Class warfare in Israel not just between rich and poor
Although class warfare exists in Israel, it is not as black-and-white as most people think.
Carl Philipp Gottfried von Clausewitz was an officer and strategist in the Prussian army. Among other things he coined the phrase, “War is just a continuation of policy by other means.” It seems his adage has been adopted by none other than U.S. president Barack Obama.
The president, who naturally wants to be re-elected to another term on November 6, embarked on a campaign which until recently would have been unthinkable in most democratic societies: a call for “class warfare.”
The class warfare that Obama describes is between Americans who are wealthy and those who are not, or the 1 percent against everyone else.
In the 2012 presidential campaign’s best video clip to date, we hear Republican candidate Mitt Romney singing “America the Beautiful” off-key against a photo backdrop of closed factories and tax shelters in Switzerland and the Caribbean.
That campaign, which has been very successful, attacks Romney point-blank as a wealthy businessman who closes companies for personal gain while stashing his millions in off-shore bank accounts.
Now Romney is on the defensive. He hasn't managed to present a credible story to voters, and Obama now leads in polls taken over the past few weeks in several key U.S. states.
If the president can do it, then yes, we can too. The U.S. media and influential pundits are no longer avoiding the class issue.
When the wealthiest one percent of the population pays the lowest marginal tax rate in 80 years, that is class warfare. When an investment fund manager (Mitt Romney, for example), pays an effective tax rate of 14 percent on annual profits totaling millions of dollars while a firefighters pays an effective tax rate of 28 percent on the merely tens of thousands of dollars he earns – well, then there is a class war going on in the U.S.
Champions of inequality
The same applies here in Israel. Based on figures published by The Marker last week, it appears that Israel’s wealthiest 10 percent controls two-thirds of the capital in the Israeli economy.
Among corporate executives and the self-employed, the gap is even wider: the top 1 percent in this group earns 65 percent of total group income.
This is nothing new. A graph plotting the Gini coefficients of OECD countries (which represent national levels of income inequality) would show Israel in the worst part of the graph. Only Mexico and the U.S. have worse levels of inequality. And in recent years, the inequality gap has only widened from annually.
The winner? The rich, of course. The proposals to institute an inheritance tax have been shelved. The tax on exceptionally high income earners proposed by the Trajtenberg Committee was torpedoed.
Yet despite all this, the capital gains tax exemption for those who own multiple apartments and sell an apartment no more than once every four years has been reinstated. This is a tax benefit that only property owners enjoy. Yet in Israel, the class war is not only between the poor and the rich. In practice, a whole slew of wars is taking place simultaneously, and here they are.
Young vs. old
When a country decides to increase its debts, it automatically lowers the standard of living of its young in order to preserve the standard of living of its older population. Why? Because the debts will be repaid in future decades by those who go out to work and pay income taxes, while those who reap the immediate benefits will be receiving their pensions in several years’ time. The issue is particularly trenchant in Europe, where national debts are sky-high, but Israel’s situation is no better. An analysis by the National Insurance Institute published last week in The Marker shows that over the past decade, Israel’s young people have been pushed to the bottom two deciles of Israeli income-earners.
How? It happened because of the erosion of government benefits, the rise in housing prices and the reduction in income tax rates, which largely benefits high income earners.
Daniel Gottlieb, the head of the NII’s research department, concluded that the economic distress of Israel’s young people has a real basis in the economic data. The price that today’s youth need to pay for their necessities has hit the stratosphere – and this is before taking into account all the taxes they will need to pay in order to cover the country’s obligations to its elder citizens. No wonder the social justice protests have not died down.
The winner? The elderly. The situation of Israeli youth will only improve if the government decides to cut its expenses, reduce its debts, balance the budget and reduce public-sector pensions. This is the exact opposite of what most young Israelis are shouting for as they demand bigger government and a bigger budget.
Junior vs. senior public-sector employees
At first glance, the social contract that the public sector offers seems clear: a mediocre salary in return for job security, stability and maybe even some personal satisfaction from working for “the public good.” Big mistake.
While that is the deal that close to 80 percent of junior public-sector employees get, the deal for senior employees, the ones who are well connected and well established, is completely different. These high-ranking employees get high salaries (higher than those earned by professionals in the private sector), job security, a solid network of contacts, easy work that takes up only part of the day (after all, they still need some free time to engage in politics) and countless perks.
The winner? The well-established ones win, since they are the employees who control the committees and, through them, the country’s politicians. This 20 percent of senior public-sector employees possess a great deal of influence, and they concentrate their political firepower on one thing only: perpetuating the status quo.
Class warfare is also going on between the draftees and the career soldiers in the army, the police and the entire defense establishment. The arrangement here is almost identical to the one in the public sector, but more extreme. Career soldiers and high-ranking officers receive a generous budgetary pension and then retire to embark on a second career at a young age. Meanwhile, the actuarial pension liabilities for army retirees continue to climb rapidly. These actuarial liabilities have grown from NIS 80 billion some 12 years ago to NIS 256 billion today, a positively Brobdignagian burden for a country of Israel's size. Who will pay the bill? The people, that's who. The entire citizenry, including the people who serve in the army – whose service conditions will consequently deteriorate as time goes on.
Who wins? Whoever still has a non-contributory pension, which means they don't set aside a cent for their own retirement. The taxpayer pays the whole thing.
Heirs of homes vs. everyone else
Every day, we see a new calculation demonstrating how difficult it is – impossible, actually – for young couples to buy a home in Israel without help from their parents. For example, the Migdal insurance group calculates that a young couple earning the average wage in Israel, about NIS 9,000 each, and managing to save about ten percent of their net income, would require about 295 monthly paychecks, or 25 years, to save the equity required to buy a home for NIS 1.5 million (assuming NIS 375,000 down, which is 30 percent of the price of the apartment).
A mortgage is no help: not only does the money have to be returned, but the interest must also be paid, and in the case of a 25-year mortgage, this means the amount to be repaid is double the price of the dwelling.
Thus two classes are being created: people whose parents gave them a home, and people whose parents didn't give them a home.
Who wins? Homeowners. The value of their property has begun to rise once more, and they receive special tax benefits when they realize their profits.
The tycoons vs. business-sector entrepreneurs
When the tycoons and owners of holding companies claim that the economic concentration law and the “atmosphere in the country” are “harmful to businesses,” they are trying to do a media spin that is the complete opposite of reality. The separation between real and financial businesses, the dismantling of the corporate pyramids, the increase in the number of entrepreneurs who will do business with the state and reforms in non-competitive sectors – all of these will give a boost to new projects, the business sector and to medium and small businesses.
After all, the monopolies and oligopolies have succeeded in curbing potential competitors, while at the same getting their hands on the public’s long-term savings rather than investing in new businesses. In Israel, a fairly small club comprising several thousand tycoons, managers, directors, lawyers, accountants and consultants is being formed – and it is this club that will be holding the reins in the business sector.
We may well be seeing the members of this club in the gossip columns of the financial section every single day, as they keep on living it up.
And the winner? While the tycoons still have the advantage, if the economic concentration committee’s recommendations go through, competition among the banks and in the food and automobile industries will increase. If the general director of the Israel Antitrust Authority should carry out reforms and increase competition in other sectors, it is possible that entrepreneurs who own medium and small business will win out in the end.