Tuesday, March 31, 2009

Children: National Assets or Liabilities? - The Child Allowance Fallacy

Sam Ser is a longtime buddy of mine and so I am on his email list as he is on mine. I think he is a very talented writer and a keen analyst. Okay, he's not a chareidi - but nobody's perfect. (Of course, he will say that I am a charedi - but nobody's perfect.) Most of what he writes does not cross paths with my subject matter. Still I respect him as a free-thinking person who can look at an issue objectively and not be taken with the ignorance of the masses. At least most of the time.
One recent blog post, however, says to me that his analytical prowess needs to be sharpened or his objectivity has shifted to off-mode. In this article, Sam demonstrates that he has fallen for or may even be actively perpetuating every fallacy and misconception that the child allowance pundits have pulled over the eyes of the ignorant public for decades. Eh tu, Samus?

The article was posted on March 25 and is entitled It Must Still be Purim. Though the article sounds plausible, it contains an overabundance of factual flaws. Let's have a look at an excerpt. I will colorize the flaws and discuss them in turn:

What a week of reversals this has become! First, Binyamin Netanyahu agreed to raise child allotments by a whopping NIS 1.5 billion over the next three years. Then, Ehud Barak won an internal Labor poll to join his party to Netanyahu’s shaky coalition.

This is rich — Netanyahu as Robin Hood, taxing the rich to rain money on the poor, and Barak playing the sidekick to Netanyahu. It must still be Purim.

Netanyahu reversed his own policy, from his time as finance minister under Ariel Sharon, of limiting child welfare payments. This policy, it is now generally agreed, was one of the key financial reforms that drove the country’s economy forward. Backtracking on this policy now runs counter to Netanyahu’s stated economic aims of cutting welfare payments and encouraging productivity.

It also undermines the social ideology behind the original move. What he had originally corrected was the inexplicable discrimination in payments that provided more money for the third and fourth children, and so on, than to a family’s first and second children. Obviously, this arrangement is desirable to haredim, who have large families. But it is indefensible on so many levels — because it attaches a higher value to one child than another; because it discourages the heads of large families, haredi and Arab alike, to seek employment; because it punishes small families with smaller payments per child.

Sam is making the following assertions:

  1. Child Allowance increases = more taxes on somebody
  2. Those being taxed will be the rich
  3. The amount proposed is a "whopping" "rainfall"
  4. Only the poor receive child allowances
  5. Child payments can be construed as "welfare"
  6. Limiting the payments drove the Israeli economy forward
  7. The "large family" bill is inexplicable discrimination
  8. She'ar yerakos

Each and every one of these assertions is inherently flawed and my friend Sam has either bought into the fallacies or is actively selling them. Now, let's find out what makes these flaws flaws:

1. taxing [the rich] -

With this term, Sam suggests that there will be additional or special taxes to cover child allowances.
This is patently false.
Child allowances come out of the till of Bituach LeUmi - National Insurance Institute (NII) - the Israeli equivalent to Social Security. Just as the American Social Security tax, the Bituach LeUmi tax has always taken a sizable bite out of everybody's paycheck. It's a little under 5% for mid-salary. Nevertheless, this percentage has been fixed for quite some time (at least as long as I have been here) and the notion of changing the amount - up or down - has never been up for discussion. Thus, there is none and will not be any taxation beyond what is already fixed.

The issue of child allowances is only how much BL money gets recirculated into the economy and how much just sits there in their coffers. Raising the child allowances would only have the effect of slightly reducing BL's year end surplus which probably gets spent anyway on less socially beneficial issues such as advertising, new furniture for their offices, "administative" costs, or "bonuses" for NII employees. As long as the child allowances do not exceed the BL intake nobody is being taxed, poverty is reduced and money is reinfused into the economy, much of it comes back in the form of VAT taxes on goods and services purchased with the money and personal income taxes of providers of those goods and services.

Bottom line is that giving more BL money for child allowances will cost us no additional money and is better for the economy and all concerned than not giving it and simply hoarding the money that we are paying.

