Rifat Azam (Hebrew University Law School) presents The Taxation of Married Couples in Israel: A Call for Mandatory Separate Filing today at Tel Aviv University’s Tax Policy Colloquium.  Here is the abstract:

According to the Tax Ordinance in Israel, married couples are required to file joint tax returns, while separate filing is permitted as an exception in some cases. In practice, almost 90% of married couples are taxed separately while only 10% are taxed jointly. The joint filing requirement is based on two main policy considerations: first, an equity consideration that couples should bear a higher tax burden since they have more ability to pay because they have economies of scale, and second, an anti-tax-avoidance consideration that joint filing prevents couples from avoiding taxes by attributing their income to the lower income earner.

I argue that joint filing does not fulfill equity principles because it does not reflect the economies of scale appropriately. There is no correlation between joint filing and economies of scale. Economies of scale, as much as they are proved by economic research, should be taken into account by a separate transition system. Similarly, I argue that tax avoidance should be dealt with by the general anti avoidance rules, and not by joint filing. I explain how joint filing discriminates against women and contributes to their low participation in the workplace, because like other countries women in Israel are secondary workers. In addition, joint filing is inefficient according to Optimal Taxation Theory. Joint filing taxes the secondary worker by higher burden in contrast to Optimal Taxation Theory. Therefore, I conclude that, even though joint filing in Israel is limited in practice, it is worth abandoning.

I suggest implementing a mandatory separate filing system for all married couples in Israel, dealing with economies of scale by a separate transition system, and dealing with tax avoidance by the general relevant rules. I argue that this model is more justified and better reflects the economies of scale. It is more neutral concerning women’s participation in the workplace and it is more efficient. In addition, it is the model that more and more western countries accept. I call for the adoption of this model in Israel as soon as possible.