not be restricted or rescinded it. The impact of luxury taxes is to increase the demand for these products since the wealthy can afford them. However, there are special circumstances where ordinary goods might be included in the luxury tax (Bowmaker, 2006). For instance, oil-powered cars and chocolates are considered as luxury goods in Norway to increase their demand and increase revenue for the government.

Sin Taxes and Its Impact

The sin taxes is charged on alcohol, oil, gasoline and firearms. The Sin Taxes is not a technical term but simply a form of excise taxes on goods considered to be evil or unnecessary (Sadowsky, 2010). However, sin taxes differs from excise taxes since it is levied on some and not all the commodities. The immediate impact of sin taxes is often to reduce the demand while in the long term to reduce the supply of these commodities since the demand would be low (Sadowsky, 2010). The sin taxes increases the prices that consumers have to pay making it more expensive than before.