Comment by crazygringo
2 months ago
I think we're making different assumptions around magnitude.
I'm assuming that taxes on advertising would be in line with or even a bit higher than most other taxes, like 20% or maybe even 50%.
You're talking about taxes maybe around 10,000% to multiply the price of Dove soap by 10x, if Dove currently spends 10% on marketing.
Yes, at that level of course advertising disappears and advertiser-supported businesses fold. But if that were the desired outcome, I don't think a government would bother with taxes. They'd just ban advertising.
But if we're talking about a tax like 40%, I don't think consumers would ever notice a difference in the amount of advertising. Products would just cost a little more and advertising rates would be a little less and ABC will just make slightly cheaper TV shows to offset it. You'd still have 8 minutes of commercials for every 22 minutes of content.
> I think we're making different assumptions around magnitude.
I don't think so. I used an extreme example to make the effect obvious, but a 20% tax will have a similar effect at a smaller magnitude.
> Products would just cost a little more
The point is that this increase is not uniform. Consumer product advertising budgets already vary by an order of magnitude from less than 5% of sales revenue to more than 25%. This already results in price disparities e.g. between white-label products and brand-name products. Therefore, brand-name products for which advertising is a nontrivial fraction of their budget will experience an increase that is an order-of-magnitude larger than generic products. This will alter consumer purchasing decisions and force companies to respond.
Every brand considers advertising ROI carefully e.g. at what point will an extra dollar spent on advertising yield less than an extra dollar of income. Taxing ads simply shifts this equilibrium point.