- Associated Press - Thursday, February 11, 2016

LINCOLN, Neb. (AP) - Nebraska’s tobacco tax could more than double under a bill that is drawing praise from health officials but strong criticism from retailers, grocers and smokers.

A legislative committee heard testimony Thursday on a bill by Sen. Mike Gloor of Grand Island that would bump Nebraska’s cigarette tax from 64 cents to $2.14 per pack. It would generate an estimated $120 million in state revenue that would be directed partly to tax relief and partly to health care and public safety providers.

Gloor said Nebraska’s cigarette tax is currently the 40th lowest out of 50 states. The proposed increase would make it the 13th highest.

But Rich Marianos, a Washington-based law enforcement consultant, said states with high cigarette taxes have created a lucrative black market that attracts organized crime, especially when neighboring states have low taxes, like Missouri’s 17 cents per pack.

“We don’t want to create an environment where people are going to come from the other states with product and sell them in this area,” Marianos said. “Every time a state increases its tax base on these things, it increases the criminal activity.”

Marianos, a former assistant director of the Bureau of Alcohol, Tobacco, Firearms and Explosives, said some groups use tobacco products as a currency, trading them for guns and narcotics.

The bill would also increase a tobacco product tax from 20 percent to 31 percent of the purchase price. Cigar shop owners said that would put them at a greater competitive disadvantage with online sellers, who buy in states without such taxes.

Gloor said the measure would also give $45 million to direct personal property tax relief and estimated it would save the state $2 million Medicaid dollars over the next five years.

But some questioned if a cigarette tax is the correct way to address Medicaid costs and property tax relief, the two biggest issues facing the Legislature this year.

Conservative think-tank Platte Institute for Economic Research opposed the bill in a statement, calling cigarette taxes an unstable source of revenue, and saying consumers respond to higher prices with counterproductive behaviors.

Papillion Sen. Jim Smith said he cannot support taxing an addiction to fund other programs.

“I do not believe that a tax shift is good tax policy,” Smith said. “In this particular case, we’re providing property tax relief to all Nebraskans, smokers and non-smokers, on the backs of smokers, and to me that just doesn’t feel right.”

Gloor said in addition to revenue for the state, the measure provides Nebraska smokers an incentive to quit and prevents youth from starting in the first place. Smoking kills 2,200 Nebraskans a year and price increases are the most effective way to reduce tobacco use, he said.

Health professionals from the Nebraska Medical Association and Nebraska Hospital Association praised the bill, telling the committee it is the best way the Legislature can impact the health and well-being of Nebraskans this year.

“In truth, I’ve had a 35-year career in public health and medicine, and with this bill you have the ability to save more lives than I have,” said Ali Khan, of the Nebraska Medical Center’s College of Public Health.

The measure would allocate the revenue to researchers at the University of Nebraska Medical Center and Creighton University, tobacco cessation programs, public health entities and volunteer fire departments. Representatives from each of the entities testified in support of the measure.

Thursday marked the third time Gloor has proposed a cigarette tax increase. His two previous attempts failed to emerge from committee.

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The bill is LB1013

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Associated Press writer Grant Schulte contributed to this report.

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