Wednesday, April 26, 2006

Sales Tax and the Mexican Economy

Hi Hector,

I didn't want to hijack the rep's blog for a side discussion. I'll also add this to RGV Life for public comment. Here is what you wrote:

What would this do to Mexico's economy if the majority of wealthy Mexican nationals were faced with the decision to either spend money in their own country or ours during peak holiday seasons? Would this improve Mexico's economy?
I'd like to know, please respond either here or email me..

I don't have hard facts to which to point, it's just my best guess from talking to many of my Mexican customers. The average Mexican doesn't shop for taxable goods. They will go to the flea markets in Hidalgo, here in Mission, or other places. They are looking for goods for resale. So, they don't bother with manifiestos because they don't pay taxes on the stuff anyway. These shoppers don't typically come here and stay at a hotel and fill their suburbans with goods during peak holiday seasons.

Those who do come here for peak holiday seasons are, not suprisingly, business owners or executive level employees. They have disposable income that they intend to use on quality goods and services. So, they will stay at the nice hotels. They will dine out, shop, and seek entertainment. They are not average Mexicans, but they LOVE getting a bargain. One of the most asked questions in retail here in the RGV is "si compro en cantidad, hay descuento?" Of course, for wholesale prices, you need to buy a few hundred or thousand items to make the price break worthwhile. So, I'd tell them that we did not offer price breaks because we simply did not have enough quantity to justify it. Still, they would buy $200 to $300 in goods. But, it must be something in the Mexican psyche that demands that they try to find a bargain. That 8.25% they save goes towards buying more stuff. In contrast, the average Mexican will buy $20 to $30 of goods after much debate on the right mix. There is a big difference in purchasing power between the upper class and the typical person.

Your question is what would happen if they stayed there? Would it help the Mexican economy? It is unlikely. The upper class shop here because of the quality of our goods. Mexicans do have products on their shelves, but they are priced and marketed for the majority, who aren't generally wealthy. The quality of their goods is different from the quality of ours (not necessarily inferior, but perhaps perceived that way). So, they'll come here to shop anyway, but will buy fewer goods due to the increased cost from sales taxes. We'll see slower inventory turnover, which is bad for business. Mexico does not have substitutes for the products we offer, except for services or imported products at inflated prices. So, it is vital to us here in the RGV and Texas, to keep them shopping.

Many of the wealthy families who have homes here have their businesses back home in some part of Mexico. One of the good things about being in business is that you can buy stuff below retail cost, keep what you want, and sell the rest. So, many of the people who come here to shop can already buy Mexican goods at below retail prices because they are business owners. They have more money to spend than the average Mexican, but it is still finite. They may have cases of products for sale to the general public in their shops or factories back home, but those goods are not necessarily a good value for their personal tastes. Average Mexicans, on the other hand, can get everything they need back home at better prices. They are more willing to substitute with lower quality than the wealthy.

There was an answer in there somewhere. I believe it was that the shoppers who support the RGV economy would still shop here, but would buy less if we got rid of the manifiestos. Therefore, the impact to the Mexican economy would be negligable as they can already get bargains for Mexican products. The people who shop here ARE the Mexican economy. If there is an increase in the middle class and there is higher demand and production of high quality goods, perhaps the Mexican elite will stay home to shop. But, they can't buy what isn't there.

Does that make sense? I should note that my response is RGV and Texas centric. After all, it is not Austin's duty to worry about the Mexican economy. It is not in the RGV's interest to keep shoppers away. I believe that I live in a great country. I believe that I live in a great state. And, I believe that the Rio Grande Valley is a great place to live (most of the time). So, my thinking goes along the lines of what is good for Shaine Mata here in Mission, Texas, USA. More commerce in the RGV means more jobs that can turn me down when I apply for them. I'll get something eventually. If we slap a big source of our revenue in face with a sales tax, my chances for getting a job go down with slower sales.


Writer said...

With respect to the school growth in the RGV. Taxes from manifiestos probably won't keep up with expenses and targets the wrong group.

My reasoning is that the wealthy Mexicans who come to shop here may send their children to school here, but will typically own a nice second home here. Therefore, they already contribute to public schools. Often, they even send their children to private schools while still paying taxes for public schools. These are the people who benefit from manifiestos. Even if they don't live here, they contribute to our prosperity.

