Ethics@Work: More equitable ways of subsidizing child care

Having a lot of income tax deductions is generally bad because they make taxes higher, more complicated, and less equitable.

Business ethics 88 (photo credit: )
Business ethics 88
(photo credit: )
The women's lobby in the Knesset has been trying for years to pass a law recognizing child care expenses as a deductible business expense, but to no avail. However, a district judge saved the day and did what Israeli judges do so well: he ignored the elected officials and created his own legislation, ruling that these expenses are allowable. I would like to go easy on the judge, Magen Altuvia, and assume that he is just ignorant of the fact that our legislature has tried and failed to allow this deduction. Sadly, the defense brought the legislative record as evidence in the case, but it was ignored by the judge. Having made my perfunctory screed against our ever-interventionist judges, I would like to consider the new policy on its merits. The obvious advantage of the policy is that it will enable more parents, particularly mothers, to join the work force since they will not have to bear the full expense of child care, since the deduction translates into a partial subsidy for working mothers. The obvious disadvantage is that the new policy will be very costly: hundreds of thousands of parents pay upwards of a NIS 1,000 a month for child care, meaning that billions of shekels of income will now be removed from the tax rolls. Finance Minister Ronnie Bar-On estimated that implementing the policy would cost NIS 2 billion a year. However, sometimes things are not as obvious as they seem. The problem with the first assumption is that a tax break is worth something to you only if you already pay taxes. A woman who is paying a NIS 1,000 for child care so she can go out and earn NIS 2,500 is already not paying income tax, and is not going to be affected by the ruling. The tax benefit will only affect higher-income women, most of them married to high-earning men, and most of them can "afford" to work in any case. This is a tax break for the upper middle class (perhaps not coincidentally the class most judges belong to). The problem with the second assumption is that if the first assumption is correct, the new policy will in fact create a lot of new income. If the only effect is to give a break to people now paying for child care, it's a loss, but if the result is that more women give more jobs to child-care professionals in order to get more jobs in other industries, then there will be a lot of new incomes to tax. So at least one assumption is probably wrong. My guess is that it's the first one, and the deduction would shelter a lot of existing income while creating little new income. In order to deal with the fundamental question of whether the deduction is justified, we should ask ourselves, why are work-related expenses deductible at all? I think that the case for deducting these expenses is very weak. There is no such thing as a purely work-related routine expense. The cost of commuting is not the cost of going to work; it is the cost of living far from work, or (if you prefer) of working far from home. If you can't afford to commute to work without a government subsidy, then you probably shouldn't commute to work. You should either work closer to home or live closer to work. Adding lots of deductions just makes tax rates higher and more daunting, while adding complexity and unpredictability to the tax code (as proven by this latest surprise decision). This is exactly why most jurisdictions, including Israel, do not allow deduction of commuting expenses. Likewise, the cost of child care is not the cost of going to work; it is the cost of having someone else take care of your children instead of taking care of them yourself. If you can't afford to hire someone else to take care of your children so that you can take another job, then evidently you are more productive in child care than you would be in your other job. We pointed out in another column that "working mother" is a redundancy. Every mother works, it's just that some work only at home while others have two workplaces. I don't see any compelling reason for the tax code to give preference to one kind of work (the kind that takes place out of the home) over another (the kind that takes place in the home). What if the legislature sees a compelling public interest in encouraging women to work out of the home instead of inside it, perhaps to encourage more "sameness" between men and women? (I pointedly chose the word "sameness" over "equality", since there is nothing unequal about the fact that people make different choices.) Many countries do. For example Northern European countries make some childcare leave available only to fathers. In that case, a better use of NIS 2b. would be a uniform subsidy on preschools, which would benefit poor women and not only better-off ones. Such a subsidy could help poor mothers a lot. Some would be able to exploit employment opportunities because they could afford to send their children to day care, and others would be able to find employment opportunities due to the increased demand for preschool teachers, a very low-paying profession usually performed by women from low-income households. Having a lot of income tax deductions is generally bad because they make taxes higher, more complicated, and less equitable. That's why the Knesset has never succeeded in approving this legislation. I think that judges should stick to judging and leave law-creation to our elected representatives, and I think that our elected representatives should consider more equitable ways of subsidizing child care. The author is research director at the Business Ethics Center of Jerusalem (, an independent institute in the Jerusalem College of Technology.