Treasury Puts Tax Surcharge on the Rich Back on the Table

Recommendation to tax the rich one of the major proposals of the Trajtenberg committee; 2% surtax would be levied on all income from any source above NIS 1 million a year.

Finance Minister Yuval Steinitz is reconsidering levying the tax surcharge on the rich recommended by the Trajtenberg committee on socioeconomic reform. The surtax on incomes of over NIS 1 million a year was dropped last month, but now the treasury is reconsidering as it searches for ways to make up an expected large revenue shortfall this year.

The recommendation to tax the rich was one of the major proposals of the Trajtenberg committee. The 2% surtax would be levied on all income from any source - not just salaries - above NIS 1 million a year. Marginal income tax rates would rise to 50%, as well as higher taxes on capital gains and dividends. The surcharge was forecast to bring in NIS 400 million a year.

The proposal was killed in a private meeting between Steinitz and the chairman of the Knesset Finance Committee, MK Moshe Gafni (United Torah Judaism). The rest of the tax reforms proposed by the Trajtenberg committee were passed by the Knesset but the surtax was nixed in committee at the very last moment.

The surtax was considered quite complicated to enforce: It would require the establishment of a new database in the Israel Tax Authority combining all sources of income for every taxpayer in order to examine who has an income of over NIS 1 million. Today, very few annual returns are examined for such people and the information is not all kept in a single database.

Gafni and others also objected, saying that in many cases the tax would apply unfairly to an individual who took in a one-time large sum in a given year - such as from the sale of their home or on the receipt of retirement savings - but whose regular annual income is far less. Steinitz will likely bring the surtax proposal to the Knesset next week.