August 1, 2012:

I was thinking this morning as I prepared to come into this room of a discussion I had across the country in the United States about my perceptions about differences between countries. And as you come here and you see the GDP per capita for instance in Israel, which is about 21,000 dollars, and you compare that with the GDP per capita just across the areas managed by the Palestinian Authority, which is more like 10,000 dollars per capita, you notice a dramatic, stark difference in economic vitality - Mitt Romney

Now, since Republicans often argue that high tax rates are a drain on the economy (in spite of the fact that the US historical record suggests the opposite), I decided to compare the tax rates in Israel and Palestine.

VAT is 14.5% in Palestine, 16% in Israel - not that significant a difference, though high when compared to US sales taxes.

Israel's income tax rates range from 10% to 48% for individuals, and have recently been raised from 24% to 25% for corporations. (Source). Passive income (rents) are taxed at 30% to 48%. Israel taxes income from the transfer of real estate, but not (as best I can tell) from the ownership of it. (Source (PDF))

Palestine's tax rates are 5%-15% for individuals, 15% for corporations. Property is taxed at 17% of assessed rental income... but 60% of property tax is directly applied to your income tax and the remaining 40% is deductable from your income. (Source (PDF))

GDP per capita, according to Romney's figures, is approximately twice as high in Israel as in Palestine.

Other figures give different numbers: the CIA gives Israel $31,400 in 2011, and the West Bank $2,900 (as of 2008). I suppose that it's not impossible that the numbers have changed drastically in four years, or that his source is more accurate than the CIA, or that he included Palestine when calculating the Israeli GDP per capita... but really, his numbers seem fluffy. This is the man who wants to bring his business expertise in to help him run our economy?

Romney's commented on the impact of culture in economic divergence before, citing as examples the pairs US/Mexico, and Chile/Ecuador, and Israel/Egypt. Mexico has a somewhat lower top income tax rate than the US (30% versus 35%; the 30% rate also applies to corporate income). Egypt, again, has lower tax rates than Israel (20% corporate, 10-20% income). Chilean income tax ranges from 0-40% on personal and corporate income, while Ecuador's rates are 0-35% personal and 25% corporate).

Egypt's per capita GDP is $6600 (Adjusted for purchasing power parity.); Chile's GDP per capita is 17,400; Ecuador's is $8,600.

In the end, though, all this research is a load of bollocks. While his dataset suggests that, of pairs of adjacent countries, the one with the higher tax rate is richer, it doesn't determine whether the higher tax rates *cause* wealth, are a *response* to wealth, or completely unrelated one way or the other. More importantly, while GDP per capita can be a useful means of measuring the wealth of nations, it does not reflect meaningfully on the standard of living within a nation - a ten-person economy where two people make 100,000 and the other eight make 12,500 each is very different from one where five people make 35,000 each and the other five make 25,000 each. His pairing also seems to assume that adjacency corrects for differences in available natural resources.


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