Happy Tax Free Day

Or it should be - Israelis actually have to wait till August 3.

One of the most important measures of a nation's freedom, economic vitality, and level of taxation is a concept called "Tax Free Day."

Tax Free Day is the date on the calendar when the average person stops working to satisfy the government, and begins to keep the money he or she has earned.

According to the Jerusalem Institute for Market Studies, in Israel Tax Free Day will be August 3, 2005.

This means that Israelis work to pay taxes for the first 216 days of the year, and then keep only 40% of the money they earn.

In the United States, Tax Free Day was on April 17, 2005, and in the United Kingdom in 2004, it was on May 30, or a mere 150 days into the year. The poor Danes and Swedes, who pride themselves on their European welfare states, celebrate Tax Free Day towards the end of July.

Now the excuse often given for the incredibly high taxes in Israel is defense spending. However, defense spending does not account for Israelis paying taxes for an additional 66 days after people in the United Kingdom.

In 2003, for example, Israel had total defense expenditures of $9.11 billion. Therefore, on May 30, after paying taxes for the 150 days paid in the United Kingdom, Israel had collected $6.33 billion of the $9.11 billion defense budget, leaving a balance of just $2.78 billion.

Since Israel's total budget in 2003 was $44.98 billion, during each of the 216 days it takes to reach Tax Free Day the Israeli government "collected" $208 million per day. Therefore, it should have taken just 13 and 1/3 days after May 30 to pay the additional $2.78 billion in defense spending.

That's correct. Even with the immense defense budget, Tax Free Day in Israel should be on June 13.

But Israelis pay taxes all the way to August 3--a total of $10.6 billion in "extra" taxes.

While Israel's tax burden exceeds those in Scandinavian welfare states, it is difficult to see that Israelis obtain the services provided in Scandinavian welfare states. In Israel, the money is usually transferred from hard working taxpayers to privileged elites.

In a recent example, Israel's national water carrier Mekorot needed to arrange for early retirement of 200 workers. Mekorot employees already lead the national wage rankings, earning about $3,750 per month, but the buyout packages were outrageous. Each employee received $350,000, or close to 100 times the average employee's monthly salary.

Simply put, an extra $10.6 billion in taxes is funneled into hundreds of little bureaucratic fiefdoms, where there is little real oversight. A lot of the money just gets fiddled away on taxpayer-funded cars, jobs for buddies, long-term construction projects, and endless meetings which obstruct real work.

$10.6 billion is a lot of money. For the sake of comparison, in 2005, NASA's budget was $16.2 billion. A CVN Nimitz-class aircraft carrier along with 80 combat aircraft is just under $10 billion. Ten billion dollars invested at 10% interest would generate enough annual income to provide 20,000 university students with $5,000 stipends year after year after year.

As the Knesset spends the next few weeks discussing some moderate tax cuts, Israel must aim to continue cutting taxes until she reaches a tax burden similar to that of the United Kingdom, while maintaining the defense budget at current real levels.

Israel needs to make June 13 a national holiday: Tax Free Day.

Nathan D. Wirtschafter pays taxes in Rehovot and blogs at The Western Word.

Published by Globes [online], Israel business news - www.globes.co.il - on June 14, 2005 .

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