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Israel Election: Do-Over Vote Looks Likely to Leave Another Stalemate

JERUSALEM — When Israelis woke on Wednesday, the day after their fourth election in two years, it felt nothing like a new dawn.

With 90 percent of the votes counted, Prime Minister Benjamin Netanyahu’s right-wing alliance had 52 seats, while his opponents had 56 — both sides several seats short of the 61 needed to form a coalition government with a majority in Parliament. If those counts stand, they could prolong by months the political deadlock that has paralyzed the country for two years.

That prospect was already forcing Israelis to confront questions about the viability of their electoral system, the functionality of their government and whether the divisions between the country’s various polities — secular and devout, right-wing and leftist, Jewish and Arab — have made the country unmanageable.

“It’s not getting any better. It’s even getting worse — and everyone is so tired,” said Rachel Azaria, a centrist former lawmaker who chairs an alliance of environment-focused civil society groups. “The entire country is going crazy.”

a small, Islamist Arab party, Raam, to form a majority coalition.

Either of those outcomes would defy conventional logic. The first option would force Islamists into a Netanyahu-led bloc that includes politicians who want to expel Arab citizens of Israel whom they deem “disloyal.” The second would unite Raam with a lawmaker who has baited Arabs and told them to leave the country.

Beyond the election itself, the gridlock extends to the administrative stagnation that has left Israel without a national budget for two consecutive years in the middle of a pandemic, and with several key Civil Service posts unstaffed.

the trial of Mr. Netanyahu himself, who is being prosecuted on corruption charges that he denies. Mr. Netanyahu has also dismissed the claim that he will use any new majority to grant himself immunity, but others likely to be in his potential coalition have said that would be up for debate.

Shira Efron, a Tel Aviv-based analyst for the Israel Policy Forum, a New York-based research group, said, “It’s not a failed state. It’s not Lebanon. You still have institutions.”

“But there is definitely an erosion,” she noted. “Not having a budget for two years — this is really dangerous.”

Mr. Netanyahu has presided over a world-leading vaccine program, in an illustration of how some parts of the state still operate very smoothly. But more generally, the lack of a state budget forces ministries to work on only a short-term basis, freezing long-term infrastructure projects like road construction.

For Ms. Azaria, the former lawmaker, the stasis has delayed the discussion of a multibillion-dollar program to improve the provision of renewable energy, which her green alliance proposed to the government last year.

“We’re talking about taking Israel to the next stage in so many ways, and none of it can happen,” Ms. Azaria said. “There is no decision making.”

Ofer Zalzberg, director of the Middle East program at the at the Herbert C. Kelman Institute, a Jerusalem-based research group.

“He has reconciled better than his adversaries the liberal idea of personal and individual autonomy with conservative values like preserving Jewish identity, as defined by Orthodox interpretations of Jewish law,” Dr. Zalzberg said.

While other politicians historically tried to solve this tension by “turning all Israelis into secular Zionists,” he added, “Mr. Netanyahu advanced the idea of Israel as a mosaic of different tribes.”

Mr. Netanyahu has failed to win over the more liberal of those tribes — and that failure is at the heart of the current stalemate. But he and his party have been more successful than the secular left at winning over key groups like Mizrahi Jews, who were historically marginalized by the Ashkenazi elite, Ms. Azaria said.

“That’s the blind spot of the of the left wing in Israel — they’re not really talking to Mizrahim,” she said. “This could be the game changer of Israeli politics. If the left could open the gates and say, ‘You’re welcome. We want you here.’”

The political stalemate has also been exacerbated by a reluctance by Jewish-led parties to include Arab parties within their governments, ruling the latter out of coalition negotiations and making it even harder to form a majority.

Arab parties have also been traditionally opposed to joining Israeli governments that are in conflict with Arab neighbors and occupy territories claimed by the Palestinians.

But for Dr. Efron, the Tel Aviv-based analyst, there were hopeful signs of a paradigm shift on Wednesday morning. With the election results on a knife edge, some politicians were forced to at least consider the possibility of a pivotal political role for an Arab party such as Raam.

And such a discussion might accelerate the acceptance of Arabs within the Israeli political sphere, she said.

“It brings more integration,” Dr. Efron added. “In the long run, that could be a silver lining.”

Adam Rasgon and Gabby Sobelman contributed reporting.

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A Last-Minute Add to Stimulus Bill Could Restrict State Tax Cuts

WASHINGTON — A last-minute change in the $1.9 trillion economic relief package that President Biden signed into law this week includes a provision that could temporarily prevent states that receive government aid from turning around and cutting taxes.

The restriction, which was added by Senate Democrats, is intended to ensure that states use federal funds to keep their local economies humming and avoid drastic budget cuts and not simply use the money to subsidize tax cuts. But the provision is causing alarm among some local officials, primarily Republicans, who see the move as federal overreach and fear conditions attached to the money will impede upon their ability to manage their budgets as they see fit.

Officials are scrambling to understand what strings are attached to the $220 billion that is expected to be parceled out among states, territories and tribes and are already pressing the Treasury Department for guidance about the restrictions they will face if they take federal money.

Under the new law, $25 billion will be divided equally among states, while $169 billion will be allocated based on a state’s unemployment rate. States can use the money for pandemic-related costs, offsetting lost revenues to provide essential government services, and for water, sewer and broadband infrastructure projects.

based on a formula that considers its unemployment rate rather than its population. Conservative-leaning states, many of which had less onerous coronavirus restrictions and did not shut down as much business activity, claim they are essentially being penalized for prioritizing their economies during the pandemic.

But early analyses of the bill show that both conservative-leaning and liberal-leaning states will receive big chunks of cash. California, Florida, New York and Texas will each get more than $10 billion in aid, according to a Tax Foundation tally.

