Christmas Tree Taxes ... Is Nothing Sacred?

Christmas trees are homogeneous goods, with many sellers, many buyers and no barriers to entry. Sounds like perfect competition to me. So why is it that Christmas tree sellers can't figure out why they aren't making as much money as aircraft producers?

An article from McClatchy newspapers tells us that the US Department of Agriculture is going to levy a 15 cent tax on all fresh Christmas trees and use the $2 million for an ad campaign promoting real trees over artificial trees. (Click here for article). The intent is to stop the decline in market share for real trees. The USDA used the same strategy in their "got milk" campaign.

Need a smarter economist to help me out here ....

Each grower in a perfectly competitive industry faces a perfectly elastic demand curve, so the incidence of any tax falls solely on the producer. The advertising campaign will promote the benefits of real trees over artificial trees, and therefore increase the market demand for real trees. An increase in demand raises market prices. So to be beneficial to growers, the market price has to rise by 15 cents to offset the tax. Unlike milk, real Christmas trees have a near perfect substitute, fake trees. Since the price of fake trees is not changing, we might sceptically suggest that the best outcome is that real tree prices will, at best, return to the long run equilibrium.

The environmental half of us might suggest that natural trees should be subsidized since they remove carbon from the atmosphere and artificial trees should be taxed since they are made with oil products. This would change the relative price in favour of real trees.