Preliminary Results of the First Four Years of Earned Income Tax Credit
- During the first four years of implementation of the law, there has been a marked increase in the number of eligible persons, from 64,000 in the first year (2007) to 106,000 in the fourth year (2010). The increase derived primarily from the geographic expansion of the law's applicability.
- More than half of those entitled have exercised their eligibility: In the treatment areas, the take-up rate rose from 45 percent in the first year to 53 percent in the fourth year.
- The highest take-up rate is among the ultra-Orthodox: 64 percent of those eligible in the treatment areas, and 78 percent in other areas, received the grant.
- The lowest take-up rate was among Arab residents of eastern Jerusalem, but this rate increased constantly over the years: from 26 percent in the first year to 44 percent in the fourth year.
- The average annual grant was around NIS 2,800. It is higher for population groups with a relatively high poverty rate and a low rate of participation in the labor force. The grant constitutes 7 percent of the average annual salary of those receiving it, and is supposed to rise in 2013 due to the implementation of the Trajtenberg Committee recommendations.
In 2007, the Earned Income Tax Credit Law was enacted in Israel as a new support tool intended mainly for workers with children, as well as for older workers. The maximum monthly grant currently stands at NIS 320 for those with one or two children and for older workers aged 55 and over, and NIS 470 for those with three children or more, who are eligible. As of 2013, the grant will increase by 50 percent for mothers with children up to age 19, in accordance with the recommendations of the Trajtenberg Committee (the Committee for Economic and Social Change) for improving the economic welfare of the families of working parents. The law was first implemented in a number of selected regions ("treatment areas"). In 2009, it was expanded to the remaining regions for mothers with up to age 2. As of 2011, the law applies across the country.
During the first four years of the law's implementation (2007-2010), the number of eligible recipients rose from 64,000 individuals to 106,000. This growth derived mainly from the geographic expansion of the of the law's implementation, which began in the 2009 entitlement year for mothers with children up to age 2.
The average annual grant is around NIS 2,800 (in 2009—the last complete year for which there is data). Over the years, the differences in the level of the grant have been maintained between different population groups. Groups with high levels of poverty and low levels of involvement in the labor market are entitled to a relatively high grant, emphasizing the precise focus of the law on the weaker segments of the population. As such, the ultra-Orthodox and Arab populations are eligible for a larger grant than others who are entitled. Among these population groups, there is a high rate of workers with three or more children, who are eligible for an increased grant.
The average grant constitutes 7 percent of the average annual salary of those receiving the grant. The maximum grant for those with three or more children is 12 percent of the receiver's salary on average. This is supposed to rise to 17 percent for women with children, as a result of the implementation of the Trajtenberg Committee's recommendations. This rate is lower than the maximum grant of 40 percent of salary in the United States among those with 2 or more children.
During the first four years of the law's implementation, the rate of those receiving the grant in the treatment areas rose from 45 percent in the first year to 53 percent in the fourth year. In the other areas, the rate rose from 40 percent in 2009 to 46 percent in 2010. The general take-up rate among those eligible was 51 percent in 2010 – similar to the standards of comparable programs around the world in the first stages of their implementation.
The highest take-up rate was among the ultra-Orthodox, who are eligible for a relatively high grant due to the number of children in their families and their high level of awareness of the new law. In the first year, 59 percent of eligible ultra-Orthodox people in the treatment areas received the grant. In the last year, this total rose to 64 percent in the treatment areas and 78 percent in the other areas (Figure 1). On the other hand, the take-up rate among those eligible from eastern Jerusalem was very low, both compared to those eligible among the general population, and compared to those among the Arab population living in other areas. Just 26 percent of those eligible received the grant in the first year of the law's implementation. At the same time, over the years, awareness of the law has increased, and the take-up rate has grown to some 44 percent in the fourth year.
In regions outside the treatment areas, the average take-up rate in 2010 was 46 percent, but most of the population groups showed a low take-up rate, and just one-third of all eligible women in these areas (other than ultra-Orthodox women) received the grant. Only among working women from the ultra-Orthodox sector was there a high take-up rate (78 percent).
An analysis of the take-up rate in the new areas where the law has just recently been implemented shows the need to conduct widespread publicity activities in the early stages of the law's implementation on a national scale, with the aim of increasing the law's efficiency, which is conditioned on the how much the target population takes advantage of it.