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STIMULUS BILL COULD MEAN CASH FOR V.I. TAXPAYERS

Nov. l7, 2001 – Among the many provisions of the federal economic stimulus and recovery package put together by the Finance Committee of the U.S. Senate is one that could be a cash windfall for thousands of Virgin Islanders: a 2001 tax credit payment, regardless of whether they are owed a similar credit by the V.I. government.
The Finance Committee is expected to vote on the measure Thursday.
The provision would authorize the cash payout of federal income tax credits for 2001 to taxpayers across the nation who did not qualify for such credits under the terms of President George W. Bush's tax-cut package that became law last summer.
Initially, the idea was to get credit checks to people whose taxable income was too low to qualify for the payments that started going out last summer. But it has been extended now to cover every taxpayer who filed a 2000 tax return but didn't get a federal tax-credit check, including all taxpayers in the U.S. territories that have a mirror tax system — in which the same regulations apply but payment is made to the local government, not the IRS.
On Wednesday afternoon, Government House distributed a release stating that the provision would authorize "federal income tax rebates to all Virgin Islands taxpayers regardless of whether they paid or incurred any federal income tax liability," provided that they filed a Virgin Islands income tax return for 2000.
It is unclear what extending federal tax credits to the territory would mean with regard to the current Internal Revenue Bureau liability for the 2001 V.I. tax credits mandated by the law enacted last summer.
"That is one of the technical issues that the Senate Finance Committee has yet to address," attorney Peter Hebert of the V.I. government's Washington, D.C., law firm, Winston and Strawn, said Wednesday.
The law enacted last summer provided for payments of $300 to individuals, $500 to heads of household and $600 to married couples who filed a joint tax return for 2000, provided that those taxpayers had taxable incomes last year of at least $6,000, $10,000 or $12,000, respectively. (For background, see the July Source story "For Virgin Islanders, checks are not in the mail".)
According to information from the Washington office of Delegate Donna Christian Christensen, the bill before the Finance Committee calls for "a second round of rebates to further stimulate the economy and is intended to go primarily to those 'tax flyers' who didn't get the first round of rebates," either because they didn't have enough taxable income or because they only paid "payroll taxes" — Social Security and Medicare.
The idea behind the measure, espoused by Senate Democrats, is that the benefit in the president's tax-cut measure wasn't equally available to low-income working persons who were hardest hit by the nation's economic decline, especially after Sept. 11. "There have been many layoffs in the service industries, and the unions have been lobbying hard," a tax-law expert said.
Gov. Charles W. Turnbull said in the Government House release that, "In addition to providing important financial relief to hard-pressed Virgin Islands taxpayers, the federal rebates will provide an estimated $20 million in much-needed federal economic stimulus to recharge our local economy."
Extension of higher rum tax return rate
The measure before the Senate committee "also extends the increase in the federal rum tax cover-over rate for a year," the Government House release noted. Turnbull said that this provision, if approved, would generate "an additional $18 million to $20 million" for the V.I. treasury.
The House economic stimulus package passed last month provides for "a two-year extension of the current rum tax cover-over formula, which returns to the local treasury $13.25 for every proof gallon of Virgin Islands rum shipped to the U.S. mainland," the release stated. "Without the extension, the rum tax cover-over rate will revert back to its old rate of $10.50 per proof gallon at the end of this year."
The idea of extending the 2001 tax credits to the territories with mirror tax systems was discussed in Finance Committee staff meetings and in majority caucuses. A supporting argument, the tax expert said, was that "if there was no special rule for the Virgin Islands, it could have a negative stimulus effect, because under the mirror system, the Virgin Islands government would have to pay the full amount of these rebates — and might be taking more money out of the local economy that it would be injecting into that economy."
IRB director Louis Willis said last summer that his agency did not have the money or the staff to send out checks and instead would extend an on-paper credit to be taken by 2000 taxpayers at the time of filing their 2001 tax returns next year.
