A Ruling That Helps the Rich

The media was openly pleased with the Supreme Court's ruling last Thursday. Analysts said the decision corrected discrimination against women forced to stay at home instead of developing a career. One newspaper described the decision as "a victory for motherhood," while another called it "welcome news for parents," and a third said "this is the just the start" of a long struggle against the evil treasury. The forces of light won against the income tax's mechanism of darkness.

The Supreme Court decided to allow tax deductions for daycare costs because mothers can't go to work unless someone is looking after their children. Thus, the cost of a nanny will be fully deductible, but only half the cost of nursery school, because in the latter case, the expenses are both for childcare and education.

Women's groups welcomed the ruling, calling it "a huge step for the advancement of women." But will the ruling really improve women's standing? Did the court really take the whole picture into consideration?

Israel's tax system recognizes an outlay as an expense only if it is a direct expense meant to create income; private expenses are not included. But this is not the case in the current matter. A woman with small children needing daycare could work in the same workplace with a woman whose children are older and no longer need care. In other words, it is an individual, not a general matter.

It is also an indirect expense, one that is basically limitless, because tomorrow it will be possible to argue that to go to work a person also needs a good night's sleep, a solid breakfast and glasses. Therefore, it is necessary to recognize as a tax deduction the cost of a good mattress and a pair of glasses.

The court ignored that the tax authorities had already calculated the costs inherent in looking after children. They grant bonus points to every woman who works, for each of her children until age 18. Moreover, a woman with a job gets another half bonus point toward tax deductions beyond what working men receive. In other words, even now, a woman with a job pays lower taxes than a man, precisely because it is considered important to encourage women to work.

That's a much more efficient solution because every woman receives the bonus automatically on her payslip, without any bureaucracy or forms. But whoever wants to provide female employees with the benefits the court has authorized will have to pay an accountant, open a file with the income tax authorities, file an annual report and provide periodic income declarations.

Also, deducting this expense will not help most women. Sixty percent of them are not in the appropriate tax bracket. So the ruling will mostly help wealthy people with high wages, in a higher tax bracket.

But the wealthy, too, will find it hard to get the deduction, because a woman with a job will have to pay for a nanny in an aboveboard fashion, including social-security and pension payments. And the caretaker will have to issue a receipt for tax purposes. Nannies will also have to pay income tax and social security, which means their net incomes will suffer. Will many of them agree to this?

The court, in recognizing that the matter is complicated, made an unprecedented decision to delay the ruling's start date to 2010. It has thus given the state time to get organized and provide an orderly solution through legislation.

The tax authorities can recommend a bill stating clearly that daycare expenses will not be recognized for deductions. They can set various criteria and limitations, like those concerning deductions for using a car at work. They can do away with the existing bonus points granted for children to gain the funding to pay for the new ruling.

Because after all, the treasury does not have the same leeway as the court. The treasury cannot act favorably only toward a specific population group. Therefore, it's best to stick with the existing arrangement (bonus points) and encourage women to go to work by opening more subsidized daycare centers and not by recognizing the costs of daycare as deductible. It's the fairer, more socially conscious and efficient solution.