Taxing Times

photo courtesty of Canva
photo courtesty of Canva

Just when we think the world is again safe from Communism, it pops back up in the most unexpected of places.

Today, two dozen cities in Israel, including Tel Aviv, Haifa and Eilat, went on strike, canceling everything from school to sanitation services.

The reason? The government’s latest move, tied to its controversial judicial overhaul: Introducing the ‘city tax fund,’ which will take Israel’s arnona property tax income, currently collected and disbursed by the individual municipalities, and instead put the cash into the hands of the Knesset, which will give it out. Essentially, it is designed to reallocate from the well-to-do municipal areas of the country, to the poorer municipalities.

On the face of it, this may sound like progressivism at its best: Tax the rich, help the poor.

Dig a little deeper, and it’s clear that this is really about funding favored communities.

First of all, the government rationale for the change makes little sense. The government’s claim is that they would be creating more affordable housing. Commercial real estate is taxed at a higher rate than residential real estate, causing cities to allocate more land for commercial purposes, so they can collect more revenue. Because there is then less residential space available, this raises the price of residential real estate. So channeling the real estate taxes towards more affordable residential real estate and local communal services makes sense – if it’s done on a municipality-by-municipality basis: For example, enabling Tel Aviv’s commercial real estate to pay for Tel Aviv’s residents’ (more expensive) residential housing and services.

But if the government is funneling Tel Aviv’s real estate tax proceeds to instead help another city’s residents purchase more affordable property, it makes much less sense: You want to incentivize each municipality to help its own residents, not penalize the ambitious cities for their initiative.

Second, if the amounts being grabbed were lower, the proposal would be more palatable. If the government wanted, for example, 1% of commercial taxes to put towards less-affluent communities, there would likely have been no outcry. But the budget calls for ten to 28% of the commercial property tax income to be redirected to the poorer communities. 28%! At that point, you’re bankrupting the cities that have done well and rewarding the cities that have done poorly.

Third, this is a not-so-subtle power-grab, taking money and control from the city municipalities and ceding it to the national government. This means individual municipalities have no control over what is happening to the money – and no recourse if they don’t agree with where it is being spent.

Finally, consider who are likely to be the recipients of the government largesse. Will the help be going to the poor Arab communities or the Bedouins, whose housing situation is particularly dire? Is it meant to bolster the Ethiopian community? Opposition Leader Yair Lapid claimed in today’s “Times of Israel” that it is theft, and that the money is being confiscated from residents who “work and pay taxes,” a thinly-veiled reference indicating that the money will flow to the Haredi sector, which does not have a strong tax base because of the large number of unemployed.   But this unemployment is a result of an ideological disinterest in participating in the work force. Do we really want to penalize the working community, even more than they are already being penalized, to accommodate the willfully unemployed?

In addition to the Haredi handouts, the new plan will apparently de facto benefit West Bank settlers, since settlements will be exempt from reallocation of their tax monies, because of legal issues over the status of the West Bank.

So those opposed to the plan are viewing it a handout to the Haredim and the settlers.

If you want to improve Israeli society, why not a concrete plan to bolster social mobility in more concrete ways? Why not put the money into better education, better public transport? Why not offer tax breaks to encourage entrepreneurs to open small and large businesses? Why not initiate programs that encourage the non-working to learn marketable skills? Why not fix the damn post office?

Critics of the new plan fear that this new redistribution of capital will further encourage the brain-drain emigration that has started as a result of judicial overhaul. Indeed, how could it not?

So in response, the Federation of Local Authorities, representing 200+ Israeli municipalities across the country, is on strike. And although voices within the government have claimed that this opposition is politically motivated, much of the leadership of the striking cities belongs to the ruling Likud party. But Finance Minister Bezalel Smotrich insists there will be no compromise on the issue. And the Knesset is expected to vote on it later today.

At this point, it’s looking like a free ride to the haredi and settler community in return for supporting the judicial overhaul, at the expense of the thriving business communities.

It’s likely that this was seen as an ingenious way to increase the budget coffers just before the budget needs to be passed, without which the current Knesset can not continue to operate. By scooping up billions of shekels of municipality funds, the Knesset can fund politically-motivated expenses (like Ben Gvir’s private militia) which would otherwise come out of, for instance, Haredi community funding.

This way the government can have their cake and eat it, too.

The problem is if that leaves nothing for the rest of us to eat.

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Fern Reiss runs
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