Isle share
of tax cut:
$172 million

Hawaii residents will start
getting tax rebate checks
from the IRS next month

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By B.J. Reyes
Star-Bulletin

Hawaii taxpayers will receive an estimated $172 million under the $1.35 trillion, 10-year tax cut package recently signed into law by President Bush, according to the Internal Revenue Service.

How that influx of money affects the state's economy will depend largely on what people do with the advance payment checks that are scheduled to be mailed out next month.

At least one tax law analyst does not expect too much of the rebates to be put back into the local economy.

"It is not going to have the kind of impact that the president thinks," said Lowell Kalapa, president of the Tax Foundation of Hawaii, a nonprofit research group that reviews tax issues at the state and local level.

"It won't have the impact partly because the economy isn't that good," Kalapa said. "People, at least in this state, are going to be a little more cautious as to how they use it."

The IRS and the Treasury Department will begin sending out the first advance payment checks to about 409,000 Hawaii taxpayers in late July, and the mailings are expected to be completed by September.

The tax cut package is retroactive to the beginning of the year, and the rebates are to adjust for overpayment.

Single taxpayers will receive as much as $300, single parents will get as much as $500, and married couples can expect up to $600. The actual amount will be calculated by the IRS and based on a taxpayer's liability.

Only those who have filed a tax return for 2000 will receive checks.

Nonresident aliens and people who could be claimed as a dependent on someone else's 2000 return also will not receive the advance payment.

Taxpayers who will be receiving rebates will be notified by mail by mid-July. The IRS also plans to send explanation letters to taxpayers not eligible for the advance payment.

"You don't need to do anything special to get a check," IRS Commissioner Charles O. Rossotti said.

Whether people spend their rebates will depend largely on their perception of the new tax-cut program, said Bank of Hawaii economist Paul Brewbaker. Consumers in a windfall situation tend to spend less of that money, he said, adding that spending is more likely to increase following a permanent change in income, such as a raise.

"If it's true, as households perceive it to be, that this is a permanent change in their net income, then that will have a greater impact in their spending behavior," he said.

In this case, he said, many people might be more likely to see the tax cut as temporary and hold on to the money.

"The problem with tax changes in general is that the perception of permanence is a function of the government's credibility," he added. "Government has a tendency to be seen as, 'The government giveth and the IRS taketh.' There's a tendency for tax policy changes to have a sense of impermanence."

IRS advice to taxpayers The Internal Revenue Service reminds taxpayers of several key points regarding the advance payment checks: >> Taxpayers do not need to do anything to receive the checks. >> Taxpayers should keep a copy of the letter sent in advance of the check for their tax records. >> Individuals who have not yet filed a tax return for 2000 will not get any advance payment check until the IRS processes that return. >> Taxpayers who have moved should file a change-of-address form with the U.S. Postal Service to ensure the checks go to the correct address.