No Instant Solution to Poverty

The plan for negative income tax is not grabbing the bull by the horns. Everyone knows that poverty in Israel is concentrated mainly in two population groups - the ultra-Orthodox and the Arabs.

Politicians love instant solutions, magic formulas that relieve them of their troubles. Their planning span is short, perhaps only as far as the next news broadcast. Long-term solutions do not interest them, as who knows if they will survive long enough to reap the fruits. And this is why Prime Minister Ehud Olmert and Finance Minister Avraham Hirschson easily fell in love with the new solution to the problem of poverty - negative income tax. It sounds good, looks quick and elegant, and the public loves it. But will this new trick really alleviate poverty?

The idea behind negative income tax is that the state checks who receives low wages and then intervenes and awards such an individual a monetary grant that will improve his lot. So simple and easy. In practice, however, this plan is amazingly complicated. The underpaid are non-organized workers in small enterprises who are not interested in filling out forms or having any contact with the tax authorities.

As past experience shows, they will not file income tax returns and will therefore receive nothing. And if they do file and receive this extra money, their employer could turn around and reduce their wages commensurately, or not promote them up the pay-scale ladder. These workplaces have no workers' unions and the employees have no power. This means that the employers would be the biggest beneficiaries of negative income tax.

In order to implement this system, a huge, expensive mechanism will have to be established to examine family income, including capital income. After all, there are cases in which one spouse chooses to work part time, at low pay, while the other owns a successful business, or the family owns a rental property.

According to the Bank of Israel's proposal, the grant will be determined in keeping with the number of children in a family, a criterion that will reinstate higher child allowances through the back door and will encourage families to have more children - the exact opposite of the government's policy in recent years.

The bottom line is that this is a plan that offers an incentive to cheat, that effectively subsidizes employers, that encourages employees to work as little as possible, to work part time and thus receive as much as possible from the state - putting one over on the government instead of putting in overtime.

The plan is also dangerous, as there is no telling where it will lead. As always, everything "starts small." When political pressures mount, however, the government's intervention in the labor market will increase, and the costs will balloon. "Guaranteed income" also looked like a perfect idea at the time. It began "small" in the 1980s, with 10,000 families, and burgeoned to 155,000 by 2003, changing the entire behavioral culture of living off work to living off allowances.

It is no wonder therefore that the Adva Center for socioeconomic research lambastes the idea. Adva researchers feel that negative income tax will not increase the number of people working and will not improve the situation for the poor.

The plan for negative income tax is not grabbing the bull by the horns. Everyone knows that poverty in Israel is concentrated mainly in two population groups - the ultra-Orthodox and the Arabs - and must be addressed directly. It is among these groups that the resources should be invested.

The problem among the ultra-Orthodox is the large number of children, the lack of general education and parents who do not go to work. The ultra-Orthodox educational system must therefore be forced to teach the "core curriculum," so that its graduates can join the workforce, and ultra-Orthodox adults should be encouraged to work via subsidized training courses and to change their behavioral norms.

The problem in the Arab sector is not education, but rather discrimination. Jewish society does not give educated Arabs jobs. The level of infrastructure in Arab villages is also substandard. There are not even any industrial zones, such that 80 percent of Arab women do not work because it is not accepted practice for them to seek work outside their villages.

This means that much can be done to combat poverty - real change, realistic plans that take time. But this is exactly what our politicians do not have.