Don't forget all the people who now save a bit on their milk. This could add up to a significant amount annually, especially for the most poor. I'm not sure that I care about the living conditions of cattle at the expense of the living conditions of humans. Now, if you'd like to tax cattle farmers for the amount of horror and tragedy they create and then redistribute the tax proceeds as a lump sum to all citizens, that should properly balance the ethical situation.
That wont work. Assuming that the reason for the bad plight of the cows is that the worse treatment is more profitable, not that the farmer is sadistic, the farmer has two options: A) Conventional at cost X per unit and B) Animal friendly at cost X+N per unit. Now, to achieve your goal, you tax A at at least N per unit and subsidise B at the same rate. Now, people start buying B in favour of A and the farmers shift production to B, and soon production of A ceases - but as this is the object of the taxation, the tax revenue disappear and with it your budget for subsidising B. B now costs X+N.
Well I for one care about the treatment of other living creatures especially when weighed against what is essentially a luxury product.
If you're really concerned about the living conditions, you'd want more expensive, better quality milk.
I think we'd be better of, as a first step, ending subsidies to dairy farmers and enforcing some basic health and humane regulations. I mean, there are many dairy farms where discarded chicken meat and feces are fed to dairy cows.
Here's a story about a guy feeding doughnuts and cookies.
http://www.cheeseslave.com/farmer-feeds-doughnuts-and-cookie...
Cows have very specialized digestive systems meant for processing grass. Even if we grant that cow's milk is a good thing for us to have, certainly it doesn't apply with diets like that.
