The Bottom Line / Think again
These days, a number of teams at the Finance Ministry are working on fighting against poverty, narrowing social gaps, and providing an equal opportunity for all.
These days, a number of teams at the Finance Ministry are working on fighting against poverty, narrowing social gaps, and providing an equal opportunity for all. All these plans are to be presented to acting Finance Minister Ehud Olmert very soon.
One of the steps that was featured in recent headlines is implementation of a negative income tax. The idea received praise from all sides: economists viewed it as an instrument to encourage people to go out and work; and social activists viewed it as an efficient instrument to reduce poverty, at least until last week, when one of the leading social policy institutes, the Adva Center, published a devastating report on the topic.
Adva claims that a negative income tax will not increase the number of employed individuals and will not improve the situation of the poor. The center says that the present safety net in Israel, administered by the National Insurance Institute (NII), is better than the negative income tax suggestion copied from the U.S. In its opinion, it is better to fight poverty by increasing guaranteed income stipends.
The Bank of Israel, unlike the Adva Center, supports a negative income tax. It claims that by subsidizing low wage earners, it is possible to reduce poverty among the working poor.
On the other hand, the problem emphasized by the Adva Center is actually its greatest benefit: it will directly help those who work but because they earn too little, they are poor or those for whom it is not worthwhile to work. This is exactly the population that we need to encourage to work in order to increase the number of employed in the economy, which is much lower than what is acceptable in the rest of the West.
To understand why the gaps here are so great, we have to speak the truth, even if it is not politicly correct. Poverty in Israel is found mostly among two populations: the ultra-Orthodox Jews and Arabs (Muslims and Bedouin).
The problem with the ultra-Orthodox is that their families have a large number of children while many of the parents do not work - 80 percent of ultra-Orthodox men, for example, are not employed. Therefore, we should not encourage high birthrates, and we should force the ultra-Orthodox school system to teach core subjects so that its graduates will have a chance to join the workforce.
In the Arab sector, there's a very large "black economy," and therefore, poverty statistics are exaggerated. Nevertheless, there are plenty of problems within the sector. The educational level is low, and 80 percent of Arab women do not work. As a result, it is necessary to invest more in education and to bring work into the communities and villages by building factories and businesses.
Another problem is that mature adults have low educational levels, often only eight years of schooling. And the fact is there is almost no demand for such workers. We must offer them professional training, including basic subsistence stipends, during their training periods.
There also is a problem with the elderly, disabled and chronically sick who cannot work. We must increase their stipends.
The problem of women who earn low wages, and therefore, find it not worthwhile to work must be solved by subsidizing day care and transportation to work.
We should also not forget about foreign workers. If their number is not reduced, then no new jobs will become available to Israelis in agriculture, construction, nursing care or household work.
In other words, we need to work on all fronts and not just depend on a negative income tax alone. After all, we are talking about a very difficult "tax" to implement. It requires reporting all family income. It also includes a subsidy for employers and large possibilities for cheating. It is also a dangerous instrument, that may start out small, but as political pressures increase, can grow wildly out of control, just as guaranteed income stipends did. Such payments started in the 1980s with only 10,000 families, but in 2003, reached 155,000 families.
All of this may not make Olmert happy. He already has found time to speak in favor of a negative income tax, but senior treasury officials view the tax as the worst possible choice among the alternatives.
Therefore, we are about to become witnesses to a new precedent: a unity of interests between treasury functionaries and the Adva Center, which will work to stop the idea in its tracks.