Tobacco tax increase proposed

Published February 12, 2016

A bill proposed to the Revenue Committee Feb. 11 would raise the excise tax on cigarettes by more than 200 percent and use the revenue for public health programs and property tax credits.

LB1013, introduced by Sen. Mike Gloor of Grand Island, would raise the tax on a pack of cigarettes by $1.50, from the current 64 cents to $2.14. It also would raise the tax on the wholesale price of other tobacco products, such as cigars, from the current 20 percent to 31 percent.

The increase would generate an estimated $120 million in fiscal year 2016-2017. Every year the bill would direct $45 million to the state’s property tax relief fund. Another $45 million would be used for credits for Nebraskans filing a property tax exemption. An additional $30 million would be directed to an array of public health programs, biomedical research on cancer and smoking-related illnesses and a smoking prevention and control program.

Gloor said the bill would reduce the state’s Medicaid costs for the treatment of heart disease, lung disease and cancers caused by smoking and tobacco use. He said an estimated 2 million Nebraskans would quit smoking under the proposed increase, resulting in a five-year savings to Medicaid of approximately $2 million.

“We could have been doing a lot of things with the dollars that we plug into Medicaid budgets to provide care for those patients,” he said. “It seems appropriate to me that we take some of those dollars now and allocate them towards property tax relief.”

Dr. Bob Rauner, speaking on behalf of the Nebraska Medical Association, testified in support of the bill. He said $795 million of Nebraska’s annual health care costs are attributed to smoking, approximately $160 million of which is paid by Medicaid. Rauner said the proposal would deter more teens from smoking because they are more sensitive to price increases than adults.

“It’s been studied in state after state after state that when you do something like this there’s almost an immediate reduction in smoking,” he said. “The potential benefits to the state are very large.”

Joanna Hejl, a student at Lincoln High School, also spoke in support of the bill. She said tax increases like the one proposed are effective in reducing teen smoking rates. New York, which has the highest tobacco tax of any state, also has the lowest youth smoking rate in the nation at 7 percent, compared to Nebraska’s 11 percent, she said.

Ali Khan, dean of the College of Public Health at the University of Nebraska Medical Center, testified in support of the bill, saying that tobacco use is responsible for half of all preventable deaths in Nebraska. The college would use funding from the proposal to educate and train public health professionals that would serve all Nebraskans, including smokers, he said. Several national and international studies have shown that raising the unit price on tobacco reduces its use, Khan added.

“There’s unequivocal evidence that passage of LB1013 will decrease tobacco use and save lives,” he said.

Coby Mach, co-owner of the Nebraska Cigar Festival, testified in opposition to the bill. He said the tax increase would make it more difficult for Nebraska cigar retailers to compete with online sellers and those in neighboring states with lower tobacco taxes. The wholesale tax on cigars is 10 percent in Kansas and Missouri, compared to the current 20 percent in Nebraska, Mach said.

“We believe that increasing the taxes on people who enjoy the occasional cigar is not the way to solve our tax problems in Nebraska,” he said. “Nor do we agree that it is a way to get people to quit smoking cigars.”

Jeff Doll, owner of Safari Cigar and Lounge in Omaha and head of the Nebraska Premium Tobacco Association, also spoke against the bill. He said increasing taxes on cigars will hurt Nebraska businesses by driving more sales to online retailers. Doll estimated that Nebraska forgoes $3 million a year in tax revenue because online cigar sellers pay no taxes to the state.

A power outage at the Capitol ended the hearing before all testimony was heard.

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Image of Sen. Mike Gloor said increasing the cigarette tax would generate revenue for property tax credits and public health programs.

Sen. Mike Gloor said increasing the cigarette tax would generate revenue for property tax credits and public health programs.