AN OPEN QUESTION TO NETANYAHU, STEINITZ AND DAPHNI LEEF: HOW ABOUT OUR RIGHT TO RISE?

Last week, I wrote about how the “so-called” middle-class tax cut is going to cause damage to both the Israeli economy as well as to those in the lower and middle classes. Now it seems like the Finance Ministry, led by Yuval Steinitz, is trying to outdo itself by dramatically increasing the taxes on luxury cars and apartments.

My gut tells me that this is only the beginning as more and more Trajtenberg committee recommendations are enacted. Measures to disincentivize job-creators, as well as those trying to climb the socioeconomic ladder, is sure to backfire by stifling capital investment and adding to the unemployment rolls.

The ultra-rich like Nochi Dankner and Shari Arison will be able to use their battery of accountants and lawyers to figure out ways to shelter their money. It’s the small and mid-sized business owners that just saw their corporate taxes increase. If they are fortunate enough to make a profit, the money that they take out of their businesses as a dividend will be taxed at a higher rate as well.
Redistributing wealth from the rich to the less fortunate doesn’t really help the less fortunate. What helps them the most is a job and incentives to invest, so that they can be enabled to do what it takes to grow their net worth and exit the poverty cycle they are relegated to. If Daphni Leef and her protesters have their way, those in lower income levels have little chance of ever escaping their current economic conditions. No society has ever been taxed into prosperity.

Required Reading

Before any more damage is done, I urge the local policymakers to read the defense of capitalism penned by former Florida governor Jeb Bush, the brother of former president George W. Bush, which was published in a recent Wall Street Journal editorial titled “Capitalism and the Right to Rise.”

In lamenting the current state of economic freedoms, he writes, “Freedom of speech, for example, means that we put up with a lot of verbal and visual garbage in order to make sure that individuals have the right to say what needs to be said, even when it is inconvenient or unpopular.

We forgive the sacrifices of free speech because we value its blessings.

“But when it comes to economic freedom, we are less forgiving of the cycles of growth and loss, of trial and error, and of failure and success that are part of the realities of the marketplace and life itself. Increasingly, we have let our elected officials abridge our own economic freedoms through the annual passage of thousands of laws and their associated regulations.

“We see human tragedy and we demand a regulation to prevent it. We see a criminal fraud and we demand more laws. We see an industry dying and we demand it be saved. Each time, we demand, ‘Do something… anything.’”

Bush hit the nail on the head. A few days ago, I got a letter (sent in a Knesset envelope – at taxpayers’ expense) from a Knesset member who will remain nameless. He writes about how much of an impact he has made in 2011, and all the laws that he authored or co-authored, assuming that the sheer quantity, by definition, has greatly added to Israeli society. Could it be that he actually has harmed the very people he is claiming to have helped? Maybe the best thing our elected officials could do is do nothing and stop interfering in our quest for a better life, both individually and for society in general.

The right to rise

This is a term started by US Congressman Paul Ryan.

The point is that governments should create a landscape that breeds success. How does this apply to Israel? Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz should stop pandering to those who believe in equality of outcome; rather, they should create a system that allows people to be the best that they can be.

In the words of Bush, “We either can go down the road we are on, a road where the individual is allowed to succeed only so much before being punished with ruinous taxation, where commerce ignores government action at its own peril and where the state decides how a massive share of the economy’s resources should be spent. Or we can return to the road we once knew and which has served us well: a road where individuals acting freely and with little restraint are able to pursue fortune and prosperity as they see fit, a road where the government’s role is not to shape the marketplace, but to help prepare its citizens to prosper from it.”

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.

Aaron Katsman is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. a registered broker dealer, Member FINRA, SIPC, MSRB, SIFMA. For more information, call (02) 624-0995, visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.