Senators reject tobacco tax increases amid budget warnings

The Nebraska Legislature rejected increased taxes on cigarettes and other tobacco products Wednesday, amid warnings about cuts senators might have to make to balance the state budget.

The ever-shifting size of the budget hole senators have to fill now stands at about $125 million. But that depends on a lot of assumptions. One of them is that the Legislature as a whole agrees to cuts the budget-writing Appropriations Committee is recommending to programs affecting health, cultural programs and the environment. Another assumption is that senators will agree to some tax increases.

One of those tax increase proposals (LB1124) was up for debate again Wednesday: a hike in the cigarette tax, from 64 cents a pack to $1.64. That would raise about $45 million a year.

Supporting the proposal, Sen. Mike Moser asked his colleagues to think about what they might have to cut if they didn’t increase cigarette taxes.

“We could take money out of the property tax relief fund, or we could cut the budget by about 3% -- that would solve the problem. So I challenge my colleagues here ... come up with a combination of all those that raises $125 million and the problem is solved,” Moser said.

Sen. Machaela Cavanaugh said she supported the proposal, but not as the first thing senators should consider as they try to balance the budget. She mentioned other alternatives.

“If we're not going to touch the property tax fund, and we're not going to touch the Perkins Canal fund and we're not going to touch the prison fund, we have to pause the income taxes,” Cavanaugh said.

Cavanaugh was talking about delaying an already-approved drop in Nebraska’s top income tax rate, from just over 4.5 percent now to just under 4 percent next year.

Sen. Rob Clements, chair of the Appropriations Committee, listed other cuts senators would have to consider if the cigarette tax hike failed.

“We could take $71 million from the Medicaid people, or the Environmental Trust -- $27 million we protected there, the Cultural Endowment -- we protected $10 million there. Lake McConaughey project, we've got $16 million in that. Or you could reduce state aid to schools by $50 million and raise property taxes,” Clements said.

Sen. Wendy DeBoer said she supported the proposal, not because it would raise revenue, but because higher tobacco prices would discourage people from smoking.

“It's not about revenue, or raising the revenue or cutting the budget in some way. For me, it's just not about that. And it shouldn't be about that. This should be, I think, about the policy, about the regulation, about the taxation, about the consumer behavior, and not about anything else,” DeBoer said.

Opposing the bill, Sen. Bob Andersen said it would continue a course that had gotten Nebraska into its fiscal difficulties.

“LB1124 is more of the same. It's more of the overspending. It's more attempts at tax-shifting. It's more money out of taxpayer and Nebraska taxpayer pockets,” Andersen said.

Sen. Tanya Storer, a rancher, compared what the Legislature should do to what ranchers do in a drought.

“There's two ways to deal with the drought. When you're in the cattle business, you either buy more feed, which is expensive, or you cull the herd, which means you make it smaller, you reduce your cost," she said. "And anybody that's been in the business and has had good mentorship, or has went through one or two droughts, I think, would agree you can't feed your way out of a drought."

And Sen. Danielle Conrad complained that the bill would disproportionately cost lower-income Nebraskans, which include smokers.

“It is a massive, regressive tax hike that only goes to fill gaping holes in our budget and penalizes the poorest Nebraskans in an attempt and effort to do that,” Conrad said.

Just before reaching a vote, senators agreed to amend the cigarette tax increase out of the bill, leaving only an increase in vape taxes, which would have raised about $7 million a year. But even that slimmed-down proposal failed, attracting only 31 votes, two short of the 33 needed to shut off debate and vote on the bill itself.

Senators now will continue their efforts to balance the budget, with debate on the main budget bills, including proposed cuts, fund transfers, and taking another $130 million out of the cash reserve, scheduled to begin Monday.

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