A cigarette tax increase would undermine Nebraska’s fiscal stability and harm consumers

A version of the following public comment was submitted to the Nebraska Revenue Committee on February 4, 2026.

We are concerned that Legislative Bill 1124 will fail to achieve its stated objectives and instead generate serious unintended consequences that would undermine Nebraska’s fiscal stability and harm consumers.

Proponents of LB1124 justify the cigarette tax increase by citing youth protection and offsetting Medicaid expenses, but according to 2021 data, only 3.6% of Nebraska high school students reported smoking cigarettes in the past 30 days. This represents a 76% decline in youth smoking from 2011. Enforcement of existing age-of-purchase laws and continued education efforts are more than sufficient to address what remains of youth smoking in Nebraska. Additional tax increases are unnecessary to address a problem that has largely been solved by existing measures.

More than half of Nebraskans live within 50 miles of a state border, making cross-border shopping extremely easy. LB1124’s $1-per-pack increase would create substantial price differences with neighboring states, particularly Missouri (17 cents per pack) and Wyoming (60 cents per pack). According to the Platte Institute, this would transform Nebraska from a state with minimal smuggling—currently accounting for just 2% of consumption—to a net importer of illicit cigarettes.

Wide excise tax differentials are a key driver of cigarette smuggling. Criminal enterprises would view Nebraska’s tax increase as an invitation to expand operations. New York provides a cautionary tale: After implementing a $1 cigarette tax hike in 2010, the smuggling rate soared by 13 percentage points to 60.9% in 2011. The state now has the second-highest rate of inbound cigarette smuggling in the nation and loses more than $800 million in cigarette tax revenue annually.

LB1124’s stated purpose is to offset Medicaid expenses, yet cigarette tax revenue is among the most volatile and declining sources of revenue available to state governments. Nebraska’s income from the cigarette excise tax fell from $52.8 million in 2017 to $42.8 million in 2022, declining at approximately 3% annually as smoking rates continue their long-term decline. Using such an unstable revenue source to fund permanent Medicaid expenses or other government services is fiscally irresponsible and sets up future budget shortfalls.

The Institute on Taxation and Economic Policy confirms that “cigarette tax revenues grow more slowly than the cost of almost any public service that could be funded using these taxes” and that “[s]tates that use these taxes to fund public services may be disappointed in the long run.”

Because smokers are disproportionately from lower-income backgrounds, this tax increase would impose a substantial and regressive burden on those least able to afford it. Rather than punishing smokers with higher taxes, Nebraska should focus on ensuring access to safer alternatives and evidence-based cessation support.

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