The total income of the top percentage of the wealthy in Israel between 2013 and 2021 amounted to about 100 billion shekels annually, according to a study conducted by the Israel Tax Authority. The study found that the top percentage of the wealthy receive 13.2% of the total income and pay only 26% of their income in direct taxes.
The minimum income required to join the top percentile was on average NIS 1.4 million per year, and the average annual income of an individual in the top percentile was about NIS 4 million. Unlike the rest of the population, where most of the income comes from work, about two-thirds of the income of the top percentile comes from capital income, about half of which comes from dividends, interest, rents, etc. and the other half from capital gains from the sale of assets.
Given the composition of the income of the top percentile from work (income from salary, allowances, professional services and business), from capital income (dividends, interest, rents, etc.) and from capital gains (sale of assets such as stocks, options and real estate) – the income from work is on average for a family in the top percentile only 1.2 million shekels per year, or only about 30% of income.
Thus, the average capital income per household during the period examined by the Israel Tax Authority was NIS 2.4 million per year, which is double the income from work, and the fluctuations in this type of income are greater, especially in 2017 when the large income from dividends (after releasing retained earnings) increased the average capital income by double the annual average to NIS 4.6 million per household. In total, capital income during the entire period amounted to 62% of total income.
The Israel Tax Authority has introduced the income of the top percentage of the population to assess inequality in the economy and formulate tax policy. The analysis includes the sources of income of the top percentage of the population and the tax payments on these sources and provides an international comparison of the average income of the top earners among all household incomes, before and after tax. The data shows what the majority of the public already felt – that the top percentage of the population works less, earns more and pays lower tax rates.
From an analysis conducted by the Planning and Economics Administration of the Tax Authority, it appears that Israel is characterized by a relatively high share of income earned by the top percentile of total national household income, before and after tax. The share of the top percentile, the top 0.1%, and the top 0.01% of total household income before tax is on average 15%, 7.4%, and 3.6%, respectively. After tax, the figure drops to 13.2%, 6.8%, and 3.3%, respectively. In other words, the decline in the share of the richest Israelis in national income through the tax system is relatively low.
The data also showed that the income of households from the top percentage of the population had been gradually increasing over the years at an average real rate of about 6% per year.
The richer you are, the lower your tax rate.
The income distribution among the top 0.1% of the population is highly unequal. The top 0.1% of the population receives 50% of the income of the top 0.1%, and the top 0.01% of the population receives 50% of the income of the top 0.1% and 25% of the income of the top 0.01%. Moreover, capital income becomes more dominant among the top 0.1% and 0.01% of the population.
The total direct taxes paid by the highest share of the population amount to about 25 billion shekels, or 9% of the total taxes paid to the state.
The analysis shows that there is also a decline in effective tax rates within the top percentile. While the effective tax rate for the top percentile below the top 0.1% is about 29%, the average effective tax rate in the top 0.1% below the top 0.01% was about 23% and the average effective tax rate in the top 0.01% was about 21%. This means that the richer you are, the lower the tax. The Israel Tax Authority notes that these regressive gaps have been partially narrowed during the period under review.
An international comparison conducted by the Israel Tax Authority shows that Israel is somewhere between European countries and countries in the Americas (North, Central and South) in terms of the highest share of national income, a key indicator of economic inequality. The degree of progress in the tax system is also more similar to countries in the Americas than to Europe.
This article was published in Globes, Israeli Business News – en.globes.co.il – on August 5, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.
Comments are closed, but trackbacks and pingbacks are open.