The “aliyah premium” – how much more does it really cost to live in Israel?

by Brian on May 23, 2016

in Only in Israel,The Old Country

1024px-December_Charter_FlightIt’s no secret that immigrants to Israel from North America take a financial hit. But as I finished up my U.S. 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 “aliyah 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 U.S.? 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 day school 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 U.S. 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 number one: Israeli households earn a gross amount equal to 78 percent of their American counterparts – that’s a 22 percent “aliyah premium.”

But what about taxes? Surprisingly, the tax rates aren’t that different. The Israeli statistics folks say that same Israeli family pays 18 percent of their 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 percent. 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 U.S., 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 percent and another 7.65 percent for social security – in another words, almost the same as Israel.

But, as my U.S. 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 percent 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 tells a much more sobering story. Looking at household net disposable income (which the OCED 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 number two, then: the “aliyah premium” might be as high as 47 percent.

And that’s not factoring in the higher cost of certain purchases in Israel, such as cars (which carry a 78 percent Israeli tax mark up), gasoline (triple that of much of the U.S.), 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 U.S.

“I don’t know if it’s fair to compare the U.S. 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.”

Jacob 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. But 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 U.S. 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 for children at her school. Bus fees add another $1,000 plus per child; hot lunches and fundraising drives even more.

If you have three children in day school, “that’s $60,000 coming straight out of your income,” Spector told me. And 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 percent 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 U.S., 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 U.S. Jewish education narrows the gap from the OECD’s 47 percent “aliyah premium” to just 27 percent.

What about healthcare? In Israel, universal health coverage is included in that Israeli tax number of between 18-24 percent. Not so in the U.S. 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 U.S. 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 non-profit in U.S. 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 percent 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 “aliyah premium” has now been sliced to a mere 15 percent.

Finally, social security might be only 7.65 percent if you’re a salaried employee in the U.S., but if you’re independent, you’re responsible for both the employer and employee amounts. Take off another 7.65 percent and you can see that the “aliyah 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 U.S. But, on the other hand, your Israel startup 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 U.S.) are not widely applicable in the Jewish State, summer camp fees in the U.S. 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 saving vary. And this analysis only concerns the U.S. 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 “aliyah premium” is far more manageable that I anticipated.

Is being a part of this modern Jewish experiment called Israel worth a 7-15 percent hit on income? Everyone has to decide for him or herself, but for me, I’m more than happy to run with those numbers.

I originally crunched the numbers over at The Jerusalem Post. There has been a lot of discussion of this article on Facebook. If you’re not a friend already, just ask!

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