LUXURY TAXES. The imposition of taxes on articles which are deemed to be luxuries may spring from one of two motives, or, frequently, from a combination of both. In the first place, the tax may be intended to restrict the expenditure of money in certain directions. Here it forms a part of sumptuary legislation designed to repress the ostentation and extravagance of private persons. When the legislator had failed by direct prohibi tion to stamp out a certain type of expenditure that was deemed to be injurious, there remained the alternative of levying a heavy tax upon it. The success of the tax from this point of view could be measured by the smallness of the revenue derived from it, assuming that it was not possible to evade it. In England from the 14th to the 16th centuries there is a long history of sumptuary legislation, never properly enforced, directed chiefly against the wearing of rich clothes of foreign materials, the purchase of which tended to create an adverse balance of trade and thus ran counter to one of the cardinal principles of mercantilist policy. Most English laws of this nature were repealed in 1603. Economic writers in the 17th century considered that the consumption of luxuries was good for trade, and the growth of the finer types of manufacture of silk and woollen goods inside England removed a good deal of the force of the argument which had been based on the fact that such could only be procured from abroad. In the 18th century laws were passed against the wearing of French lawns and laces, partly to protect English manufactures and partly as a weapon of offence against the French. Adam Smith objected to sumptuary laws for a curious but characteristic reason : "It is the highest impertinence and presumption in kings and ministers, to pretend to watch over the economy of private people and to restrain their expense, either by sumptuary laws or by prohibiting the importation of foreign luxuries. They are themselves always and without any exception the greatest spendthrifts in the society.
If their own extravagance does not ruin the State, that of their subjects never will." In the second place, luxury taxes are imposed for revenue pur poses as a method of taxation of the rich or as a tax on that part of the expenditure of all classes that is regarded either as socially undesirable or as a superfluity over and above all necessary ex penditure and therefore a specially appropriate object of taxation.
In the late i8th and early part of the i9th centuries duties were levied in England on a number of articles. Hair-powder, silver plate, clocks, watches, horses, carriages, men-servants, dogs, ar morial-bearings, playing-cards—all these have, for longer or shorter periods, contributed their quota to the revenue and, in the case of the last five objects mentioned, the taxation has continued to the present day. On the continent of Europe many of the same articles were taxed, but billiard tables also appear in many countries to have made specially strong appeal to the imagination of finance ministers. It is obvious from the above list that this form of taxation, as a source of revenue, suffers from the defect of being very unproductive. The rate of taxation is generally low, because otherwise the great elasticity of demand, which is a characteristic of most real luxuries, would result in the tax stifling consumption altogether. Relatively to its yield it is also costly to collect and irritating to the taxpayer. A form of luxury taxa tion that has been suggested, and which has the high authority of Marshall, is that heavy duties might be imposed on certain kinds of ostentatious expenditure, where the demand for the articles in question arises chiefly from the fact that they are rare and expensive and that their possession is a sign of great wealth. Heavy taxation of such objects as large diamonds or other precious stones or rare furs would merely serve to enhance their costliness and therefore the social distinction to be derived by their owners.