How much more does it really cost to live in Israel?
By BRIAN BLUMUpdated: MAY 15, 2016 12:02Zeev Elkin welcomes olim on the 53rd Nefesh B'Nefesh flight as it lands in Israel(photo credit: STEVE LINDE)
It is no secret that immigrants to Israel from North America take a financial hit. As I finished up my US taxes last month (as an Israeli with dual citizenship, I am required to file in both countries), I stopped for a moment to ponder exactly how big that hit has been.What is the “aliya premium,” I wondered – the difference between how much I earned in Israel over the past 20 years and what I might have earned had I’d stayed in the US? Did it add up to tens of thousands of dollars over a couple of decades? Hundreds of thousands? Or is the whole differential a kind of fiction, a “woe is me” story we tell ourselves about why life is so hard in Israel but that might not hold up against the actual data?I decided to try to crunch the numbers. I read through articles and statistics, spoke with accountants, business journalists and even a dayschool admissions director. Here’s what I found.Keep in mind I’m not an economist, so any figures I present will be pretty gross generalizations.Let’s start with mean household income – the average income earned by all breadwinners in a home. According to the US Census Bureau, American households earn $72,641 on average vs $56,892 in Israel. The latter figure comes from Israel’s Central Bureau of Statistics and includes income from all sources – labor, capital, government stipends and familial assistance.So, data point No. 1: Israeli households earn a gross amount equal to 78 percent of their American counterparts – that’s a 22% “aliya premium.”But what about taxes? Surprisingly, the tax rates aren’t that different. The Israeli statistics folks say that same Israeli family pays 18% of its earnings for income tax, national insurance and health tax. My Israeli accountant ran the numbers for the same salary and it came out higher – closer to 24%. But he advised me up front that he hadn’t calculated the various credits and deductions (number of children, gender, etc.) that inevitably bring the total rate down.In the US, taking the same gross calculation and similarly ignoring all manner of discounts and deductions, the average household income of $72,641 for a married couple filing jointly would be subject to income tax of 17% and another 7.65% for social security – in another words, almost the same as Israel.However, as my US tax preparer told me: that too is fraught with complexity.“A family with many children, high medical expenses, that itemizes their deductions or gives a lot of charity could very well wind up paying a lot less.”
Offsetting that to a certain extent are state taxes, although these vary considerably. Some states have no tax at all (Nevada and Florida); most add another 3-5% to the tax bill, my tax preparer said.“You have to be careful gathering data from different sources to make comparisons,” my colleague, financial journalist David Rosenberg warned me. The best way, he said, “is to take your data from a single source like the OECD.”THE OECD data tell a much more sobering story.Looking at household net disposable income (which the OECD defines as the money available to a household after taxes for spending on goods or services), Americans wind up with $41,355 on average vs just $22,105 for Israelis.Data point No. 2, then: the “aliya premium” might be as high as 47%.And that’s not factoring in the higher cost of certain purchases in Israel, such as cars (which carry a 78% Israeli tax mark up), gasoline (triple that of much of the US), electronics and many food items (remember the cottage cheese protests).Housing in Israel is famously expensive, but then so is real estate in most major metropolitan areas of the US.“I don’t know if it’s fair to compare the US and Israel from a strictly economic point of view,” says Jacob Richman, who operated the popular Computer Jobs in Israel website and email list for 23 years.“There are many social and Jewish aspects to living in Israel that are hard to put a price on.”Richman is right, of course: there’s no way to calculate the true value one gets living in a Jewish State, following a Jewish calendar and being part of Jewish history. However, my analysis here is strictly about the money.Nevertheless, there are some mitigating factors that narrow the financial gap.The cost of private Jewish day school in the US is a huge consideration. I spoke with Yelena Spector, the director of admissions at the Akiba-Schechter Jewish Day School in Chicago.The price per child for tuition maxes out at $18,165 a year at her school. Bus fares add more than another $1,000 per child; hot lunches and fund-raising drives even more.If you have three children in day school, “that’s $60,000 coming straight out of your income,” Spector told me. While some states have vouchers for private education, that’s not on the federal tax level.As a result, “even ‘well off’ families apply for financial aid,” Spector says. Aid granted varies widely but it’s rare that tuition would drop below $5,000 per child, she added. So, even with a big break, an American Jewish family making that OECD average household income could be paying up to 36% of their net for schooling alone.(That’s not an entirely fair analysis, as such an “average” earning family would probably not be able to afford Jewish day school in the first place, even with generous financial aid.)Private school exists in Israel, too, but it’s not a necessity in the same way that it is for a family in the US which has decided that Jewish education is a priority. Figure about $100 a month per child per month for books and class trips at a public school in Israel. But even factoring in these Israeli fees, the much higher private school costs for US Jewish education narrows the gap from the OECD’s 47% “aliya premium” to just 27%.What about healthcare? In Israel, universal health coverage is included in that Israeli tax number of between 18-24%. Not so in the US where it’s much more complicated.I PRETENDED to be a family of five applying for coverage on a website affiliated with the Affordable Care Act in the US. I picked California, which is where I used to live. I plugged in my average household income numbers. The result was a mess of options that makes calculating a single tidy figure a Sisyphean impossibility.I could pay a few hundred dollars a month and have a reasonable deductible and co-pays for doctor visits and pharmaceuticals, or I could pay much less but have deductibles exceeding $10,000. The number of options – gold, silver, bronze and platinum plans; multiple providers – set my head spinning.I asked a colleague who heads a nonprofit in US what his employees generally pay. He says around $200 a month. Assuming a family will use up at least some of its deductible, that could easily add up to another, say, $5,000 a year – some 12% off the OECD household income total.Many Israeli families buy supplemental health insurance (add another $100 a month at least). Still, even factoring in the Israeli health extras, in this admittedly unscientific analysis, the “aliya premium” has now been sliced to a mere 15%.Finally, social security might be only 7.65% if you’re a salaried employee in the US, but if you’re independent, you’re responsible for both the employer and employee amounts. Take off another 7.65% and you can see that the “aliya premium” has nearly evaporated.Clearly, every family’s situation is going to be different. If you’re a hi-tech worker with no kids and you don’t get sick much, you could probably earn a lot more in the US. On the other hand, your Israel start-up could get bought or go public, leaving you sitting pretty in Tel Aviv.THERE’S SO much I haven’t included: property and worldwide capital gains are taxed differently (higher in Israel), synagogue dues ($2,000 for a family in the US) are not widely applicable in the Jewish state, summer-camp fees in the US are sky high (add another $4,000 per child), life insurance premiums are higher in Israel, as is long-term care insurance. Retirement programs and pension savings vary. And this analysis only concerns the US. Comparing costs between Israel and Europe is an entirely different tub of hummus.So, have I lost tens or hundreds of thousands of dollars in my 20 years here? It doesn’t seem so. My bottom-line “aliya premium” is far more manageable that I anticipated.Is being a part of this modern Jewish experiment called Israel worth a 7-15% hit on income? Everyone has to decide for him or herself, but for me, I’m more than happy to run with those numbers. ■The author is a freelance writer who specializes in technology, start-ups and the entrepreneurs behind them. More at www.bluminteractivemedia.com.