Call it the overlooked Day of Freedom. In a week marked by Passover festivities, American Jews may have easily disregarded “Tax Freedom Day,” which fell out yesterday, April 23. No it’s not a newfangled holiday you’ve never heard of. And it won’t grant you a day off. Rather, it’s the day when taxpayers finish working for the government and begin working for themselves — at least theoretically.
Conceived in 1948 by Florida businessman Dallas Hostetler and calculated by The Tax Foundation since 1971, Tax Freedom Day measures the national tax burden. In 2008, 30.8 percent of taxpayer’s income will pad Uncle Sam’s moneybags, so Tax Freedom Day takes place 113 days (or 30.8 percent) into the year. Residents of New York and New Jersey, which have higher tax rates and higher-paying jobs, have to wait until May 5 and May 7, respectively, to celebrate their state-specific Tax Freedom Day.
Don’t mistake Tax Freedom Day for your own personal day of freedom, though. The date is calculated assuming you work seven days a week and haven’t spent a dime of your paycheck, giving it all to Uncle Sam instead. (To estimate your personal Tax Freedom Day, visit mytaxfreedomday.com.)
What Tax Freedom Day does effectively measure is what percentage of the nation’s economy is funding federal, local and state governments — and whether that number is growing. That’s one of the reasons why more than 20 countries now calculate their own Tax Freedom Day, including Israel.
In 2007, the Israeli Tax Freedom Day took place on Aug. 2, 95 days after Tax Freedom Day in the U.S. On a national scale, Israelis pay an average of 58.6 percent of their income in taxes; American taxpayers, in contrast, shoulder a 32.7 percent tax burden.
Although you cannot compare two different countries’ Tax Freedom Days — since governments collect and spend money differently, and Israeli taxpayers’ money fund socialized medicine — it’s clear that Israel’s economy suffers from heavy taxation, says Corinne Sauer, co-founder and executive director at the Jerusalem Institute for Market Studies (JIMS), an economic policy think tank in Jerusalem that calculates Tax Freedom Day in Israel.
And it’s only getting worse, Sauer says. Although Israel’s Tax Freedom Day occurred in mid-July in the 1990s, it’s falling out later and later in the calendar year (with a few exceptions) as more of Israeli taxpayers’ shkalim are rerouted to government spending.
“In the U.S., you work 120 days for the government; here you work 214 days. It’s almost double,” Sauer says.
Sauer, a former senior economic consultant for Integral Research, a New York City-based expert witness consulting firm, founded JIMS in 2003 with her husband Robert, who has taught economics at several top universities in Israel and is currently the economics chair at the University of Southampton in the UK. When the couple made aliyah from New York, they were struck by the lack of economic freedom in Israel.
“In terms of opportunities and equality, the U.S. is more open to that,” Sauer says. “There’s still the idea of the American dream. In Israel, it doesn’t exist.” Israel ranked 44 on the 2007 Economic Freedom of the World Index (which JIMS helps to produce), roughly the same level as Mexico. (America ranked No. 5.)
Part of the problem, Sauer says, is that the government still controls more than 51 percent of the economy. In addition to high taxes that act as a disincentive to work, there’s also a lack of competition for Internet connectivity and staples like bread. “If you had a more competitive markets, more people would be able to open businesses and enter the market and the prices would decrease drastically,” she says.
While entrepreneurship is high in Israel, it’s difficult for small businesses to access capital. “More than 70 percent of bank loans in Israel are concentrated around 10 families,” she says.
Then there’s the issue of “protectzia.” “Many jobs are protected, especially in the energy industries. Most of the workers are related. There’s some kind of nepotism here.”
And although Israel spends more than a quarter of its annual public budget on welfare, poverty is rising.
JIMS focuses its energies on educating the Israeli public about economic freedom and free market reforms through free public lectures and seminars for high school and university students. “Here in Israel, most people are of one mind; they believe in the government interventionist philosophy,” Sauer says. “They’re not letting the market work. We’re getting them thinking about how market solutions can solve economic and social problems. We want it to become part of the public debate.”
The think tank is funded through individual donations and grants from foundations, with most of its support coming from the U.S. “The reason: there’s little tax deductibility for Israelis, so there’s not much incentive for donating to these type of nonprofits,” Sauer says.
Economic reforms would not only improve Israel’s standard of living, but would also encourage aliyah, Sauer says. “We love Israel. We want to make this country a better place to live, an easier place to earn a living,” she says. “We’re economists, so this is where we can really contribute to Israeli society.”