The United States has something to learn from Israel once again. Bibi Netanyahu recently resigned from his post as finance minister of the State of Israel. The immediate impact was a full 5% drop in the stock market within just minutes of his resignation. For comparison's sake, Hurricane Katrina could not affect the United States economy by anywhere near that scale.
Clearly, Netanyahu was doing something right: Notably, turning the old socialist economy into a new, free-market, capitalist haven in which taxes were chopped dramatically and government purses tightened. His plan, while hard for many - especially on the poor end - to stomach at first, did in fact bring about a world of difference for everyone, including the poor.
Now, the Israelis are trying to follow in Netanyahu's shadow and continue and enhance his original plan. One idea that has been thrown around a lot recently is truly excellent and something that should be considered here as well:
The prime minister and the new finance minister, for instance, are promoting the negative income tax. It is a simple idea:The big catch: You have to actually work to receive the money.
Anyone who works for a low wage - in other words, minimum wage - not only will not pay income tax, which was in any event the case until now, but will receive, directly from the treasury, and maybe even via the regular salary, the opposite of income tax: a sum of money that would actually increase his or her monthly income.
The plan has a dual purpose: to reduce poverty and to encourage employment. The poor will have more money and will be removed from the poverty rolls - but only those who work. Because work, as Netanyahu has constantly said - in a message that we thoroughly internalized - is the tried-and-true means for extrication from the cycle of poverty. Anyone who works cannot be poor.Imagine if the same deal were struck in America: If you work, we will give you extra money. Find a job that pays $10/hour, and the government not only won't (or barely) tax you because you're in a low bracket, but will actually add money to your wallet. Your $80/day job is all of a sudden worth (let's say) $95. While this still doesn't ensure that people will save or invest, it allows many struggling families or those that are barely saving to do that much more.
Golan in his article argues that this is somehow disasterous for the Israeli poor - but is unclear in why; and takes as a given that the privatization of the social-welfare systems is a negative. He is wrong on both counts: The privatization of the programs has been a tremendous boon to the Israeli economy, as have the tax cuts - much like President Bush's cuts here were. The Israeli economy has been growing at unprecedented rates, even as the intifada has been raging in its backyard. The S-Index (similiar to the DOW or S&P500 here) has grown every month since 2003, the Consumer Price Index has dropped 1.9%, taxes have fallen 6% (while tax revenues only fell 3%), and interest rates were cut from 9% to 4.1%.
While there are many more facts and figures to show how well Netanyahu's plan has been working, the 5% drop in the Tel Aviv market says it the best: Netanyahu was the best thing to happen to the Israeli economy in years. The negative tax idea seems like an excellent way to encourage dramatic growth and bring many low-income workers over the poverty line and onto the path of savings and success. Those who truly are not able to work are not being abandoned - there should be other programs that take care of them - but those are able to work are now being given extra incentive to stay off the welfare rolls. The United States should think about doing something similiar, rather than giving out many of the social favors they already do. While it is wonderful that many (including myself) are better off financially by not working part-time, that is not how things should be.
Pay people to work; not to sit and write about it.
Technorati tags: Welfare, Negative Tax, Netanyahu.