R Street Testimony on NE Legislative Bills 1238 and 1124
R Street Testimony by Jeffrey Smith, Senior Fellow, Integrated Harm Reduction
In Opposition to Legislative Bill 1238, “A BILL FOR AN ACT relating to revenue and taxation;…to change the taxes imposed under the Tobacco Products Tax Act as Prescribed;…”, and
in Support of Legislative Bill 1124, “A BILL FOR AN ACT relating to revenue and taxation; …to increase the cigarette tax and distribute tax proceeds as prescribed;…” Regarding Tobacco and Nicotine Product Taxation in the State of Nebraska.
Revenue Committee
February 4th, 2026
Chairperson von Gillern, Vice Chairperson Jacobson and members of the Revenue Committee,
My name is Jeff Smith, and I am a senior fellow on the Integrated Harm Reduction team at the R Street Institute. The R Street Institute is a nonprofit, nonpartisan public policy research organization. Our mission is to engage in policy research and outreach to promote free markets and limited, effective government in many areas, including harm reduction. Our efforts to promote tobacco harm reduction are why we are particularly interested in LB 1238 and LB 1124. The R Street Institute has been a committed proponent of limiting the sale of nicotine-related products to those who are 21 years of age and older, and supported national efforts in 2019 to raise the age to 21 to purchase such products. Additionally, R Street is also concerned with the health-related consequences of inhaling combustible cigarette smoke by adult consumers. We strongly support varied pathways for quitting smoking, which include access to a wide array of alternative, reduced-risk nicotine products, including electronic nicotine delivery systems (ENDS), snus, and other non-combustible alternatives.
LB 1238 proposes to standardize and increase taxes on tobacco products, including raising the tax rate on reduced-risk nicotine products such as ENDS and alternative nicotine products from the current 20% to a uniform 30% of the purchase price. While this may appear as a straightforward revenue measure, it risks undermining public health by making safer alternatives less affordable relative to combustible cigarettes.
In contrast, LB 1124 aims to increase the state cigarette tax from the current $0.64 per pack to $1.64 per pack, with further adjustments. We support this increase but urge lawmakers to consider going even further to align with national averages and maximize both fiscal and health benefits. Raising cigarette taxes more substantially could generate additional revenue while encouraging smokers to switch to lower-risk options, without the drawbacks posed by LB 1238’s approach to taxing alternatives.
For decades, one of the primary U.S. tobacco control strategies has been reducing consumer access to tobacco products with pricing tools (such as taxation) that make it difficult for consumers to continue purchasing the products.1 This approach assumes that high consumption costs will dissuade individuals from using tobacco products. Unfortunately, although this construct may seem logical, the actual impact of inflating the cost of combustible tobacco products in isolation has had limited success without complementary strategies.2 Today, alternative products are available that provide experiences similar to combustible products with lower health risks.3 As more of these products enter the marketplace, lawmakers can consider novel economic tools that reduce combustible cigarette use without relying on punitive pricing across all categories (as with LB 1238). Specifically, substitution pricing models would be more effective, where two relatively equivalent products (one harmful, the other significantly less harmful) could be priced to encourage movement toward the less harmful product.
Risk-proportionate taxation is one strategy that has not yet been widely implemented but could help states recover revenue while offering additional behavioral and public health benefits. In this taxation model, the government imposes no or significantly lower taxes on products with lower health risks and much higher taxes on more harmful products. This strategy is worth considering, as research indicates that risk-proportionate tobacco taxation can significantly reduce consumption rates, particularly among youth and vulnerable populations. For instance, the Tax Foundation (2025) proposes categorizing reduced-harm products with tax reductions of 50-75% (or more) compared to cigarettes, based on their risk profiles, to incentivize safer behaviors and align fiscal policy with harm reduction.4 Another recent study analyzing data from over 3 million older adults found that a $1 increase in e-cigarette taxes was associated with a 0.19 percentage point increase in current smoking and reduced quit attempts by 0.17 percentage points, suggesting that higher taxes on alternatives may perpetuate harmful smoking habits among those at highest risk. Approaching tax parity between cigarettes and e-cigarettes could exacerbate this, increasing smoking by 0.23 percentage points and hindering cessation efforts.5
In Nebraska, the state tax on cigarettes is currently among the lowest in the nation at $0.64 per pack.6 It would be more prudent to build on LB 1124 by increasing the cigarette tax rate even further—potentially to $2.00 or more per pack—to meet fiscal needs while maintaining lower rates for reduced-risk products like ENDS. A recent report estimates that a $1.50 per pack increase in cigarette taxes across states could prevent 231,600 premature deaths and raise over $6 billion in new revenue nationwide in the first year, with significant portions allocatable to health programs.7 The Global State of Tobacco Harm Reduction 2024 report further supports this, noting that safer nicotine products are increasingly substituting for combustibles in countries with supportive policies, leading to faster declines in smoking prevalence.8
Most U.S. states seem to be adopting a revenue-generation strategy of taxing all tobacco/nicotine products similarly, as LB 1238 would do by imposing a blanket 30% rate. The tax rates imposed on reduced-risk products typically do not reflect their lower risk, and many states still lack comprehensive policies that differentiate based on harm. We hope Nebraska’s leadership will reconsider this blanket approach because it fails to (1) distinguish between the risks of combustible products and other reduced-risk products and (2) financially incentivize consumers to migrate from a deadly habit toward one that carries significantly lower health consequences.