2. the rich -

As I just wrote, the percentages of BL taxes will not change for high earners. What may happen is that, to compensate, the minimum earnings brackets for the higher percentages may be lowered as well as the minimum requirement from non-earners. In other words, currently the higher percentage kicks in at around NIS 4400/ month. If you earn less than that you pay a smaller percentage. If BL wants more money, they can't raise the high bracket. What they can do is lower that threshold to, say, 4200 /month thus making low earners pay more. Likewise they can (and will) raise the fixed minimum payment to BL from the current approximately NIS 130/ month to, lets say NIS 150 / month. Only non-earners pay the fixed minimum. Thus, it is actually the poor who would be taxed and not the rich.

3. rain money -

I don't really think that the increase or NIS 93 (currently $20) can be called a rainfall. Not even a windfall. And, like I said, the low earners may actually need to pay in more per month. Sam should stick to the news and forget about the weather. Incidentally, here is where I will take issue on the highlighted line in his opening paragraph which may be a fact rather than an assertion - "a whopping NIS 1.5 billion over the next 3 years..." Did you say over 3 years? Well that brings the annual amount down to a mere 500 M/ year, doesn't it? (Why didn't you up the ante and say NIS 3B over 6 years?) Are we forgetting that child allowances are not just for some children. They are for ALL children! So, if we assume something like 1.7 M children nationwide, we are talking about a "whopping" NIS 300 (or $75) per child yearly increase.

I don't know about you, but somehow this figure doesn't "whop" me.

4. on the poor -

I suppose we can substantiate this by acknowledging reports that most Israeli children are beneath the poverty level, but still, the rich are a minority in every society. Nevertheless, they get just as much, don't they, Sam?

5. child welfare payments -

Here Sam pulls one of the niftiest sleight of hand word tricks I have ever seen. We English speakers define "welfare" as "governemntal assistance to poor people because they are poor". So Sam has us thinking that this is what is happening here as well. Sam is banking on the fact that most Americans do not have an inkling on what child allowances are. This is because in America we have a different kind of child allowance. It is called "tax exemptions for dependents". In America somebody earns lets say $96,000 ($8000/ month) and he has 5 children. The government likes the fact that he has a nice brood of productive citizens and they recognize that these tykes are not cheap to raise. So they allow everybody - I mean everybody - to reduce their taxable income by $3500 per kid. If he is still above $78K, he pays 28% on what's left (I am making this very simple). Thus he saved 28% of 3500 - or $980 for each kid. This comes to $81.67/ month per kid which would be about NIS 335 today. So in the US, an average head of household ends the month with an allowance of 81.67 / kid in his pocket because the government doesn't take it away. At lower brackets it's less (lowest possible is $30 /mo /kid) and higher brackets it's more. Note that this deduction applies until the age 24 as long as the child is a student for which all you have to do to verify is say so.

This is not welfare. It is not government assistance to the poor. It is everyman's entitlement that applies equally to every citizen.

Here in Israel the system works differently. There is no such thing as an exemption for any children for any working man. thus a man such as me with double digit children pays exactly the same taxes as a bachelor (there is a deduction for women which was implemented only as an incentive for women to work). The Israeli government also recognizes, though to a much lesser degree, that children are an important and positive fact of life and they are not cheap to raise. But, instead of giving the working man a break in taxes which would serve to make more lucrative work more rewarding, the government, in it's infinite wisdom, works in reverse and gives a flat rate allowance to make it look like it is assisting childraising as well as to make it look as if the governmet is giving people handouts.

Bituach LeUmi money is not a handout. It is something that we all pay for!

Child allowances are not welfare. They are not assistance to the poor. This is not a handout. They are an entitlement to every parent rich and poor, religious or secular, jewish or non-Jewish in place of tax breaks which do not exist and in compensation for the BL payments that every citizen must pay. Every citizen - even a non-earner like a kollel man. Even if you don't work, you pay! Incidentally, I am a salaried man and I pay Bituach LeUmi from my monthly earnings. My wife does not work so she is exempt. But, do you see that Kollel guy down the block? Not only does he need to pay the non-earner payment, but his wife who is working pays BL out of her pay check. It may emerge that the Kollel guy pays more into BL than I do!

