New Knesset study shows vast gaps in capital income
Estate tax on wealthiest would generate NIS 2.1 billion to NIS 3.7 billion a year for the state's coffers.
A new Knesset study on income derived from capital shows stark disparities, with 60% of the country's income from capital assets going to the wealthiest 10 percent of households, while less than 20% goes to the least affluent 70% of households.
The report by the Knesset Research and Information Center, which will be
distributed to members of the Knesset today, also underlines the potential tax revenue that the state could collect if it imposed an inheritance tax on these assets when their wealthy owners die. It was commissioned by three MKs, including Labor Party leader Shelly Yacimovich, who is sponsoring a bill that would impose an inheritance tax on the wealthiest estates.
The report deals not with wages paid as salaries to citizens of the country but rather additional income from investments or other assets held in large part by the country's wealthiest citizens. Income from capital can come from financial assets or from real estate and can include rental income, interest on savings and income from investments.
A look at income from capital assets earned by the self-employed and by corporation managers reveals an even starker picture of inequality. Among this group, the top 10% earn 87% of income generated from capital and the top 1% benefits from more than 64% of the total income from capital.
In light of this, a proposed inheritance tax that is being touted by Yacimovich might cause the country's wealthiest citizens to lose some sleep if it is passed. The bill would have the state collect taxes ranging from 5% to 12% on estates of more than NIS 15 million. The legislation also has the support of Knesset Economic Affairs Committee chairman Carmel Shama-Hacohen (Likud ), Zevulun Orlev (Habayit Hayehudi ) and Marina Solodkin (Kadima ). The Knesset Research Center report was prepared at the request of Yacimovich, Amir Peretz of the Labor Party and Zahava Gal-on of Meretz.
At a time when there is growing concern about the country's widening budget deficit, the MKs who receive the Knesset Research Center's report will surely be interested in the document's projection that an inheritance tax could generate an additional NIS 2.1 billion to NIS 3.7 billion a year in revenue to state coffers. This is no small sum when one considers that an increase in 1% in the value added tax would be expected to generate NIS 4 billion a year.
Because the poorest households hold little in the way of capital assets, the disparities between the poorest and wealthiest Israelis as measured by income generated from capital assets is especially great. Among the poorest Israelis, there simply is usually no income from such assets while among the top 10%, where overall monthly income is nearly NIS 40,000, average income from capital is NIS 3,000 or more. Ironically, therefore, the income from capital among the wealthiest Israelis exceeds total income among the poorest among us.
And when it comes to real estate holdings, the social disparities are also huge. The value of the average home owned by the poorest 10% of Israelis is NIS 688,000 while that of the wealthiest 10% of households averages NIS 2.2 million. The top 20% of Israelis as measured by wealth own housing worth half of the value of the entire housing stock in the country, while the lower 50% own just 20% of the value of housing.
But when it comes to ownership of capital assets, it is actually the numbers regarding non-real estate assets where the largest social disparities come to the fore. The wealthiest 30% of Israelis own 80% of the country's financial assets.