The 1997 UBC in section 2304.1 requires that all lumber used in applications govern by chapter 23, conform to specific standards and grade rules specified in the code. This section also requires that the lumber grade be identified by a grade mark or certificate of inspection.
Lumber at the mill is produced in certain standard sizes, such as 2x 10 & 2 x12, to be used for specific applications such as floor joists. Grade rules have been written to establish design values for lumber of certain sizes and specific end applications.
Generally floor joist material is produced as 2x8, 2x10 & 2x12 either in #2 grade or #1 & Better.When lumber is remanufacture or ripped the size is changed and as a result it may no longer make the same grade as it did before.
If we look at a 16' long 2x12 and saw in a taper of 1/8" per foot our section would go from 11 1/4" down to 9 1/4". Basically it is reduced from a 2x12 down to a 2x10. If the 2x12 was of #2 grade material it would be allowed to have a 4 3/4" knot on the wide face centerline. Now if there was a knot of that size near the 9 1/4" end of the joist it would no longer be on the section centerline and also would exceed the maximum knot size allowed for a 2x10.
Summarizing the above, the reason you can't rip lumber down is that you are changing the location of the strength reducing characteristics, such as knots, in relation to the centerline of the section. Also the larger section allows for larger knots than are allowed in the smaller section.