So child allowances is a universal benefit that we pay for! And nobody gets special treatment. Every citizen gets the same as every other citizen for kid #1 and every citizen gets the same as every other citizen for kid#2 and every citizen gets the same as every other citizen for kid#3, and for kid #4 and #5, and so on. Regardless of rich or poor, religious or not, etc. Yes, there is a slight increase for larger families of 3 or more kids and every single citizen is equally eligible to it (chorus-regardless of... ). Whoever takes advantage of this increase gets it and who does not does not (chorus - regardless...)

Now, I know Sam and I cannot accept that he is as ignorant as everybody else. He most certainly meant welfare as the word means - physical and emotional well-being. The allowances are indeed for the welfare - or physical and emotional well-being - of the children so technically he is not wrong in calling them welfare. He knows that, his readers don't.

Slick move, Sam.

6. it is now generally agreed, was one of the key financial reforms that drove the country’s economy forward -

Now let's see. 2 developments have been presented in recent years. One development is a claim that the economy has gone forward. Strange unintelligible numbers have been presented to "substantiate" that claim. The second development is statistical proof that poverty has risen dramatically in recent years as has unemployment and prices have risen dramatically. Now, I am quite skeptical there is general agreement that limits of child allowance payments are a key factor to the first development or even if the economy has indeed gone forward at all. What I am certain is there is unanimous agreement that it is a key factor to the second development.

Incidentally, if the economy is indeed up since the reforms, which would indicate that incomes are up, then it means that BL has been taking in larger amounts of money since that is where BL money comes from at the same time as it has been doling out less. If this is what "moving the economy forward" means, count me out (I already am)!

7. inexplicable discrimination -

Allow me to explain the inexplicable. As a first step, it pays to examine why this phenomenon is considered inexplicable to begin with. And the answer is that this is an outgrowth of the increasingly popular misconception that BL is a not-for-profit charity organization and the beneficiaries of the "handouts" are all urchins who take but do not give and are actually a social burden. In other words, the general impression is that children are a financial liability. Consequently, it is inexplicable that the more liabilities that one produces, the more he is supported for it.

But lets imagine for a minute - and I know it's hard for most of us, or at least for Sam, to do - that children are actually a financial asset. Would it not be wise to encourage and even reward those who generate more assets?

Now people seem to have an intellectual time warp where they imagine that adults were born adults and that children are born children and remain children forever. Let me assure you that my observations prove otherwise. Children turn into adults. All of them. And they are adults for longer than they were children. More than twice as long.

This says that each citizen should eventually do more than twice as much adult inputting into BL than he does child outtaking. Remember that we said that everybody pays. Even Kollel men, even students between 18 and 24. Only non-working housewives and soldiers are exempt. Note that very few kollel men stay in Kollel indefinitely. Most eventually go into chinuch, kashrus, retail business and such. Obviously some people pay in more and some pay for longer and in some cases the lifetime surplus may be somewhat higher in one sector than in another, but in general, the average person, no matter who he is, pays more into BL over his lifetime than he takes out. This is how BL stays afloat. Incidentally this is how Social Security is supposed to work even if it doesn't. Thus, here in Israel, every single additional citizen represents additional profit for BL.

So if you agree that in the long term every BL payment toward child support is an investment that will bring back profitable returns, it pays to encourage and even reward those of us who take the responsibility of producing these assets.

One other explanation to the increase for larger families revolves around simple economics. It is a fair assessment that the cost of raising a child (food, clothes, health, and education) comes to about NIS 500-1000/month . For argument's sake, let's settle on NIS 759. Child allowance for the first 2 kids is about NIS 159. Perhaps 20%. The parent needs to cover the difference. This means for one kid he is NIS 600 short. For 2 kids he is NIS 1200 short. By 3 kids, he is NIS 1800 short and you can see where this is going. The parental burden increases in multiples of an 80% shortfall. If we agree that a child is a national asset, I don't see what is inexplicable about bumping up the miniscule assistance from 20% to a "whopping" 25%.

