United States Needs to Reevaluate Its Assistance to Israel

By Walter Pincus,
The Washington Post, October 17, 2011

As the country reviews its spending on defense and foreign assistance, it is time to examine the funding the United States provides to Israel.

Let me put it another way: Nine days ago, the Israeli cabinet reacted to months of demonstrations against the high cost of living there and agreed to raise taxes on corporations and people with high incomes ($130,000 a year). It also approved cutting more than $850 million, or about 5 percent, from its roughly $16 billion defense budget in each of the next two years.

If Israel can reduce its defense spending because of its domestic economic problems, shouldn’t the United States — which must cut military costs because of its major budget deficit — consider reducing its aid to Israel?

First, a review of what the American taxpayer provides to Israel.

In late March 2003, just days after the invasion of Iraq, President George W. Bush requested the approval of $4.7 billion in military assistance for more than 20 countries that had contributed to the conflict or the broader fight against terrorism. Israel, Jordan, Egypt, Afghanistan, Pakistan and Turkey were on that list.

A major share of the money, $1 billion, went to Israel, “on top of the $2.7 billion regular fiscal year 2003 assistance and $9 billion in economic loans guaranteed by the U.S. government over the next three years,” according to a 2003 study by the Congressional Research Service (CRS).

Then in 2007, the Bush administration worked out an agreement to raise the annual military aid grant, which had grown to $2.5 billion, incrementally over the next 10 years. This year, it has reached just over $3 billion. That is almost half of all such military assistance that Washington gives out each year and represents about 18 percent of the Israeli defense budget.

In addition, the military funding for Israel is handled differently than it is for other countries. Israel’s $3 billion is put almost immediately into an interest-bearing account with the Federal Reserve Bank. The interest, collected by Israel on its military aid balance, is used to pay down debt from earlier Israeli non-guaranteed loans from the United States.

Another unique aspect of the assistance package is that about 25 percent of it can be used to buy arms from Israeli companies. No other country has that privilege, according to a September 2010 CRS report.

The U.S. purchases subsidize the Israeli arms business, but Washington maintains a veto over sales of Israeli weapons that may contain U.S. technology.