Tax Cuts in Israel! A Land of Milk and Honey!! Jude Wanniski February 14, 2001

Memo To: Secretary of State Colin Powell
From: Jude Wanniski
Re: Your Middle-East Trip

Your first trip to the Middle East will be your most important as Secretary of State, I think, not so much because of what you will learn there, but because it will convey your thinking to the leaders of the Arab and Israeli governments. You may have seen the private memo I sent you last week through your staff, in which I highlighted the comment by Israel’s new Prime Minister, Ariel Sharon, to NYTimes columnist William Safire that he intends to cut taxes as we have been doing in America! I’d like to elaborate on it in this open memo, because I do think it is the key to a real peace in the Middle East -- one for which I have been praying for more than a half-century. I mentioned this at a dinner Saturday night in New York City hosted by Bob Mundell, the 1999 Nobel Prize winner in Economics. Wall Street Journal Editor Bob Bartley’s wife Edie laughed at what she thought was my obvious exaggeration, until I explained that I really did first become conscious of the economic aspects of the problems in the Middle East when I was 13 years old.

Thirteen to a boy growing up in the Hasidic neighborhood of Borough Park, Brooklyn, is the time for a Bar Mitzvah. Except I was a Catholic, who got the equivalent sacrament of confirmation in the year 1949. My brother Terry and I were the only Catholics at the apartment house at 1042 50th Street, a 53-unit building on Fort Hamilton Parkway. All our neighborhood friends were Jewish. And when I was 13, although in the Catholic elementary school ten city blocks away at St. Catherine’s, on 40th Street, I belonged to the Young Men’s Hebrew Association. There was no YMCA. The problems of Israel were practically the first political problems I became aware of in that climate. And I told Edie Bartley that I vividly remember being in the car with my father in 1949, driving through Prospect Park at night, listening to President Harry Truman talking about his new “Point Four” program, which would provide foreign aid to Israel and, he hoped, turn the Middle East into “a land of milk and honey.”

Well, it did not work out that way, Mr. Secretary. For most of the last half-century, Israel has been run by a “liberal” Labor Party that keeps tax rates high to punish rich folks and a “conservative” Likud Party that keeps tax rates high to keep the economy in the hands of the Likud elite. So they've had Labor socialism and Likud socialism. When I read in Safire’s column that Sharon, the warrior, is eager to cut tax rates, the first thing I thought of was Truman’s “milk and honey” speech. If Sharon can replace state socialism with entrepreneurial capitalism, people will be making too much money to throw stones at each other. That's when we can really see Palestinian/Israeli integration, when the profit opportunities open up so wide in a thriving supply-side economy that Jewish businessmen are bidding up the wages of Palestinian labor.

What I suggest you might do in preparation for your Mideast trip is to have the various desks at State which represent countries in that region to provide you with a summary of their tax systems -- not only the income-tax RATES, but also their THRESHOLDS, translated into dollars so you can get a valid comparison. Do the same with the VAT rates and capital gains and estate tax rates, too. And also ask for reviews of their currency-exchange rates over the last dozen years. The folks at Foggy Bottom have been doing things by the Keynesian book for so long that it never occurs to them that problems in the Middle East and elsewhere in the world might be the result of obsolete economic ideas. I don't think there has been a Secretary of State in our time who has bothered with these kinds of questions. I know for sure that Henry Kissinger, who was the brightest of them all, never asked for such information. When I wrote my The Way the World Works in 1977, I called the various desks at State for this kind of information and they said they did not collect it!!!! You should really ask for a report on all the African nations, with similar facts on money and taxes. You would get quite an education with one evening's reading. It's going to be up to you guys at State because I do not see signs that Treasury will be up to the task, or even interested. Secretary Paul O’Neill is going to have his hands full with our economy.

By the way, I continue to think you should get yourself a top-flight supply-side economist to help you with these issues. Of course, I’ll continue to send you private and public thoughts on how I think you can leverage your position at State in an Archimedean way that changes the world, toward peace and prosperity, away from strife and poverty. Give Jack Kemp a call at Empower America and ask him if he has any candidates. I’m sure he has and would be glad to help. I’d also suggest you take a look at Alvin Rabushka’s website. Alvin is at the Hoover Institution at Stanford and has been trying to persuade the Israeli political establishment to free itself of the socialist idea for a long, long time. He actually thinks our foreign aid to Israel and Egypt has hurt, not helped, the peace process. Check him out.