The children who are here from illegal immigrant parents are poor. Their parents probably rent apartments that pay taxes. They buy groceries and goods that charge sales taxes. The problem is that whether they own or rent, property values are so low that the taxes paid don't cover the cost of sending their children to school. So, they are a burden on our public school system. We can try to charge more money, but they're poor. They're poor because we pay them as little as possible. And, it's not so much illegals. Wages in general are low in the RGV for everybody.

Next time you hire somebody, pay them a little more or give them bonuses so that you make a direct contribution to somebody's life. The more they earn, the easier it is for them to make home improvements or buy a home. The more they earn, the more they spend on taxable goods.

Having been poor most of my life, I can tell you that living paycheck to paycheck for mere survival because of low wages has prevented me from saving for retirement. It has prevented me from buying some really nice gadgets. It has prevented me from EVER buying a new car. Poverty forces people to spend most of their disposable income on food and rent, both non-taxable. You can pay your employee, who makes a direct contribution to your success a little more, or you can have the government, that contributes to your problems, come in and take the money to give it to your employee.

Having said that, I know that those of you who can tip the landscaper and extra $5, give the housekeeper a bonus here and there, or hire somebody for more than minimum wage won't do it. So, by choice, you force the Legislature to take it from you to pay for indigent healthcare, food stamps, public schools, and other goverment services. It's a conscious decision. You want to take from the poor as much as possible and give them as little as possible. You were raised better than that. Be nice.

Anonymous said...

I'm sorry Shaine, but now you went all over the place and made no sense at all. You have to know what this tax/education debate is really about and then make your comments.

My comments were very specific with policy considerations in mind. I'll stop this debate now. It is too difficult for the common folk to understand my point of view.

Hector said...

I felt it kind of rude to be taking up space at Rep. Pena's site, but I found your original comment interesting. Especially when Congress is debating what to do about the illegal immigration "problem". I just thought the point you made could have a reverse affect in that Mexico, if faced with "do we buy goods in the U.S., or do we buy goods domestically" might get their own economy going so that the poorer citizens may have a fair shot at a growing economy in their own country. I'm not an economist, so I'm not sure if this is even feasible. Just a thought.
Again, if you talk to the Rep., let him know I didn't mean to invade his space.

ever thought of creating a blog of your own. You seems to present your points in a very intellctual manner. Might be good to see someone else like yourself join the blogosphere.


Anonymous said...

Hector...thanks for the complement. I do not have the time to give something like this my full attention, but I will consider it for the future.

In the meantime, Rep. Pena has given me a blog name: little buddy. I will continue to use that name.

I just want to make something very clear. It has never been my intention to put anybody on the spot, or to offend anybody. My comments have always been thoughtful and insightful based on my experience with the legislature and congress. I respect Rep. Pena for the work he does for his constituents, but I do expect certain things from him, as I should, since he is an elected official.

Any other issues you all want to debate, I will be here to make my comments.

I think you make a good point about the immigration debate. Mexico needs to enhance its own economy. But if you notice, the current immigration bill says nothing about increasing foreign investment or building better relationships with our friends from Mexico. I know the bill cannot have a direct clause that says that the U.S. will give money to Mexico to increase jobs and universities, but from a policy perspective, that is the message we should send with our immigration debate. Anyway, I am short for time but if you would like to continue bloging on this issue, I will provide a broader answer later.

Anonymous said...

Please Senator Lamar Alexander's website. He has some speeches on his website regarding the immigration debate. His speech on the national anthem is not too compelling to me. How does he overcome the 1st amendment? For anyone that knows about the law and is familiar with Supreme Court decisions, you know that the first amendment argument overcomes pretty much any argument reagarding speech.

I like the way the immigration debate is shaping out. I wish we did a little bit more for preserving any rights for immigrants coming out of this debate, but I am sure future laws will take care of that.

Anonymous said...

Sorry about the last post. I meant to edit it. Here is the revised version.

Please visit Senator Lamar Alexander's website. He has some speeches on it regarding the immigration debate.

His speech on the national anthem is not too compelling to me. How does he overcome the 1st amendment argument? For anyone that knows about the law and is familiar with U.S. Supreme Court decisions, you know that the 1st amendment argument overcomes pretty much any argument reagarding speech, and I don't think any other "law" is above regarding this argument.

I like the way the immigration debate is shaping out. I wish we did a little bit more for preserving any rights for immigrants coming out of this debate, but I am sure future laws will take care of that.

I hope all blogers here get to read these speeches and please lets us know what you all think.

--Little Buddy

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