Taub Center: Tax hikes will reduce wage inequality

A recent study found that the income-tax hike will cause the share of the wealth of the top 20% of the population to decrease, share of the bottom 80% to increase.

August 19, 2012 23:44
2 minute read.
The Jerusalem Post

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Income will be distributed more equally when the recently approved income-tax hikes come into effect on January 1, according to a report published Sunday by the Taub Center for Social Policy Research.

The Taub study found that the income share of the wealthiest two deciles of the population will decrease, while the share of the remaining 80 percent will increase.

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Wage-earners in the third to seventh deciles will be the biggest beneficiaries, it concluded.

Under the changes introduced by the government last month and approved by the Knesset August 6, all income between NIS 14,001 to NIS 41,830 per month will be taxed an extra 1%, and all income above NIS 67,000 per month will be charged a 2% surtax.

Earnings will be charged as follows: less than NIS 5,200 per month – 10%; NIS 5,201 to NIS 8,880 – 14%; NIS 8,881 to NIS 14,000 – 21%; NIS 14,001 to NIS 20,000 – 31%; NIS 20,001 to NIS 41,830 – 34%; NIS 41,830 and above – 48%.

Although the recommendations of last year’s Trajtenberg Report were ostensibly designed to increase state revenues and bridge uneven income distribution, these latest tax changes go further toward achieving the latter goal, according to Taub deputy manager Ayal Kimhi.

Individuals in the fourth-highest income bracket will be spared the tax hike recommended by Trajtenberg, while those in the second- and thirdhighest brackets will be asked to shoulder the burden instead, Kimhi said. The decision to fix the surtax threshold at NIS 67,000 instead of the Trajtenberg-recommended NIS 83,000 will ensure the richest income decile carry the heaviest load, he said.

Kimhi warned, however, that the simultaneous decision to increase value-added tax by one point to 17%, which will come into effect September 1, would disproportionately hurt the poor and the middle class.

The government’s forecast of about NIS 14 billion in extra tax revenues is “optimistic,” he said, and it is unclear to what extent state revenues will increase from other promised measures.

The government has estimated it will increase collections by NIS 5b.

through several steps, including a crackdown on black-market transactions, strengthening of the Tax Authority’s powers and amendment of a law that allows large corporations to make specific tax arrangements with the state.

“A shortage of collections will ultimately lead to more budget cuts and thereby hurt the poor and the middle class,” Kimhi said.

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