More Taxes......

Corinne Sauer pushes the argument for a flat rate income tax in the Jerusalem Post. The news that we are working longer this year to pay our taxes before we can even start to think about saving is certainly most shocking but I find myself rather cynical about how this conclusion has been arrived at.

"What is the main cause of our tax situation becoming worse this year?" she asks.

"Although income taxes were reduced slightly, new taxes were introduced on
income earned abroad by Israeli residents and income earned domestically by
Israelis living abroad. The definition of residency was expanded to increase the
potential tax base, and a new tax on real income from foreign and Israel stock
exchange gains came into effect".

I'm going to break that down a little for you.

"Income taxes were reduced"

"New taxes were introduced on income earned abroad by Israeli residents"

"Income earned domestically by Israelis living abroad"

"a new tax on real income from foreign and Israel stock exchange gains"

According to Sauer "it is only during the remaining 40% of the year (i.e. after "tax freedom day" - August 3) that the average citizen has the option of spending as she herself sees fit". Clearly this should be worrying us.

Even totally ignoring the context of each of these measures - effectively closing off loopholes; to argue that the average citizen is paying more tax because of taxes on her income from abroad and stock exchange gains is to trample roughshod over the fact that the average citizen has a mortgage and an overdraft. The middle class salaried classes who are neither working for the Ports Authority nor have friends in the political echelon are not able to salt away large amounts in the stock exchange or buy up properties overseas.

The 2003 Tax Reform sought to remove part of the tax burden from the income earning, Miluim serving, uncomplaining (?) middle class by redressing serious discrepancies in the way in which those with capital i.e. the wealthy, are taxed. If no other changes have been made which would have an effect, I would suggest that the average Israeli is paying less tax whilst the wealthy Israeli is paying more. Whether or not this is a good thing is a whole different argument and must be presented as such, but the fact that the gap between rich and poor is fast increasing suggests that it is a correct step to be taking.

Sauer goes on to argue for a flat-rate income tax citing such economic powerhouses as Latvia and Estonia inter alia as examples of places where this works "with great success". I would cite slightly more respectable economies such as the United States and the United Kingdom amongst others as examples of the fact that not all economists "deny the efficiency of a flat- rate income tax". Clearly it is not unacceptable to tax differentially - in fact, it is the norm in the World's developed economies.

Our tax system is far from perfect and clearly it is the case that everyone would prefer to be paying less in tax and that the system should be less wasteful with what we do pay. If however the argument boils down to the dual claims that using a differential income tax system (in common with many other major western economies) and closing off tax loopholes which benefitted the wealthy, thus increasing tax collection are bad, then I think that our energies could better be invested in other directions.

Gilly