Cigarette tax increase proposed to fund health services

An increase in cigarette taxes would be used to fund public health services under a bill heard by the Revenue Committee March 17.

LB438, introduced by Omaha Sen. Sara Howard, would raise taxes on a pack of 20 cigarettes from 64 cents to $2.14 beginning July 1, 2017. Cigarette tax revenue credited to the state’s general funds would increase from 49 cents per pack to $1.24. The bill also would increase the tax on other tobacco products — excluding snuff — from 20 percent of the purchase price to 65 percent.

Howard said more than 150,000 teens start smoking in the U.S. each year. If current tobacco use patterns continue, she said, approximately 38,000 youths under age 18 who continue to smoke into adulthood will die prematurely from smoking-related illnesses.

“Raising the tax on tobacco products may not only deter abuse by youths but provide much-needed revenue for our state during a time of severe economic shortfalls,” Howard said.

The Legislative Fiscal Office and the state Department of Revenue estimate the bill would increase general funds by approximately $50 million.

Additionally, LB438 would increase the annual transfer of cigarette tax revenue to the Nebraska Health Care Cash Fund from $1.25 million to approximately $60 million. The programs funded would include local public health departments, community health centers and a tobacco prevention and control program. The bill also would create a fund intended to help reimburse behavioral health service provider rates.

Roger Wiese, health director for the North Central District Health Department in O’Neill, testified in support of the bill. He said tobacco-related illnesses, such as lung cancer and pulmonary and cardiovascular disease, cost Nebraskans an estimated $795 million per year. Research has shown that a 10 percent increase in cigarette taxes can reduce the number of youth smokers by 4 to 5 percent, Wiese added.

“Preventing tobacco use in teens is critical to ending tobacco use in Nebraska,” he said. “The best way to reduce the impact of smoking is simply not to start.”

Brooklyn Larimore, a youth tobacco prevention advocate for the Campaign for Tobacco-Free Kids, also spoke in support of the bill. She said Nebraska’s youth smoking rate of 13.3 percent is among the highest in the country. At the same time, Larimore said, the state has not raised its cigarette tax rate in 15 years and has the 41st lowest rate in the nation. An increase in cigarette taxes would cut the number of teen smokers because youths are three times more sensitive to prices than adults, she added.

“Considering that 9 out of 10 adult smokers became addicted when they were teens, it is important that we do all we can to keep these products out of the hands of our youths,” Larimore said.

Fernando Wilson of the Center for Health Policy at the University of Nebraska Medical Center also testified in support of LB438 on his own behalf. One-third of Nebraskans age 14 to 18 have smoked a cigarette at least once, he said. The proposed tax increase could result in a nearly 20 percent reduction in the approximately 11,300 Nebraska youths who smoke.

According to the Centers for Disease Control and Prevention, he said, 18.4 percent of all Nebraskans smoke and more than 2,300 Nebraskans die from smoking-related illnesses each year.

“Policies that reduce the likelihood of smoking can have substantial benefits for population health in Nebraska,” Wilson said.

Testifying in opposition to the bill was Tim Keigher on behalf of the Nebraska Petroleum Marketers and Convenience Store Association and the Nebraska Chamber of Commerce. He said the proposed increase would make Nebraska’s cigarette tax 72 cents a pack higher than neighboring Iowa, driving Nebraska customers over the border.

“Just because you raise the tax does not mean you are going to generate more revenue,” Keigher said. “Some of those people are going to quit coming to Nebraska or they’re going to go down to Missouri where the tax is 17 cents a pack.”

Chaz Kline, testifying on behalf of the Nebraska Premium Tobacco Association, also spoke against the bill. The owner of two tobacco retail stores and a cigar lounge in Omaha, Kline said the tax would place Nebraska’s premium tobacco industry at an even greater competitive disadvantage to online retailers, which do not have to collect state sales or tobacco taxes.

“Financially, that is devastating to us as an industry,” he said.

Nicole Fox of the Platte Institute also testified in opposition to the bill, saying that it would unfairly burden low-income adults. She said 31.6 percent of Nebraskans who earn less than $15,000 a year are smokers. Additionally, Fox said, the cigarette tax is a relatively unreliable source of funding.

“If Nebraska is to rely on this tax to fund necessary services for the state’s most vulnerable populations, it will create long-term funding shortfalls that will have to be paid for with other budget revenues,” she said.

The committee took no immediate action on the bill.