Israel Risks Trouble

http://www.futureofcapitalism.com/2011/09/israel-risks-trouble

Israeli journalist Amotz Asa-El predicts in a Marketwatch column that Prime Minister Netanyahu will lurch leftward on domestic issues to address complaints by protesters:

The first victim will be the corporate tax, which under Netanyahu's leadership was gradually reduced from 36% in 2003 to 25% and was planned to settle at 18% by 2016, a level that would have been the lowest in the OECD. Now this process will be halted, to show that burdens are being shifted to the haves, and to fund new social spending.

After the corporate-tax retreat will come the capital-gains tax, which will likely be raised. And then will come the defense budget, whose size, nearly 15% of the budget, is second to nothing in Israel. And finally, income taxes within the highest brackets' might be raised, albeit moderately. At the same time, the value-added tax, currently at 16%, may be sharply cut.

Well, cutting the value-added tax sounds like a good idea. As for the rest of it, good luck with that.

The columnist says that Mr. Netanyahu wouldn't be making President Obama's mistake: "In this case new social spending would be funded not from borrowing but from existing sources, and it would be launched not in response to financial mayhem caused by shenanigans like subprime loans, but because thousands of hard working wage-earners took to the streets and demanded their slice of the pie." If the funding is from "existing sources," why is it necessary to raise the capital gains and income taxes? It looks like what is happening is the protesters are going to get not a slice of "the pie," but a slice of the pie someone else bought or baked.

Prime Minister Netanyahu has a lot on his plate, and the last thing I'd want to do is second-guess his policies from the distance of America. Mr. Asa-El could be wrong in his prediction. And Mr. Netanyahu has a parliamentary democracy to deal with, so he doesn't always get his way. The MarketWatch article notes that Israel's "5.7% jobless rate is among the world's lowest, and its GDP growth, 5% during the year's first half, is among the developed world's highest." It's hard to think of a faster way to turn that around than raising taxes on income and capital gains to "spend more on welfare, raise salaries of social workers, teachers, doctors and nurses, create affordable housing and change the tax regimes so that the rich pay more and the rest pay less."

One sign of the perilous direction this is headed in is that the Jerusalem Post is running op-ed pieces from New Yorkers touting that city's "affordable housing" strategy as a model. After billions of dollars spent over decades subsidizing "affordable housing," New York City remains one of the most expensive housing markets in the country.

by Editor  |  Sep 4, 2011 at 4:15 pm Related Topics:  Compensation, Housing, New York, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list