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LINCOLN — Nebraska lawmakers turned down an opportunity to lower the state’s projected budget deficit by up to $50 million with increased taxes on cigarettes and other tobacco products.
Legislative Bill 1124 failed to advance to a second round of floor debate when a filibuster-ending cloture motion failed in a 31-10 vote Wednesday. Cloture motions require 33 votes to pass.
The bill would have increased Nebraska’s cigarette tax by $1, moving from 64 cents per pack to $1.64, and would have increased taxes on vape products. Nebraska has one of the lowest cigarette taxes in the nation, which ranges state by state from 17 cents per pack in Missouri to $5.35 per pack in New York.
While lawmakers entered Tuesday’s floor debate expecting little opposition on LB 1124, opposition arose from a mix of progressive senators and fiscal conservatives. State Sen. Danielle Conrad of Lincoln, who led the two-day filibuster on the bill, said the proposal would increase a regressive tax that would balance the state budget “on the backs of low-income Nebraskans.”
A collection of senators who self-identified as fiscal conservatives, including State Sens. Tanya Storer of Whitman, Jared Storm of David City and Paul Strommen of Sidney, opposed LB 1124 because it would increase taxes.
“We can’t feed our way out of this drought,” Storer said. “We can’t tax our way out of a deficit.”
Lawmakers have tried to increase Nebraska’s cigarette tax in multiple previous sessions, but this session’s attempt appeared to have more momentum due to its value as a revenue generator. State Sen. Rob Clements of Elmwood, chair of the Appropriations Committee, estimated the bill would save the state up to $50 million by offsetting increased Medicaid expenses.
When it became apparent that there was enough opposition to potentially kill LB 1124, supporters proposed a compromise amendment that would have removed the increase to the cigarette tax and kept the increased tax on vape products. This would have generated about $6 million in revenue, according to State Sen. Jana Hughes of Seward, who proposed the change.
Hughes’ amendment was actually adopted in a 33-9 vote, but the adoption was nullified a few minutes later when the cloture motion failed.
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State lawmakers entered the session with a projected $471 million shortfall, which ballooned to roughly $646 million after the latest economic forecasts. Through a series of cuts, changes and cash transfers by Appropriations, the deficit currently stands at $125 million, but it’s actually closer to $140 million due to math errors lawmakers have said they must correct on the floor.
Kenny Zoeller, director of Gov. Jim Pillen’s Policy Research Office, lobbied senators in the Rotunda Wednesday to try to rally support for the bill. Zoeller noted the governor has historically supported increasing the cigarette tax, and said without the revenue LB 1124, balancing the budget may require “across-the-board cuts.”
Nebraska lawmakers advance main budget adjustments to floor debate, leaving $125 million deficit
However, the budget benefits seemed to discourage some senators from supporting the bill. State Sen. Machaela Cavanaugh of Omaha, who in past sessions introduced increases to the cigarette tax for its potential health benefits, said it would feel “disingenuous” to advance LB 1124 simply to plug a budget hole.
Cavanaugh said she feared passing the bill would discourage lawmakers from looking at alternatives that would impact wealthier Nebraskans, such as pausing the state’s phased individual income tax rate reductions. She ultimately was present-not-voting on Hughes’ amendment and the cloture motion.
Other opponents mentioned that supporters tried to promise that a majority of the bill’s revenue would be safe from future transfers, locked within Nebraska’s Health Care Cash Fund. However, multiple senators said they didn’t believe this promise, arguing that they can’t force future Legislatures into anything, and noting Pillen’s habit of balancing the budget by sweeping cash funds.
Without LB 1124, there are few options left to fill the $140 million budget gap that are likely to garner enough support to be adopted. One option Clements mentioned Wednesday was cutting the state’s Medicaid spending, which grew by about $71 million this year to about $1.08 billion.
Clements emphasized that he does not want to advocate for less Medicaid spending but said it could be a last-resort option if needed.
“Taxpayers are funding those increases,” Clements said. “Some of it is going to smokers who are being subsidized by taxpayers.”
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