The poverty trap
"The gap between the rich and the poor is growing wider," the Central Bureau of Statistics pronounced this week. In normal times, and normal countries, this headline would go to the top of the public agenda.
"The gap between the rich and the poor is growing wider," the Central Bureau of Statistics pronounced this week. In normal times, and normal countries, this headline would go to the top of the public agenda, but here there is a war, after all, and when the big guns are booming, socio-economic issues are shunted to the side.
The CBS data for 2000 indicate that family income among salaried employees in the highest decile was 11.9 times higher than in the lowest decile. In 1990, the differential was a factor of 9.1, meaning that the gap in pre-tax income has risen substantially in the past decade.
On the other hand, the CBS revealed, after deduction of income tax and National Insurance Institute (NII) payments (which are highest for those in the upper deciles) and addition of National Insurance allocations (primarily to those in the lower deciles), the gaps are substantially reduced.
Does this mean that our problem exists only in the realm of gross income, and that we are doing fine when it comes to net income? Not exactly. It would be more accurate to view these two phenomena as problems that are exacerbating the effects of one another. The process begins with a gap in the level of education, whose effect on income has increased in the past decade, due to the high tech revolution and the increased return on investment in professional and managerial training.
At the same time, the arrival of foreign workers brought about a lowering of the wages paid to manual laborers in the weaker socio-economic strata. This double-edged movement has exacerbated gaps in gross income. As a response to the increased gap, the state elected to increase social-welfare payments made by the National Insurance Institute and government ministries to the lower deciles.
In order to underwrite this expansion, the government in turn increased the tax burden on the upper deciles. However, the results of this development are destructive to the citizen's desire to work. The wealthy pay too much to the tax authorities, and their desire to work and invest is reduced commensurately. The poor find themselves in "the poverty trap" that makes it less worthwhile for them to go to work.
In the table shown here, the left side shows a family in which one of the adults works, and has a gross income of NIS 6,000 a month. They do not receive any assistance from the state (aside from the children's allowance), but pay all the taxes. The right side of the table features a family in which neither adult works, and they receive a guaranteed income from National Insurance, and abatements from the government ministries. This family's income is identical to that of the working family. Such a family will never re-enter the labor market, but will continue to live in poverty at the expense of the state budget.
The pyramid must therefore be placed right-side up again. Taxes on the middle class must be reduced in order to encourage them to find work, and to train for professional and gainful employment. Conversely, the burden should be made more difficult for those who live on social-welfare payments, and anyone else who tries to get by without working.