Although lowering or eliminating taxes on reduced-risk products may reduce tax revenue in the short term, over time, as cigarette sales decrease, lower healthcare utilization costs and longer survival rates may offset lost revenue. For example, Sweden has effectively implemented strategic taxation to encourage its population to move away from combustible products and toward reduced-risk alternatives. In early 2024, the country’s tax on snus was lowered by an additional 20 percent, and the tax on combustible products was increased. These changes are intended to continue to reduce the number of those who smoke in the country, which already has one of the lowest rates of combustible product use globally. A 2025 article advocates for risk-proportionate taxation as a key harm reduction tool to incentivize safer behaviors through fiscal policy (Association for Nicotine and Tobacco Research, 2025).
If LB 1238 is approved, there will also be a significant financial impact on vital establishments like gas stations and convenience stores. Losses from consumers choosing to travel outside taxed areas for reduced-risk products could stress owners, leading to reduced staffing, hours, or closures. Communities implementing these higher taxes on alternatives would suffer both public health setbacks and economic losses. Conversely, enhancing LB 1124 with even steeper cigarette tax increases could generate more sustainable revenue—potentially hundreds of millions annually for Nebraska—while promoting harm reduction.
Access to reduced-risk products is critical to supporting adult smokers’ transition to a healthier life. Though generating additional revenue through taxing “sin products” like ENDS is often seen as an easy way to fill coffers during challenging times, LB 1238 risks creating more significant losses than gains. It could complicate adult smokers’ ability to obtain safer alternatives to combustible cigarettes. In contrast, bolstering LB 1124 with higher cigarette taxes aligns with evidence-based harm reduction. As such, the R Street Institute encourages you to reject LB 1238 and support an amended LB 1124 with even greater increases on combustible products. We strongly urge you to consider how affordable access to reduced-risk products impacts the health of all Nebraskans.
Thank you,
Jeffrey S. Smith, PhD
Senior Fellow, Integrative Harm Reduction
R Street Institute
jsmith@rstreet.org
1 Frank J. Chaloupka et al., “Taxing Tobacco: The Impact of Tobacco Taxes on Cigarette Smoking and Other Tobacco Use,” in Robert L. Rabin and Stephen D. Sugarman, eds. Regulating Tobacco (Oxford University Press, 2001), pp. 39-71. https://books.google.com/books?hl=en&lr=&id=rF3JJDcqkQEC&oi=fnd&pg=PA39&dq=History+of+tobacco+taxatio n+in+USA&ots=Yfq6cmNI1w&sig=JmFxf6gDGwn6eMMX-gpYYfl9ldo.
2 Carl V. Phillips, “Understanding the Basic Economics of Tobacco Harm Reduction,” Institute of Economic Affairs Monographs (Aug. 23, 2016). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3852760.
3 Hartmann-Boyce, J., N. Lindson, A. R. Butler, H. McRobbie, C. Bullen, R. Begh, A. Theodoulou, et al. “Electronic Cigarettes for Smoking Cessation.” Cochrane Database of Systematic Reviews, no. 11 (2022). https://doi.org/10.1002/14651858.CD010216.pub7. https://doi.org//10.1002/14651858.CD010216.pub7.
4 Tax Foundation. (2025). How should alternative tobacco products be taxed? https://taxfoundation.org/research/all/federal/taxing-alternative-tobacco-products
5 Semprini, J. (2026). Cigarette and e-cigarette tax impacts on America’s oldest generation of smokers. medRxiv. https://doi.org/10.64898/2026.01.27.26344945
6 Campaign for Tobacco-Free Kids. (2026a). State cigarette excise tax rates & rankings. https://www.tobaccofreekids.org/us-resources/fact-sheet/state-cigarette-excise-tax-rates-amp-rankings
7 Campaign for Tobacco-Free Kids. (2026b). New revenues, public health benefits & cost savings from a $1.50 cigarette tax increase in each state. https://assets.tobaccofreekids.org/content/what_we_do/state_local_issues/settlement/FY2026/New-Revenues-Public-Health-Benefits-Cost-Savings-From-a-1.50-Cigarette-Tax-Increase-in-Each-State.pdf
8 Knowledge-Action-Change. (2024). The global state of tobacco harm reduction 2024: A situation report. https://gsthr.org/resources/thr-reports/the-global-state-of-tobacco-harm-reduction-2024-a-situation-report