(photo credit: AP)
Neocons are frequently accused of placing almost religious faith in “invisible
market forces” while callously ignoring socioeconomic gaps between rich and
poor. But it was none other than Milton Friedman, the mandarin of
neoconservative economic thought, who is credited with the idea of a negative
income tax (NIT).
Out of a real sensitivity for those who, due to bad
luck or circumstance, were left out of the prosperity provided by free,
competitive markets, Friedman proposed in his 1962 book Capitalism and Freedom a
unique idea. Eliminate intrusive and costly welfare bureaucracy; do away with
the cadres of gray, state-salaried bureaucrats; stop welfare aid that
discourages gainful employment.
Replace them with a simple apparatus that
pays cash directly to the working poor. Not only should those in the
income tax brackets be exempt from paying income tax, they should be
receive tax revenues directly from the state without any bureaucratic
On Sunday, nearly five decades after Capitalism
first appeared, the Bank of Israel recommended expanding Israel’s own
experiment and implementing it nationwide. The central bank’s
based on the results of a pilot launched in September 2008 in Ashkelon,
Jerusalem and Nazareth, four towns with high unemployment and poverty.
recipients in that pilot were among the tens of thousands who work full
fail to make ends meet, particularly families in which only one parent
Those eligible were seniors aged at least 55 or parents aged 23 and up
earned at least NIS 1,810 but no more than NIS 5,970.
researchers reached the conclusion that NIT works. Not only did it raise
percent of the 28,800 recipients above the poverty line (8.7% among
but it also reduced the gap between the poor and the rich. Fewer had
telephone and electricity services cut and fewer had to compromise on
Researchers estimated that if the program were expanded
nation-wide, another 300,000 would be eligible, 2,300 families would be
above the poverty line, tens of thousands would breathe easier – all at a
of NIS 393 million. Most important, unlike most welfare that encourages
unemployment, NIT provides an incentive to get off the dole and into the
HOWEVER, THE program can be improved. First, only 45% of the
64,000 who were eligible for the pilot program actually claimed the
after filling out the necessary forms. More advertising will plainly be
especially in areas with a high concentration of Arabs.
is that benefits are skimpy. The maximum NIT provided is just NIS 420 a
As economist Dan Ben-David pointed out in a recent Taub Center
report, this is just half of what low-income Americans receive after
for standard-of-living differences between the US and Israel. The higher
– say 10% of per capita GDP, like in the US, instead of just 5% in
Israel – the
more it becomes an incentive to get a job.
Friedman, who visited Israel
several times before his death in 2006 at the age of 94, was a harsh
socialism, including the Zionist variety. In a 1972 essay entitled
and the Jews: Confronting a Paradox,” Friedman suggested that Israeli
with its self-conscious break with the Diaspora, was an attempt to prove
the anti-Semitic stereotype of the Jew as a greedy capitalist.
Israel is powered by a vibrant capitalist economy that enabled it to
recent economic downturn better than many other countries.
The number of
Israeli millionaires – one of many indicators of recent prosperity –
between 2008 and 2009, to 8,419. But as a Jewish state that promotes
values, Israel must not lose touch with its obligation to care for those
fortunate. Implementing Friedman’s NIT is one way of achieving this goal
avoiding some of the pitfalls of socialism.