Comment by asoneth

> 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.