The Cost of Israel to U.S. Taxpayers: Exempting Israel Makes Foreign Aid Savings Insignificant

By Jones, Nathan | Washington Report on Middle East Affairs, March 1995 | Go to article overview

The Cost of Israel to U.S. Taxpayers: Exempting Israel Makes Foreign Aid Savings Insignificant


Jones, Nathan, Washington Report on Middle East Affairs


The Cost of Israel to U.S. Taxpayers: Exempting Israel Makes Foreign Aid Savings Insignificant

By Nathan Jones

In testimony to Congress on Jan. 10, Chairman Alan Greenspan of the U.S. Federal Reserve Board declared that adoption of new standards by the Bureau of Labor Statistics for measuring real increases in the cost of living could save the U.S. government up to $150 billion in entitlements payments over the next five years. The new $30 billion in annual savings would be realized by reducing annual cost of living allowances (COLAs) added to U.S. government-funded pensions.

Such reductions would affect everyone receiving any kind of government annuities, from social security recipients and retired civil servants and military personnel to their widows, orphans and all those on disability payments. One of the new methods of calculation would involve factoring into the government-prepared consumer price index (CPI) any improvements in the quality of the product being sold. Thus annual increases in the prices of automobiles, personal computers, or video recorders might be cancelled out altogether because of qualitative improvements in the products. Calculating the CPI on this basis, Greenspan estimated, might reduce the annual COLA increases in annuities between .5 and 1.5 percent. Put that way, the change doesn't sound significant. However, since the COLA for U.S. government annuitant pensions for 1995 is 2 percent, application of Greenspan's proposal this year would have cut the 1995 COLA by 25 to 75 percent--and would continue to reduce each new annual COLA by similar rates.

It probably will not escape the attention of the tens of millions of Americans who would be affected by COLA reductions that the American taxpayer's annual $13 billion bill for direct, bilateral foreign aid is very close to half of the $30 billion maximum per year that Greenspan estimates his proposal would save. If Israel's additional annual $2 billion in loan guarantees is added, it becomes exactly half.

Despite the incoming Republican Congress's pledge to re-examine foreign aid, there is no chance of significant reductions there that might reduce the necessity of taking such a severe annual bite out of pension checks. The reason is that aid to Israel and to Middle East countries at peace with Israel has been exempted from any reductions. Israel alone received a $3.1 billion slice of the annual direct foreign aid pie. (Other subsidies from various federal agency budgets brought Israel's total of direct U.S. taxpayer aid to about $4.3 billion per year in 1993, to which must be added Israel's $2 billion in annual U.S. government loan guarantees. The 1993 figure is significant because President Bill Clinton promised Israeli Prime Minister Yitzhak Rabin that the 1994 and 1995 totals for U.S. aid to Israel would be no less.)

Clinton has kept that promise, although the Israeli government made it difficult for him to do so. Because Israeli Prime Minister Rabin repeatedly has violated his own 1992 promise to former President George Bush to stop Israeli government expenditures on Jewish settlements in Israeli-occupied territories, Clinton is obligated by U.S. law to reduce Israel's U.S. loan guarantees by one dollar for every dollar Israel has spent on the settlements during the previous year. The U.S. State Department estimated that the Israeli government spent $437 million on settlements in 1993 and U.S. loan guarantees for 1994 were reduced accordingly.

But Clinton then arbitrarily added $500 million to direct U.S. aid to Israel for 1994, giving the Israelis not only a profit for breaking their promise, but $500 million in cash in lieu of $437 million in loan guarantees. Similarly, Clinton was forced by law to reduce 1995 loan guarantees to Israel by the $311.8 million that the U.S. State Department estimated the Israeli government had spent on settlements in 1994. However, Clinton again has assured the Israeli government that the total of U. …

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