Still, the tax language has angered Republicans — none of whom voted for the rescue package — and on Thursday, Senator Mike Braun, Republican of Indiana, introduced legislation to reverse it.

many cities are facing budget crunches, state finances have turned out to be relatively healthy.

A New York Times analysis this month found that, on balance, state revenues were generally flat or down slightly last year compared with 2019 as expanded unemployment benefits allowed consumer spending and tax revenues to keep flowing.

“Idaho would potentially subsidize poorly managed states simply because we are using our record budget surplus to pursue historic tax relief for our citizens,” Gov. Brad Little of Idaho said this week. “We achieved our record budget surplus after years of responsible, conservative governing and quick action during the pandemic, and our surplus should be returned to Idahoans as I proposed.”

Gov. Jim Justice, a Republican of West Virginia, criticized Mr. Manchin in an interview this week with CNN.

How Has the Pandemic Changed Your Taxes?

Nope. The so-called economic impact payments are not treated as income. In fact, they’re technically an advance on a tax credit, known as the Recovery Rebate Credit. The payments could indirectly affect what you pay in state income taxes in a handful of states, where federal tax is deductible against state taxable income, as our colleague Ann Carrns wrote. Read more.

Mostly.  Unemployment insurance is generally subject to federal as well as state income tax, though there are exceptions (Nine states don’t impose their own income taxes, and another six exempt unemployment payments from taxation, according to the Tax Foundation). But you won’t owe so-called payroll taxes, which pay for Social Security and Medicare. The new relief bill will make the first $10,200 of benefits tax-free if your income is less than $150,000. This applies to 2020 only. (If you’ve already filed your taxes, watch for I.R.S. guidance.) Unlike paychecks from an employer, taxes for unemployment aren’t automatically withheld. Recipients must opt in — and even when they do, federal taxes are withheld only at a flat rate of 10 percent of benefits. While the new tax break will provide a cushion, some people could still owe the I.R.S. or certain states money. Read more.

Probably not, unless you’re self-employed, an independent contractor or a gig worker. The tax law overhaul of late 2019 eliminated the home office deduction for employees from 2018 through 2025. “Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home,” the I.R.S. said. Read more.

Self-employed people can take paid caregiving leave if their child’s school is closed or their usual child care provider is unavailable because of the outbreak. This works similarly to the smaller sick leave credit — 67 percent of average daily earnings (for either 2020 or 2019), up to $200 a day. But the caregiving leave can be taken for 50 days. Read more.

Yes. This year, you can deduct up to $300 for charitable contributions, even if you use the standard deduction. Previously, only people who itemized could claim these deductions. Donations must be made in cash (for these purposes, this includes check, credit card or debit card), and can’t include securities, household items or other property. For 2021, the deduction limit will double to $600 for joint filers. Rules for itemizers became more generous as well. The limit on charitable donations has been suspended, so individuals can contribute up to 100 percent of their adjusted gross income, up from 60 percent. But these donations must be made to public charities in cash; the old rules apply to contributions made to donor-advised funds, for example. Both provisions are available through 2021. Read more.

“He’s hurting his own people in the state of West Virginia,” Mr. Justice said. “I do not condone it.”

The provision is also raising questions about what actually constitutes a tax cut and whether the law could prevent states from other types of tax relief. The language of the legislation appears to offer states little wiggle room.

Jared Walczak, the vice president for state projects at the Tax Foundation’s Center for State Tax Policy, said that the fine print in the law raised many complicated questions for states that, in some cases, would be awarded money for things that they either do not need or that they already had plans to pay for out of their budgets. It is not clear, for example, if a state could use aid money for an expense related to the coronavirus that it was already planning to pay for and then offer tax credits with the additional surplus.

“If the federal government intends to forbid any sort of revenue negative tax policy, no matter what its size, because a state received some funding, that would be a radical federal entanglement in state fiscal policy that may go beyond what was intended,” Mr. Walczak said.

Such questions will largely hinge on how Treasury Secretary Janet L. Yellen interprets the legislation and what guidance the Treasury Department gives to states.

A department official noted that the law says that states and territories that receive the aid cannot use the funds to offset a reduction in net tax revenue as a result of tax cuts because the money is intended to be used to support the public health response and avoid layoffs and cuts to public services. More guidance on the matter is coming, the official said.

The lack of clarity also raises the risk that states use the money for projects or programs that do not actually qualify under the law and then are forced to repay the federal government. States are required to submit regular reports to the Treasury Department accounting for how the funds are being spent and to show any other changes that they have made to their tax codes. The department will also be setting up a system of monitoring how the funds are being used.

Emily Swenson Brock, the director of the Federal Liaison Center at the Government Finance Officers Association, said that the eligible uses of the federal aid appeared to be relatively limited for the states and that some might actually find it challenging to deploy the money in a useful way.

“It’s complicated here for the states,” Ms. Brock said, adding that her organization had asked the Treasury Department for an explanation. “Congress is reaching in and telling these states how they can and can’t use that money.”

Before they receive federal funds, states will have to submit a certification promising to use the money according to the law. They could also decline funding or, if they are set on tax cuts, they could offset them with other sources of revenue that do not include the federal funds.

For many states, the federal money is welcome even if they do not necessarily need it for public health purposes.

Melissa Hortman, the speaker of the Minnesota House of Representatives, said that she was hopeful that the federal government gives states the flexibility to use the money to make up for lost revenue from the virus. She suggested that the state should look to make new investments in education and transportation. Minnesota is expected to have a budget surplus for the next two years and will receive more than $2 billion in aid.

“It’s not too much money,” said Ms. Hortman, a Democrat. “Our country has just lived through a once-in-a-hundred-year pandemic.”

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