Trajtenberg’s task

In the end the burden will be borne by the very middle class in whose name this summer’s mass demonstrations were supposedly mounted.

SEPTEMBER 10, 2011 23:48

Prof. Manuel Trajtenberg (photo credit: Mark Neiman / GPO) — Prof. Manuel Trajtenberg

(photo credit: Mark Neiman / GPO)

Histadrut labor federation chairman Ofer Eini last week poured cold water on anything the Trajtenberg Committee might conceivably propose as a remedy for socioeconomic discontent.

His arguments, coached in ostensibly more coherent terms than those of the diverse tent-protest promoters, offer us specific insights into how the Trajtenberg recommendations will be rejected – before they are even drafted.

Eini predicted that “all the committee will advocate will be to take NIS 2 billion-3b. and move it around from one budgetary clause to another. That’ll be the whole tale – reallocating few billion shekels.”

While belittling “billions here and there,” Eini advocates bankrolling greater welfare benefits by breaching the state budget’s bounds, and heftily so – “at least by NIS 20b. annually.”

The warnings often heard about overspending, he argues, are disingenuous. The Trajtenberg “Committee’s brief is the problem because it was instructed to leave budget perimeters untouched.”

Translated into ordinary household terminology, Eini advises that the Treasury splurge like a family with an overdraft line of credit. Budget-expansion/deficitspending is Defense Minister Ehud Barak’s line as well.

Yet the notion of increasing the national deficit is akin to individuals already in hock running up yet more debts instead of tightening their belts.

What’s irresponsible on a personal basis is disastrous on the national scale, because this becomes a collective crisis, invariably passed along to unborn generations. There’s little point of demonstrating in the streets for a better future for our children while lumbering them – and their offspring – with our arrears.

How will mammoth welfare shortfalls be covered? The facile answer: “Tax the rich.”

Tax hikes, at least to some extent, are what we can indeed expect from the Trajtenberg Committee, as these won’t violate budgetary limits.

The trouble is that higher direct taxes wouldn’t enrich the collective coffers by much, especially when demands for greater expenditures are accompanied by equally strident clamor to decrease indirect taxes such as the VAT.

The outcry for higher taxes on the highest earners sounds fair. But the expectations it raises are unrealistic.

Those in our topmost 10 percent income-bracket already pay 75% of all income tax, while the top 1% pays 31%.

We don’t feel sorry for them, but upping their load by a bit more won’t bring in enough to pay for all that the street-protesters agitate for.

Here are the figures: Each 1-percentage point of incometax hike for those whose monthly earning exceeds NIS 40,000 will bring in NIS 260 million annually. If the bar is raised to NIS 60,000 salaries, the cumulative additional income shrinks to NIS 200m. Increasing income tax by a full 10 percentage points for all income above NIS 40,000 will yield only NIS 2.5b. in yearly revenue.

This is indeed paltry at a time when Eini pooh-poohs “a few billions here and there.” Even if we factor in higher corporate taxes and the reintroduction of the hated estate tax, the numbers don’t begin to make up for new pressures on the state budget.

In contrast, a 1-percentage point drop in VAT will deduct NIS 4b. from the budget. The arithmetic is simple.

The super-wealthy are few but everyone pays VAT.

It gets worse. Tinkering with tax brackets will eventually hurt the middle classes. Today’s top tax bracket begins at the NIS 18,000 mark. If increasing the pain on anyone who earns double or triple that won’t do the trick, the next step will be to lower the criteria for entry into the raised-bracket category. Hence the higher tax rates will gradually apply to lower-income groups.

Thus, in a sense, Eini is right. The Trajtenberg Committee is bound to disappoint those who build up unattainable expectations. There’s no way welfare largesse is possible without a heavy toll on the middle class.

The inevitable irony is that in the end the burden will be borne by the very middle class in whose name this summer’s mass demonstrations were supposedly mounted. The middle class would be well advised to be careful what it wishes for.

Benjamin Franklin is credited with the adage that “in this world nothing is certain but death and taxes.”

To this should be added the certainty that the middle class always pays.