The Impact of the Expected Tax Rate Changes on the Middle Class

In light of the current budget situation, the Israeli government decided to raise the VAT by 1 percent as of September 2012, and to impose higher income tax rates and National Insurance payments on higher-earning Israelis starting in 2013.  In doing so, the government has gone even further than the Trajtenberg Committee, whose tax recommendations it only partly adopted in late 2011.  Although the recent decisions affect all strata of the population, Israel’s middle class will feel their impact the least.  Nevertheless, it is reasonable to expect additional tax increases and/or budget cuts that will reverse this conclusion.

This paper appears in the Center’s annual publication State of the Nation Report – Society, Economy and Policy 2011-2012.