The way the Senate Finance Committee provision is worded now, there could be a double benefit for Virgin Islands taxpayers. In the interest of fairness, the federal tax expert said, Congress might decide to limit eligibility to those 2000 taxpayers who didn't quality for benefits last summer.
According to information provided by Christensen's office, extending the federal tax credits would have "no effect" on the local process. But, noting Willis's contention that the territory can't afford to pay out the tax credits, Christensen aide Brian Modeste said, "It is because of this that we sought to have the feds pay for this second round."
New Medicaid funds for laid-off workers
In a release later Wednesday, Christensen said the Senate economic stimulus bill also would make federal funds available to the territory through the Medicaid program to provide medical coverage for workers who were laid off as a result of the Sept. 11 attacks. "These new Medicaid funds will be provided outside of our Medicaid cap," she said.
"The extension of this second round of tax rebates to the residents of the territories in the Senate stimulus bill was the result of very careful work done by all the Congressional delegates and governors," Christensen said. "If these provisions survive and are included in the final economic stimulus bill, it will mean tremendous good news for our citizens and economy who are struggling with the aftermath of the Sept. 11 tragedy."
Turnbull expressed thanks to the Finance Committee chair, Sen. Max Baucus (D., Mont.), and to Senate Majority Leader Tom Daschle (D., S.D.) "for their critical support in including the federal rebate and rum tax provisions in the stimulus bill."
The Government House release stated that Turnbull wrote two weeks ago to Baucus and to the ranking minority member of the committee, Sen. Charles Grassley (R., Ia.) to urge that any rebate proposal "be drafted in a way to provide fiscal stimulus for the territory's economy, which has also been hard hit in the aftermath of the Sept. 11 attacks … while not burdening the local treasury as a result of the interplay between the federal tax code and the territory's mirror tax code."
The release also noted that Turnbull had met earlier this year with Daschle and the Senate Finance Committee leadership "to secure their support for the extension of the rum tax cover-over provision."
If the tax credit provision wins Finance Committee approval, it will almost certainly face opposition on the Senate floor from Republicans, who favor a more business-oriented stimulus approach. And whatever version is finally passed by the Senate must be reconciled with the House version passed last month.

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Nov. l7, 2001 - Among the many provisions of the federal economic stimulus and recovery package put together by the Finance Committee of the U.S. Senate is one that could be a cash windfall for thousands of Virgin Islanders: a 2001 tax credit payment, regardless of whether they are owed a similar credit by the V.I. government.
The Finance Committee is expected to vote on the measure Thursday.
The provision would authorize the cash payout of federal income tax credits for 2001 to taxpayers across the nation who did not qualify for such credits under the terms of President George W. Bush's tax-cut package that became law last summer.
Initially, the idea was to get credit checks to people whose taxable income was too low to qualify for the payments that started going out last summer. But it has been extended now to cover every taxpayer who filed a 2000 tax return but didn't get a federal tax-credit check, including all taxpayers in the U.S. territories that have a mirror tax system -- in which the same regulations apply but payment is made to the local government, not the IRS.
On Wednesday afternoon, Government House distributed a release stating that the provision would authorize "federal income tax rebates to all Virgin Islands taxpayers regardless of whether they paid or incurred any federal income tax liability," provided that they filed a Virgin Islands income tax return for 2000.
It is unclear what extending federal tax credits to the territory would mean with regard to the current Internal Revenue Bureau liability for the 2001 V.I. tax credits mandated by the law enacted last summer.
"That is one of the technical issues that the Senate Finance Committee has yet to address," attorney Peter Hebert of the V.I. government's Washington, D.C., law firm, Winston and Strawn, said Wednesday.
The law enacted last summer provided for payments of $300 to individuals, $500 to heads of household and $600 to married couples who filed a joint tax return for 2000, provided that those taxpayers had taxable incomes last year of at least $6,000, $10,000 or $12,000, respectively. (For background, see the July Source story "For Virgin Islanders, checks are not in the mail".)
According to information from the Washington office of Delegate Donna Christian Christensen, the bill before the Finance Committee calls for "a second round of rebates to further stimulate the economy and is intended to go primarily to those 'tax flyers' who didn't get the first round of rebates," either because they didn't have enough taxable income or because they only paid "payroll taxes" -- Social Security and Medicare.
