Update: OK this post is generating lots of interest but ppl seem like they are not clicking on the link at the end of the post. This post is paraphrase of that post.
The equity argument for taxing the family garden is straightforward. Suppose everyone produces $200 a month of food from their family garden. If the family garden were taxed at 10 percent, everyone would pay about $20 in tax (or slightly less, if people cut back on their food production when the tax is introduced). If part of the revenue raised by taxing garden production was used to give every poor family a $30 tax credit, the tax on gardens would actually increase the well-being of the worst off members of society. Any additional revenues raised could be used either to decrease other taxes, leading to greater economic efficiency, or to provide needed social or infrastructure programs, further enhancing efficiency and/or equity.
Now the politics of taxing gardens and getting the political will to engage in progressive redistribution of taxes in this ideological climate is highly suspect. And why not just tax those wealthy enough to buy groceries with a tax on groceries?
Forget the equity argument, the heart of the economic argument for taxing the produce from the family garden is that it increases economic efficiency.
There’s a short version of the efficiency argument and a long version. The short version goes something like this: “If gardens aren’t taxed, but other goods are, then people’s choices will be distorted. They will substitute growing their own food for buying groceries and other goods, hence the economy will devote too many resources to gardening and too few to producing other goods. Economic efficiency will be compromised.”
The long version of the case for taxing the family garden can be found here.