I always thought a "luxury pick" was when a really good team got their hands on a really high 1st round pick as the result of a trade. The idea is that this team is already successful and they are getting their original low pick in the 1st round in addition to a top 5.
For example, the Cowboys go to the Super Bowl in 1975, they also go to the playoffs in 1976 after an even better regular season, both seasons have a top 5 offense......and in the 1977 draft they have the #2 overall pick in the draft. They get Hall of famer Tony Dorsett and it almost seems unfair.
This was how I thought a "luxury pick' was defined. Another way would be when you have a league recognized elite squad and you then use a high pick on that position. In 1985 the Giants 3-4 featured a squad of linebackers in which 3 of the 4 were perennial pro bowlers. They had HOFer Lawrence Taylor, HOFer Harry Carson, Gary Reasons and Carl Banks. In the 1986 draft they take LB Pepper Johnson in the 2nd round.
So, a luxury pick to me was when a team is so good, they can get a top 5 pick that they didn't even earn, mess it up by drafting a bust, and it wouldn't even matter....except they wouldn't pick a bust with that pick which is why they are so good.
Imagine the Cowboys in the 70's....a team in the middle of a 20 year winning streak gets three drafts in four years in which they have the overall #1 or #2 pick.....other teams might consider that a luxury......and then two of the three players end up in the Hall of Fame......consider this a short version of the history of why the rest of the NFL hates the Dallas Cowboys.