Gov. Linda Lingle signed bills yesterday that will provide tax breaks to low-and-middle income residents and could lead to lower gasoline prices, but used the occasion to argue the state Legislature missed an opportunity for more substantial tax relief.

State House and Senate Democrats agreed on a one-time income tax rebate of between $25 and $160 for taxpayers earning $60,000 or less, and an expanded food credit of between $25 and $85 for taxpayers earning $50,000 or less.

The rebate will be given through tax returns next year while the food credit does not start until the 2008 tax year, so it will not show up on tax returns until 2009.

Lawmakers also restored a general-excise tax exemption on ethanol-blended gas that expired last year and the savings, about 11 cents per gallon, could be passed on to consumers as early as Sunday.

Democrats explained that tax relief was targeted to people who need it most while recognizing that the state's economy is cooling.

"The Legislature took a very well-reasoned approach," said state Senate President Colleen Hanabusa, D-21st (Nanakuli, Makaha).

"If the economy slows as expected, you'll probably find that the Legislature was very responsible."

Lingle herself cited the slowing economy on Monday when she announced her list of potential vetoes, since some of the bills on her list have a financial impact. But the governor said the state has enough money for larger tax relief.

The Legislature was required by the state Constitution to provide tax relief this year after two straight years where the general-fund balance exceeded projected revenues by 5 percent. Lawmakers, for the first time, met the mandate with targeted tax relief for about 60 percent of taxpayers rather than giving money back to all taxpayers.

Lingle had proposed $346 million in tax relief at the start of the session, but lawmakers approved about $50 million in addition to restoring the ethanol exemption. Democrats believe Lingle's tax proposal, given the projected decline in revenue, would have been too financially risky.

"The Legislature again this session missed the opportunity to help our residents who are struggling to make ends meet by providing immediate and long-term tax relief," Lingle said in a statement yesterday.

"While the measures passed this year are a step in the right direction, they do not address the long-overdue need to change our basic tax structure to protect taxpayers from tax increases caused by inflation and to increase the standard deduction and widen tax brackets to allow residents to keep more of their take-home pay."

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com.