Cigarette tax increase to offset Medicaid costs stalls on first round

A bill that would use additional cigarette tax revenue to help cover state Medicaid costs stalled on general file March 4 after a failed cloture motion.

LB1124, introduced by Omaha Sen. Tony Sorrentino, would increase the state excise tax on a package of cigarettes from 64 cents to $1.64 beginning July 1.

The equivalent of 97 cents of the tax would be directed to the Nebraska Health Care Cash Fund to pay for state Medicaid expenses. The remaining 3 cents would be added to an existing distribution to the General Fund.

Although the proposal is not intended to generate significant general fund revenue, Sorrentino said, it would help lawmakers balance the state budget by partially offsetting $80 million in annual state Medicaid costs incurred by smoking-related disease and illness.

“LB1124 is not an indictment of smokers or smoking,” he said. “It’s a reimbursement mechanism that aligns the source of revenue with one of the state’s largest budget drivers.”

The state Department of Revenue estimates that LB1124 would generate an additional $45.6 million in total revenue in fiscal year 2026-27 and $48.6 million in FY2027-28.

A Revenue Committee amendment, adopted 29-9, replaced the bill with a modified version of the original proposal. It instead would direct most of the additional proceeds to a new cash fund to be used for state Medicaid expenses.

Sen. John Arch of La Vista supported LB1124. He said the bill is not intended to penalize smokers but to recognize that their behavior incurs a disproportionate cost to the state compared to nonsmokers.

Columbus Sen. Mike Moser also supported the measure, saying Nebraska’s cigarette tax has not been increased in approximately two decades. He said the additional revenue would help senators manage a current $125 million budget shortfall, possibly avoiding further cuts.

Also in support was Sen. Robert Clements of Elmwood, chairperson of the Appropriations Committee. He said passing LB1124 would allow lawmakers to amend the proposed state budget, reducing the General Fund appropriation to Medicaid by an amount equal to the estimated increase in cigarette tax revenue.

Several lawmakers, including David City Sen. Jared Storm, said they opposed LB1124 because the cigarette tax increase disproportionately would affect low-income Nebraskans. He said lawmakers instead should cut state spending to balance the budget.

“The No. 1 issue for people in the state right now is affordability,” Storm said. “The last thing they need is us coming in here and raising their taxes.”

Sen. Danielle Conrad of Lincoln also opposed the bill and offered a series of unsuccessful motions to extend debate. She said investing in public health programs would be more effective at reducing smoking rates than increasing a regressive tax.

“This isn’t about good health care policy,” she said. “This is about balancing the budget on the backs of those who can least afford it.”

The committee amendment also includes amended provisions of LB712, introduced last session by Seward Sen. Jana Hughes. They would eliminate the current system that taxes electronic nicotine delivery systems based on the amount of consumable material they contain.

Hughes said her proposal would tax all vaping products based on their wholesale price and increase the tax from 10% to 30%, rather than 40% as originally proposed. The measure would bring vaping and tobacco taxes closer to parity in terms of their nicotine content, she said.

Hughes later offered an amendment, adopted 33-9, to replace LB1124 with the amended provisions of LB712, omitting the proposed cigarette tax increase.

After eight hours of first-round debate over two days, Sorrentino filed a motion to invoke cloture, which ends debate and forces a vote on the bill and any pending amendments.

The motion failed on a vote of 31-10. Thirty-three votes were needed.

LB1124 is unlikely to be scheduled for further debate this session.