8. She'ar yerakos -

This refers to the other arguments that Sam introduces on the "discriminatory" nature of the large family increases which I will deal with shortly. Before I do, I must note that Sam is taking us for a ride with this entire paragraph. This whole paragraph is totally irrelevant.

Why? Because all of the current debate within the coalition parties about increases in child allowances is for across the board increases in the amounts allocated. There is no focus or push on increased amounts for larger families versus smaller ones. Sam bamboozles us again by suggesting that the thrust of child allowance increases was to give or increase the large family discrepancy. Sam certainly had one too many. The push is to increase what each child gets based on the current formula. From what I have read, nobody is asking to change the 3 and up increase and, indeed, Shas and UTJ have purposely steered away from it. They are focusing on getting more money to the parent. Period. Ni-ku-da.

But now, let us deal with these

8a. higher value to one child than another -

Uh, Sam, can you explain this to me?? Child allowances are paid to parents for the amount of children. Say you have 4 children Avrohom, Yitzchak, Moshe, and Aharon (all born before 2003). For one child the amount is NIS 159. For 4 children the amount is NIS 862. That is NIS 226 more than 4 x 159. Evidentally, Avrohom is only worth 159 and so is Yitzchok. Moshe is worth NIS 191 and Ahron is worth a "whopping" 353. Talk about favoritism! You can bet Avrohom and Yitzchok are going to grow up with inferiority complexes.

Or will they? Hey, wait! In 5 years Avrohom turns 18 and the amount goes down to NIS 509. Apparently Avrohom is worth NIS 353 and Ahron needs to get the inferiority complex, or is it Yitzchok?

Now, if this bothers Sam, I have no problem if each kid (in this example) would just get NIS 216 from the beginning to end and I think neither would Shas or UTJ. Hey, we don't want psychologically maladjusted kids, do we?

Sam, I honestly expected a lot better from you than this.

8b. it discourages the heads ...to seek employment

This may have a grain of truth to it if the child allowances were benefits for the unemployed as is the American welfare system that Sam is fond of comparing this to. But, this is not welfare and it is not linked to employment. Further, as i said, child allowances barely cover 20% of average child raising expenses on a good month. A haredi or arab with a large family is facing a tremendous deficit and the 80% per child deficit will not discourage him from sseeking employment nor will the house full of whining kids. What will and does discourage the child heavy father from seeking employment are the heavy percentages that he must pay to BL as well as Mas Hachnassah and Mas Briut out of his earnings with no compensation for his parental burden.

Sam, trust me on this one.

8c. it punishes -

After complimenting Sam for some nifty new tricks, I have to groan for his using one of the oldest tricks in the book: saying that not qualifying for a reward equals punishment. This is nothing new. All democrats think this way.

Come on, Sam, we used to listen to Rush Limbaugh together. Here's how he would say it. Suppose I send you a bill for $1000 due in 30 days for goods that are worth $1000 with a note that if you pay within 5 days you can take a 3% discount. You don't feel like paying within 5 days so you don't get the discount and you have to pay the actual price. Are you being punished???

Well maybe you are if you consider children to be financial liabilities to BL. You should be rewarded for having less than 3 kids.

Personally, I think that Netanyahu is finally starting to sober up. But I am a bit worried about Sam. Lay off of the hard stuff, Sam, Purim is over.

1 comment:

Dov said...

Fascinating claim. But how do you know this? Has there been data released about Bituach Leumi money taken in, obligations for the future, and how they compare?

For years in the USA everyone thought Social Security was great, until it became clear that they were spending too much and would not have enough money to cover obligations for the future.

So... before making any decisions based on a claim that there's enough money, it's worth being sure. I'd be very interested to see the source of your information.