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New Excise Taxes on Packaged Beverages Would Promote Public Health, Cleaner Environment

Posted by Andy Nicholas at Mar 03, 2010 12:45 PM |
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Two weeks ago, Governor Gregoire released a revenue proposal that includes new taxes on bottled water and carbonated beverages.   The Governor’s proposal combines a tax on bottled water of one cent per ounce at wholesale with a tax on carbonated beverages at five cents per 12 ounces at wholesale.  These taxes would generate about $230 million in badly needed resources this year. They would also aid other policy objectives. However, the Budget & Policy Center recommends a slightly different tax structure for these products – one that would do even more to promote public and environmental health.

The Hidden Costs of Packaged Beverages

Under current market conditions, the prices consumers pay for packaged beverages like bottled water, soda, and other beverages do not reflect their total costs.  

Bottled water and other packaged beverages take a heavy toll on the environment.  Empty bottles and containers wind up in landfills or as litter, clogging our streams, rivers, and other natural habitats.  In addition, a great deal of energy is expended to create and transport packaged beverages to local stores and markets.  As a result, canned and bottled drinks significantly contribute to global warming.1  

Similarly, sugar-sweetened beverages like soda are a major contributor to the growing obesity epidemic, particularly in children.  The New England Journal of Medicine recently reported that, “a prospective study involving middle-school students over the course of two academic years showed that the risk of becoming obese increased by 60% for every additional sugar-sweetened beverage per day.”2  

 Excise taxes on tobacco products and alcohol are designed to reflect costs associated with damaged public health.  But no such taxes are currently levied on packaged or sugary beverages, even though they too damage the environment and public health.

Using Excise Taxes to Improve Public & Environmental Health

The Governor’s proposed excise taxes on bottled water and carbonated beverages are a good step toward addressing two important objectives: Generating additional resources needed to maintain services in the short-run; and encouraging consumers to make healthier and more environmentally-conscious long-term purchasing decisions.  However, BPC offers a slightly different approach to taxing these beverages.  The elements of this approach include:

  1. Extending the sales tax to include bottled water;
  2. Enacting a $0.0025 (1/4 cent) per ounce environmental tax on all packaged beverages; and
  3. Enacting an additional $0.005 (1/2 cent) per ounce excise tax on sugar-sweetened beverages.

Extending the sales tax to purchases of bottled water would make the sales tax a more adequate and equitable instrument for financing public services.  While bottled water is currently exempt from the state sales tax, carbonated beverages are not.  Extending the sales tax to bottled water would ensure that consumers of packaged beverages are treated equally under the tax, irrespective of their preferences.  This action is included in House Bill 3191, a revenue proposal currently under consideration in the State House of Representatives.3

Enacting a new environmental excise tax on a broad array of packaged beverages (bottled water, soda, juice, etc.) would ensure that the price of consumers pay for these products reflects their total costs – including costs associated with environmental damage.  The Governor’s approach would also promote a healthier environment.  But her proposal would only levy taxes on bottled water and carbonated beverages.  Other environmentally damaging packaged beverages such as flavored teas, sports drinks, juice products, and others would escape taxation under the Governor’s proposal.

Finally, enacting $0.005 per ounce sugar-sweetened beverage tax on top of an environmental excise tax would help fight obesity by providing consumers with an incentive to avoid highly caloric, sugary drinks.  A key difference between a sugar-sweetened beverage tax and the Governor’s proposed tax on carbonated beverages lies in how the taxes would apply to diet beverages. Under the Governor’s proposal, diet and sugar-sweetened would be taxed at the same rate.  While this approach would encourage consumers to reduce their overall consumption of carbonated beverages, a tax that targets only sugar-sweetened beverages could be more effective at encouraging healthy purchasing habits.  Under a sugar-sweetened beverage tax, consumers of sugar-laden drinks would have a monetary incentive to switch to healthier diet drinks not subject to the tax.  (Diet drinks would still be subject to the environmental excise tax discussed above.) 

Compared to the Governor’s proposal, the structure above would generate even more resources and would provide consumers with a stronger incentive to make healthy purchasing choices in the long run.  A rough estimate based on data from DOR and Yale University’s Rudd Center for Food Policy and Obesity, suggests this approach would generate about $400 million in new revenues in the coming fiscal year.


1. Eric Sorensen, Seven Wonders for a Cool Planet: Everyday Things to Help Solve Global Warming, The Sightline Institute.

2. The New England Journal of Medicine, The Public Health and Economic Benefits of Taxing Sugar-Based Beverages,” September 11, 2009.

3.It is important to note that extending the sales tax to bottled water would require a change in the Streamlined Sales and Use Tax Agreement (SSUTA).  The SSUTA is a multi-state compact designed to reduce compliance costs for businesses by providing a uniform set of sales tax base definitions across participating states.  For more information, visit

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