Is that the odor of elections in the air? No: The treasury has been working on a new tax cuts program since 2007, under long-term policy to lower taxes begun in 2003. Finance minister Roni Bar-On is merely following in the footsteps of his predecessors. His timing doesn't look coincidental, but to quote one treasury personality: If the decision is good, it doesn't matter whether the reason was bad.
Why mix tax cuts with abolishing tax perks on study funds? No reason, it's just a good opportunity. The treasury has a list of tax exemptions it wants to abolish and is taking advantage of lavishing candy on taxpayers to cancel some distortions of the system.
Why target study funds? Because it's the right thing to do: The tax exemption isn't just. Only the highest earners got study funds. It's a regressive exemption that encourages saving only in the medium run, of six years. Anyway, the treasury is adding the employer's payments into the fund onto the salary for tax purposes, but it isn't charging capital gains tax, for example. Having a study fund still pays, just not as well as it used to.
Isn't this actually a tax hike, not a tax cut, because of the tax on study funds? Absolutely not. The tax cuts apply from the lowest to the highest pay. Only in 2009 would the added tax revenue from study funds compensate for lost revenues on income tax. After that, the treasury loses more than it gains. By 2015 the "hole" in state revenue will widen to NIS 8 billion.
And isn't that NIS 8 billion hole bad for the state? Ah, there's the rub. The treasury argues that the tax cuts will stimulate economic growth and ultimately increase tax revenues. That's the theory today, but it has its detractors. Nobelist Joseph Stiglitz doesn't buy it. He feels that inequality is a spreading problem worldwide and it's time to eschew tax cuts and adopt a policy of taxing the rich more, to narrow social gaps.
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