Overview:

20 September 1999—Israel continues to receive substantially more aid from the U.S. government than any other country in the world, despite the fact that Israel’s gross domestic product per capita in 1997 was $17,500, making it one of the wealthier countries in the world. Even before additional funds from the Pentagon and other federal budgets are included, the projected fiscal year (FY) 2000 congressional appropriation for Israel will bring the total of U.S. government grants and loans to Israel, from 1949 through 31 October 1999, to nearly $92 billion, as indicated in the chart below. This is more than the total of U.S. aid to all of the countries of sub-Saharan Africa, Latin America, and the Caribbean combined. Yet, in 1999, these countries had a combined total population of 1.142 billion people, while Israel claimed a population of 6.1 million. All told, Israel, with a population smaller than that of Hong Kong, receives about one-third of U.S. bilateral foreign aid worldwide.

Projected Fiscal Year 2000 Budget:

Both houses of Congress have voted to reduce U.S. economic aid to Israel in FY 2000 by $120 million but to increase U.S. military aid to Israel by $60 million. This will bring U.S. foreign aid to Israel for the coming fiscal year to $960 million in economic aid, $1.92 million in military aid, and $60 million for “refugee resettlement,” for a total of $2.94 billion. Congress plans to continue this formula for an annual $60 million reduction in total foreign aid to Israel for a span of ten years, reducing the eventual total of bilateral U.S. foreign aid to Israel to $2.4 billion.

Annual U.S. foreign aid to Egypt for keeping the peace with Israel is about two-thirds that provided to Israel. Accordingly, $2.035 billion is allocated for FY 2000, a figure that will continue to shrink by at least $40 million a year. Nevertheless, the total appropriated for aid to Israel and Egypt combined will continue to consume about half of the U.S. bilateral foreign aid budget worldwide. No funds have been earmarked for the Palestinian Authority.

In addition to its direct foreign aid, Israel normally receives more than one billion dollars in assistance from other portions of the federal budget. Total additional funding in FY 2000 will not be clear until later in the fiscal year, but preliminary indications are that Israel will receive some major extras from the Pentagon budget for joint U.S.-Israeli development of various weapons systems.

Extra Perks:

Israel benefits from two exceptional allowances enjoyed by no other U.S. foreign aid recipient. First, it receives all of its annual foreign aid during the first month of each fiscal year, unlike other recipients who receive their aid in quarterly payments. The Israeli government, therefore, is able to invest its foreign aid in U.S. Treasury notes, thus realizing upwards of $50 million annually in interest payments until the money is actually needed. Second, unlike all other recipients of U.S. government aid, who are required to spend most of the funds on procurement of U.S. products and services, Israel is free to spend its U.S. aid any way it wishes.

Although the two houses of Congress have not yet reconciled their versions of the FY 2000 foreign aid bill, it appears that the final result will include one victory and one setback for Israel. House Foreign Operations Appropriation Subcommittee Chairman Sonny Callahan (R-AL) was rebuffed in an attempt to abolish Israel’s preferential treatment in receiving all of its foreign aid in a lump sum payment at the beginning of the fiscal year. Callahan, however, also had vowed to block any attempt by newly-elected Israeli Prime Minister Ehud Barak to collect in advance an additional $1.2 billion in economic assistance promised by President Bill Clinton to former Prime Minister Binyamin Netanyahu. This aid was intended for implementation of territorial withdrawals specified in the Wye River Memorandum, signed 23 October 1998 by Israel and the Palestine Liberation Organization. Pointing out that neither Netanyahu nor Barak had fully implemented the withdrawals, Callahan, joined by Rep. David Obey (D-WI), blocked an administration attempt to include the payment in the FY 2000 appropriation. “The money should not be in the bill until there is performance,” Obey said.

Additional Costs to U.S. Taxpayers:

The costs of U.S. aid to Israel shown in the above chart include direct U.S. foreign aid grants and loans to Israel, other U.S. assistance calculated at a conservative 12.2 percent of direct foreign aid, and interest earned by Israel on these funds. They do not include the $10 billion in loan guarantees extended by the U.S. to Israel in the 1990s, nor the cost to the U.S. Treasury of deductions taken by U.S. residents from their income taxes for gifts to tax-exempt U.S. organizations for use in Israel. Such gifts are estimated at approximately $1 billion annually, but the cost to the U.S. Treasury cannot be calculated accurately because it depends upon the income tax brackets of the individual donors.

U.S. support for Israel in its long-standing disputes with its Arab neighbors has incurred additional costs. During the more than half-century that has elapsed since the creation of Israel on 15 May 1948, the U.S. has lost tens-of-thousands of jobs and billions of dollars as a result of the Arab economic boycott. More was lost as a result of the 1973 Arab oil boycott that touched off a recession in the U.S. and other industrialized countries. There also are incalculable costs associated with the vastly increased security outlays for U.S. government installations at home and abroad necessitated by U.S. military support for Israel.

Moreover, because of its unconditional support for Israel, the U.S. remains vulnerable to unified economic retaliation from Arab and Muslim countries organizing to support the Palestinians. Ultimately, the cost to U.S. manufacturers in the aircraft, auto, and other industries may become so great that they will be forced to mount a counter-lobby to Israel’s otherwise unopposed domestic lobby, the American Israel Public Affairs Committee (AIPAC). Boeing dared to challenge AIPAC during the 1982 sale of AWACS (Airborne Warning and Control System) technology to Saudi Arabia, but at great cost to senators Charles Percy (R-IL) and Roger Jepson (R-IA), who voted for the sale and were defeated, with AIPAC support, in the following election.

Ironically, unconditional U.S. government financial support for Israel, regardless of the latter’s performance in the peace process, is a major factor in Israeli intransigence regarding the land-for-peace formula. Dependent upon U.S. official and private subsidies, Israeli governments, whatever their preferences, find it difficult to carry out territorial withdrawals in the face of domestic opposition. Although the transfer of U.S. aid to Israel and the expenditure of U.S. resources in defense of Israel certainly are unprecedented in world history, the individual cost to American citizens, and to the cause of peace, is still growing, with no end in sight.

Richard H. Curtiss is Executive Editor of the Washington Report on Middle East Affairs. The above text may be used without permission but with proper attribution to him and to Palestine Center. This Information Brief does not necessarily reflect the views of Palestine Center or The Jerusalem Fund.

This information first appeared in Information Brief No. 6, 20 September 1999.