MK makes another go at 'negative tax'

MK Silvan Shalom (Likud) made another attempt to implement a "negative income tax" Tuesday, presenting a revised plan to the Knesset Finance Committee on Tuesday.

June 13, 2007 08:07
2 minute read.


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MK Silvan Shalom (Likud) made another attempt to implement a "negative income tax" Tuesday, presenting a revised plan to the Knesset Finance Committee on Tuesday. "We want to protect those most at risk of falling into poverty," Shalom said to the committee. "It will increase the country's work force and provide support to those workers earning the lowest income, while improving and securing their quality of life." Negative income tax systems essentially subsidize low wages by giving different amounts of money to workers whose earnings are beneath a given salary threshold. According to the bill set forward by Shalom, if a worker earns between NIS 1,725 and NIS 3,000 a month, he will be entitled to a total of NIS 70 plus 16.1 percent of his monthly income above NIS 1,725, while those who earn NIS 3,000 to NIS 4,000 will be entitled to a flat rate of an additional NIS 275 a month. The highest bracket of wage earners eligible for the negative income tax are workers who earn between NIS 4,000 to NIS 5,200 a month. According to the proposed bill, this bracket will be entitled to an additional NIS 275, minus a deduction of 23% for any income above NIS 4,000. For example, if a worker earns NIS 4,100 a month, he will be entitled to NIS 275 minus NIS 23, for a total of NIS 252 a month. Above numbers apply to those workers with less than two children, however. Wage earners with three or more children and a monthly salary NIS 1,725 to NIS 3,000 are entitled to a total of NIS 100 in addition to 23.5% of their salary above NIS 1,725, while those who earn NIS 3,000 to NIS 4,000 will receive NIS 400 a month. Salaried employees earning NIS 4,000 to NIS 5,700 will be awarded NIS 400, minus a deduction of 23.5% for salary above NIS 4,000. Addressing concerns the plan would put a strain on the state budget, Shalom said that in essence the cost to the government and the taxpayer would be negligible as, among low wage earners, nearly 100% of available income is directed to consumption, which would lead to accelerating economic activity and increasing tax collection. Assuming that the family unit earns an additional NIS 500, it would direct at least NIS 400 to purchasing clothing, food and additional consumer goods, he explained. These purchases would lead to a rise in earnings among manufacturers and merchants - a rise in earnings that would be taxable. Additionally, the increase earnings among manufacturers and merchants would enable them to increase purchases of taxable items. Therefore, ultimately, the effective cost of implementing the negative income tax would be negligible, he said. Included among those who stand in opposition to the bill is MK Ya'acov Litzman (Agudat Yisrael). Shalom claimed that while serving as the previous Finance Committee chairman Litzman refused to present the earlier proposal in January for approval in the committee. Among other things, the previous plan had capped the salary under which taxpayers were able to receive benefits at NIS 5,000. Meanwhile, the Adva Information Center on equality and social justice in Israel published a paper with several suggestions altering the the proposed bill, including changing the negative tax payments from quarterly to monthly payouts. While no representatives from the organization were present at Tuesday's meeting, Adva told The Jerusalem Post that one of the organization's officials met with current Finance Committee Chairman Stas Misezhnikov on Monday to discuss the proposed changes to the bill.

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