Written speech: in favor of taxing capital gains

A written speech by CPA Diana Glantz presented in the frame Rhetoric and persuasion course. Moderator: Guy Yariv.

Hello and good evening,

Have you ever asked yourself about the types of tax you pay? What is the amount of the tax and why?
My goal today is to introduce you to the tax on capital gains, and to explain to you the rationale behind the imposition of capital gains tax and why the imposition of this tax is required in reality. To this end, I will present two arguments: the first is that the imposition of a tax on capital makes it possible to lower taxes on labor, and secondly, that a tax on capital balances the tax burden imposed on profits from real estate and gives a boost to the construction market. But first some background on the subject:

Background: What is capital gain and what is the tax on it

According to the Income Tax Ordinance, the tax is mainly imposed on the income from self-employment (as an employee and self-employed) and on income derived from capital gains. What is capital gain? Capital gain is the difference between the cost of sale and the cost of purchase, and for private individuals it mainly refers to the return on savings and securities, as well as the profit from buying and selling those securities. Starting in 2003 and later in 2006, the capital market in Israel underwent a very fundamental "upheaval" since its inception, and this was regarding the imposition of a tax on all avenues of investment in the capital market and the establishment of new taxation and reporting rules. Until the reform in 2003, 99% the income from the capital market received by private households was exempt, mainly by virtue of the Savings Encouragement Law. For the purpose of explaining why, in my opinion, the imposition of a tax on capital market profits is required in reality. I will present to you two economic and social arguments:

The first argument: lower income tax

Imposing a tax on profit in the capital market made it possible, as I will describe later, to reduce tax rates and increase the net income of all workers at all income levels. The same reform that imposed a tax on profit in the capital market, allowed for a reduction in corporate tax rates and a tax applied to individual income. To illustrate: the corporate tax rate before the reform came into effect was 36%. In 2008 this tax was reduced to 27% and in 2009 to 26%. This tax rate should decrease next year to 25%. In 2008, the maximum marginal tax rate applicable to an individual on income from wages was 47%. This tax also decreased in 2009 (I assume you all saw the increase in net income on your pay slip in January 2009, compared to 2008). This tax rate is supposed to decrease in 2010 to 44%. Moreover, as part of the amendments to the Income Tax Ordinance, it was possible to approve additional concessions for the "weak" population: low-income earners, pensioners, the disabled, the blind, and concessions on compensation for bodily injuries.

The second argument: fairness towards the real estate investment

In my opinion, there is no logic in exempting from tax the profits from the capital market when the taxes imposed on the transactions in the real estate market are high, which suppressed the potential for the expansion of the real estate market. And in simple terms, by protecting the state coffers and continuing the flow of tax money, it is not possible to reduce the tax rates in certain channels without taxing the income from other sources.  With the imposition of the tax on profits from the capital market, the tax on profits in the real estate market was reduced. This caused the tax rates on different income streams to be brought to similar rates and thus made it possible to expand the potential of the real estate market - the development of which is also important for the growth of the Israeli economy. For example, an exemption from the purchase tax rate is granted up to a certain amount (purchase tax is a tax that is paid with the purchase of real estate) and the tax rates on the remaining amount are reduced. Those of you who recently purchased an apartment, were surely aware of the savings of NIS 15-20 compared to the costs paid by your friends in the previous year. Sales tax was canceled for the sale of residential apartments by a contractor (which made it possible to lower the costs of apartments purchased from contractors).

In conclusion, I explained to you my opinion on why imposing a tax on profit from the capital market is mandatory in reality and this is for two reasons: the imposition of the tax on profit from the capital market led to the possibility of reducing tax rates and increasing the disposable income of all workers at all income levels, while giving preference to those with low incomes. And it caused a tax reduction on profits in the real estate market, thus expanding the potential of the growth of the real estate market - the development of which is important for the growth of the Israeli economy. Hope it was fun and enriching
Thank you!!

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