Taxes = Revenue vs. Taxes = Slowed Growth, or Au Revoir Arak, or ‘let them drink Cognac’

I usually write about matters relating to real estate, and since real estate is intimately tied with economic growth and downturns I sometimes address economic issues.

The current administration in the United States is in process to drastically increase taxation, even in anticipation of the perceived actions of the Obama administration, businesses pulled back on hiring and expansion in fear at the beginning of his first term. Conservatives argue that taxation inhibits growth which would naturally increase revenue if taxes were affordable and incentivized to small businesses. Liberals argue that social programs need to benefit the poor and elderly so the rich and luxury should be taxed.

A small demonstration of this principle occurred here in Israel which is an everyman concern. Arak, especially the Israeli version of the middle-eastern anise flavored drink, has sometime in the last forty years in Israel become the national drink of Israel. There are many nearby countries producing the drink, but the most popular by far is the Israel brand based in Haifa, Elit and Aluf HaArak.

Unnoticed by myself, since too much Arak (two shots) can give me a headache, I decided to buy some while in the Jerusalem shuk Mahaneh Yehuda market. I love the drink, but its not one of my everyday favorites. I was shocked to find out that in recent days the price had doubled from 35-39 NIS a bottle to 70-80, if you could even find it on the shelves. On the contrary, the pricey liquors such as Grey Goose or Ketel One, were dropped by about 25-30%, but still prohibitive. The public outcry, after the informed cleared the shelves before the price hike, has been to put pressure on new Finance Minister Yair Lapid, who is blaming the previous administration FM Steinetz for preparing the hike.

Essentially the nearly double price on a drink as popular as beer has even my local grocer telling me to “boycott”. The tragedy is that this will hurt the most popular Israeli companies who are producing the most purchased brands. In the end the artificial rise in cost of locally produced goods only harms local industry thus ultimately reducing the revenue gained on popular products as consumption will decrease naturally.

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