Nebraska Doesn’t Need Higher Cigarette and Vape Taxes — It Needs Spending Discipline

Nebraska lawmakers are once again considering raising taxes rather than managing the state’s revenues with greater fiscal discipline. LB 1124 would more than double Nebraska’s cigarette tax, from 64 cents to $1.64 per pack, while also tripling the tax on electronic nicotine products from 10 percent of wholesale price to 30 percent. 

Supporters argue the tax hike would generate tens of millions in new revenue. But before lawmakers reach into Nebraskans’ pockets yet again, they should confront a simple reality: Nebraska does not have a revenue problem – it has a spending problem. 

State Spending Continues to Grow Rapidly 

Since 2020, Nebraska’s total state spending has surged. In fiscal year 2020, total state expenditures across all funds were roughly $13.7 billion. In just a few years, that figure climbed to roughly $20 billion annually. State government spending has grown rapidly since the pandemic, expanding the overall footprint of government at an astonishing rate. 

The state’s General Fund, which is largely supported by income and sales taxes paid by Nebraskans, has also increased steadily. In FY2020, General Fund spending totaled roughly $4.7 billion. Today, that number sits at about $5.3-$5.4 billion annually, reflecting a significant expansion in the core operating budget of state government. 

At the same time, Nebraska’s tax revenues have also grown substantially, undermining claims that the state faces any challenges due to a lack of revenues. General Fund tax receipts totaled roughly $5.4 billion in FY2020, but rose to about $7.7 billion in FY2022 and have remained around $7.5 billion annually in recent years. In fact, the spike in revenues led to sizable budget surpluses earlier this decade. In other words, tax collections have grown dramatically since 2020, yet spending has continued to climb alongside them. 

Tobacco Taxes Are a Budget Gimmick 

Instead of using current revenues to, this bill attempts to siphon more from the taxpayer by targeting a particular group.

Cigarette taxes are among the most regressive taxes, falling disproportionately on lower-income consumers. In Nebraska, about 28 percent of residents earning less than $25,000 smoke, compared to just 8.7 percent of those earning $75,000 or more, meaning these tax hikes would disproportionately impact lower-income Nebraskans. 

Despite proponents’ arguments, higher cigarette taxes do not reliably translate into higher state revenue. Between 2009 and 2013, only three of 32 state tobacco tax increases actually met their projected revenue targets. When tax rates rise sharply, the legal tax base often shrinks much faster than forecasts. Consumers seek lower-tax options across state lines, purchase products online, or turn to illicit markets, especially in states like Nebraska that are surrounded by lower-tax neighbors. 

Legislators should be cautious about building their fiscal plans around revenue projections that history shows are unlikely to come true. 

Nebraska Needs Fiscal Discipline 

Nebraska families balance their budgets every day. When their expenses grow too quickly, they look for ways to cut costs and prioritize necessities rather than simply demanding more. 

State government should operate under the same principle. 

Instead of raising taxes through LB 1124, lawmakers should focus on slowing the growth of government spending and ensuring taxpayer dollars are being used responsibly and efficiently. Calling for higher taxes assumes that every dollar already flowing into government coffers is being spent wisely and efficiently. Before asking Nebraskans to pay more, lawmakers should demonstrate that state government has exercised the same fiscal discipline that families across the state practice every day. 

Taxpayers Deserve a Different Approach 

The numbers tell a clear story: Nebraska does not lack revenue. State spending has grown rapidly in recent years, yet instead of prioritizing how existing tax dollars are used, LB 1124 asks taxpayers to shoulder even more.

Until the legislature exercises greater discipline over government spending, proposals like LB 1124 will remain what they truly are: attempts to raise taxes rather than make better use of the substantial revenues already flowing into state coffers.