The idea behind the measure, espoused by Senate Democrats, is that the benefit in the president's tax-cut measure wasn't equally available to low-income working persons who were hardest hit by the nation's economic decline, especially after Sept. 11. "There have been many layoffs in the service industries, and the unions have been lobbying hard," a tax-law expert said.
Gov. Charles W. Turnbull said in the Government House release that, "In addition to providing important financial relief to hard-pressed Virgin Islands taxpayers, the federal rebates will provide an estimated $20 million in much-needed federal economic stimulus to recharge our local economy."
Extension of higher rum tax return rate
The measure before the Senate committee "also extends the increase in the federal rum tax cover-over rate for a year," the Government House release noted. Turnbull said that this provision, if approved, would generate "an additional $18 million to $20 million" for the V.I. treasury.
The House economic stimulus package passed last month provides for "a two-year extension of the current rum tax cover-over formula, which returns to the local treasury $13.25 for every proof gallon of Virgin Islands rum shipped to the U.S. mainland," the release stated. "Without the extension, the rum tax cover-over rate will revert back to its old rate of $10.50 per proof gallon at the end of this year."
The idea of extending the 2001 tax credits to the territories with mirror tax systems was discussed in Finance Committee staff meetings and in majority caucuses. A supporting argument, the tax expert said, was that "if there was no special rule for the Virgin Islands, it could have a negative stimulus effect, because under the mirror system, the Virgin Islands government would have to pay the full amount of these rebates -- and might be taking more money out of the local economy that it would be injecting into that economy."
IRB director Louis Willis said last summer that his agency did not have the money or the staff to send out checks and instead would extend an on-paper credit to be taken by 2000 taxpayers at the time of filing their 2001 tax returns next year.
The way the Senate Finance Committee provision is worded now, there could be a double benefit for Virgin Islands taxpayers. In the interest of fairness, the federal tax expert said, Congress might decide to limit eligibility to those 2000 taxpayers who didn't quality for benefits last summer.
According to information provided by Christensen's office, extending the federal tax credits would have "no effect" on the local process. But, noting Willis's contention that the territory can't afford to pay out the tax credits, Christensen aide Brian Modeste said, "It is because of this that we sought to have the feds pay for this second round."
New Medicaid funds for laid-off workers
In a release later Wednesday, Christensen said the Senate economic stimulus bill also would make federal funds available to the territory through the Medicaid program to provide medical coverage for workers who were laid off as a result of the Sept. 11 attacks. "These new Medicaid funds will be provided outside of our Medicaid cap," she said.
"The extension of this second round of tax rebates to the residents of the territories in the Senate stimulus bill was the result of very careful work done by all the Congressional delegates and governors," Christensen said. "If these provisions survive and are included in the final economic stimulus bill, it will mean tremendous good news for our citizens and economy who are struggling with the aftermath of the Sept. 11 tragedy."
Turnbull expressed thanks to the Finance Committee chair, Sen. Max Baucus (D., Mont.), and to Senate Majority Leader Tom Daschle (D., S.D.) "for their critical support in including the federal rebate and rum tax provisions in the stimulus bill."
The Government House release stated that Turnbull wrote two weeks ago to Baucus and to the ranking minority member of the committee, Sen. Charles Grassley (R., Ia.) to urge that any rebate proposal "be drafted in a way to provide fiscal stimulus for the territory's economy, which has also been hard hit in the aftermath of the Sept. 11 attacks ... while not burdening the local treasury as a result of the interplay between the federal tax code and the territory's mirror tax code."
The release also noted that Turnbull had met earlier this year with Daschle and the Senate Finance Committee leadership "to secure their support for the extension of the rum tax cover-over provision."
If the tax credit provision wins Finance Committee approval, it will almost certainly face opposition on the Senate floor from Republicans, who favor a more business-oriented stimulus approach. And whatever version is finally passed by the Senate must be reconciled with the House version passed last month.