The Earned Income Tax Credit Law (“Negative Income Tax”) is intended mainly to promote two complementary goals: To support workers with low salaries, and to encourage employment. It assures grants to workers with low incomes if they are parents to children up to age 18 or if they are 55 years old or more. The law was passed in 2007, and the authorities implemented it in two stages: first in some areas of the country on an experimental basis, and starting in 2012 across the country.
The report presents findings from both stages, and includes the complete data for the first year of nationwide implementation (2012, based on 2011 income) and take-up data in the second year of the nationwide stage (2013, based on 2012 income). This report joins the previous report issued by the research team, and reinforces its main findings—that credit payments are well focused on workers from families with low incomes, and that the credit program makes a significant contribution to reducing poverty and increasing the incomes of low-wage workers.
The main findings of the report are:
v In the second year of nationwide implementation of the program (2013), 240,577 workers, out of a potential of 386,131, exercised their eligibility. This constitutes 62.3 percent of those eligible, and reflects an increase of about 12 percentage points in the take-up rate compared to the first year (2012). One of the main factors in this increase has to do with the experience accumulated in 2012 in exercising eligibility: Since the eligible population remained stable over the years—about two-thirds of those eligible were also eligible in the previous year—the knowledge that they accumulated in 2012 regarding eligibility, and how to exercise it, contributed about 3 percentage points to the increase in take-up in 2013. The fact that the grant for mothers increased by 50 percent in 2013 also contributed about one percentage point to the increase in the take-up rate.
v Most of the increase in the take-up rate is not connected to the characteristics of those eligible, but apparently derives from improvements in the payment mechanism and increased accessibility to the eligible population. In 2012, accessibility of information on the program was improved, and the Tax Authority’s letters are now more clear and friendly. Starting in 2013, individual eligibility information is also available on the Internet.
v Factors increasing the chances of exercising eligibility include: a high level of the grant, both in absolute terms and relative to family income; receiving the grant in previous years; working in the public sector; and having an eligible spouse who has received the grant.
v The program is focused on workers with low incomes, a large portion of whom are below the poverty line. About 74 percent of support payments are transferred to families in the two lowest income quintiles among salaried employees.
v The grant constituted about 12 percent of the labor income of its recipients in the lowest quintile of salaried employees in 2011, and about 16 percent in 2012.
v In the first year of nationwide implementation of the program (2012), the average annual level of the grants was NIS 2,923 per recipient. The average grant per recipient with three or more children was NIS 3,665. The grants totaled about NIS 800 million.
v Grant payments markedly improved recipients’ income and wellbeing, and reduced poverty among the population in the experiment area by about 0.4 percentage points. There was evidence of improvement in a number of indicators of economic distress: fewer bank account restrictions, and a decline in foregoing specialist doctor’s appointments.
v 89 percent of those eligible worked in all four years that preceded the eligibility year.
v The report examines the program’s effect on employment for the first time. Relating to 2007–10 and to the wage range relevant to the program, and comparing the experiment areas to control areas (areas similar to the experiment areas in which the program was not implemented), the team found that the rate of individuals who worked in 2007 and stopped working is 3.7 percentage points lower (statistically significant at the 10 percent level).