| It’s July 15. Tax Freedom Day in Israel, but it’s a bittersweet holiday. Lower taxes and economic growth rate of about 3 percent is bringing Tax Freedom Day 2008 almost three weeks sooner than the previous year – the earliest since 1990. Don’t get excited. You will still be paying the same percentage of value-added tax today and up to a maximum of 47% in income taxes down from 48%. Tax Freedom Day marks the day you stop earning money for the government, and start earning it for yourself, explains Corinne Sauer, who is the co-founder of the Jerusalem Institute for Market Studies, an independent non-profit economic policy think tank, which compiles and calculates Tax Freedom Day in Israel. It is calculated by economists in many countries, and the date changes annually. It depends on how much taxes the government receives and the total income of the country. So if the Israeli government receives 50% of the nation’s total earnings in a given year, Tax Freedom Day that year would fall exactly one-half of the way through the year. Today is the day, 197 days into the year, that the institute says Israelis are free of their tax burdens, with every agora earned until that day basically going straight into the government’s coffers. In short you are now working for yourselves. Taking account for the full year, it means that in 2008, you worked 197 days for the government and 167 days for yourself. “The fact that more of our workdays finance government expenditures than our own private activities serves as a painful remainder that the overall tax burden is still exceedingly high,” said the institute. At 197 days into the year, Israel’s Tax Freedom Day is 80 days after America’s and 32 days after Britain’s. Israelis will this year pay a maximum of 54% in total taxes (income, VAT, corporate taxes, etc.) this year. In comparison, the average American will pay 30.8%, according to US Tax Foundation. This year, Tax Freedom Day is 17 days earlier than last year, and 8 days earlier than 2006, according to JIMSFD for Israel. That’s positive progress, said Sauer, who is confident that the trend could continue. “Income and corporate taxes fell this year, and the Bank of Israel expects a relatively sound economic growth rate of 3% this year,” said Sauer. “You have two hands of a ratio that are going in the right direction.” Not all economists agree with Sauer, who is in favor of encouraging low-tax policies reducing government spending as a way to spur economic growth. Dr. Yacov Sheinin, a free market economist and CEO of Economic Models, maintains that government spending can be a catalyst, rather than a burden on a new country like Israel. At the current 3 to 4% growth rate cutting more taxes could do harm, says Sheinin adding that Israel needs to grow at a rate of 5 to 6% as in previous years to be able to decrease the tax burden further. Instead Sheinin believes the government should spend more on education, health care and research and development to spur economic growth – not a tax cut. “The government could even increase spending while still pushing economic growth higher,” said Sheinan. On the other hand, Sauer would rather see less spending from the government. Many services, she said, would be more efficiently performed by private businesses. “Lower taxes are necessary to make room for those. I think this has been on the Israeli agenda that people pay too much [in] taxes,” she said. “I’m not sure we are getting our money’s worth, when the majority of the total public budget, 35.5%, is for repayment on interest for government loans.” Defense costs make up 16%, education is 11%, government administration is 10%, and welfare, 9.6%. |
