How Small Business Might Be Affected in the Texas-Mexican Border Region with an Obama Victory

 
Free Trade is the Life Blood of the Texas-Mexican Border

What will be the effect of a McCain or Obama Presidency on small business on the currently strong economy of the Texas-Mexican border region?

One of the few indicators doing well in economic growth for the United States has been exports. Mexico is one of the leading buyers of American exports.  Since 1994 when Mexico signed the Free Trade Agreement the number of American exports bought by Mexicans have more than tripled.  Although some factories have relocated from the United States to Mexico this has resulted in a rise in income for workers in Mexican factories who now buy American products.

If you listen to many politicians talk about American industrial production you would think that America must be very small on the world stage of manufacturing. According to the The Bureau of Economic Analysis (as quoted by the  New York Times in August 2008) actually 70% of all manufacturing done by multinational companies world wide is still done in the United States. Commodities, specialized equipment like airplanes and tractors are among those things that are still increasing in demand despite the bad economy. A recent purchase of hundreds of trucks by Mexican officials from dealers in the Rio Grande Valley was a record setter.

The local economies of cities like McAllen, Texas are fundamentally dependent upon good trade relations with Mexico. Millions of Mexicans cross the border every year to buy American products. Even in the face of an ongoing drug war with Mexican cartels, the border zones have become investment meccas for American, European  and recently Asian companies with the result that millions of dollars are being pumped into the local Texas economies. Factories on the Mexican border are busier than ever. As a result, Texas has avoided much of the economic downturn so prevalent in other parts of the country.

What would be the effect of an Obama Presidency?

Recently a landmark study from the University of Houston showed that one of the main contributing factors to Hispanic success in the Southwest has been the symbiotic relationship that has developed between native born Hispanics and immigrant Hispanics.  The absence of language barriers and cultural identification between the two groups makes for a good and trusting relationship in many small businesses that are the hallmark of the South Texas economy.

The Obama plan would in several ways act to put a wedge in this relationship. Obama advocates an electronic employee verification system thought would require employers to collect potentially incriminating information from their employees. Obama has voted for heavy penalties for employers who hire illegal aliens even if the employer was not actively pursuing an illegal action. The burden of proving whether a worker was properly documented would rest with the employer ultimately rather than the government or the employee. This means that small businesses will have to hire additional personnel to handle human resources functions that do nothing to improve company productivity.

Most political analysts agree that if Obama wins the election, the Employment Free Choice Act will shortly become law. This law would allow employees in a simple majority open meeting without secret ballot of even very small companies to immediately unionize.  Many are concerned that this will even further disrupt the symbiotic relationship of native Hispanic management and immigrant Hispanic labor.

Obama has never made a clear statement about what he will do about the North American Free Trade Agreement (NAFTA). Early in the campaign, he stated he would scrap the agreement altogether but then later said he might keep some of it but still remains vague and noncommittal. In the key battle ground states of the “Rust Belt” where he enjoys heavy union support he has all but promised to scrap NAFTA on the day of his election. Just the fear that NAFTA will be curtailed or cancelled has sent shock waves into the local economic sense of well being. To put it bluntly, if any significant changes are made in NAFTA, the consequences for thousands of workers on both sides of the border could be beyond those of the current economic crisis.

Small business is defined by Mr. Obama as a business making less than $250,000 per year.  Many authorities have identified that professional associations such as doctors, architects, dentists, lawyers, contractors, and plumbers for example who exist as partnerships will likely be facing significant tax increases. These are the type of businesses that characterize a typical border city.  In addition there are many successful Hispanics from poor backgrounds who had hoped to leave a business as a legacy for their family but under an Obama Presidency will face new higher inheritance taxes than eliminating it under McCain. Obama does say he would reduce the capital gains tax for selling shares in a small business but absolutely refuses to lower the corporate tax rate from 35% leaving the United States ranked 38th in the world for corporate tax rate.  McCain will lower the the corporate tax rate to 25%. Hispanic tradition is to pass the family business on from generation to generation not to sell them like Wall Streeters.

Both McCain and Obama agree that deductions for research and development are necessary.  But a major plus in the McCain plan is the new equipment purchases could be totally deducted in the first year which could be key for new business start ups or established businesses looking to expand.

Health care is a difficult issue for small business in this region. Many employers cannot afford insurance for themselves or their employees.  The state of Texas actually has a generous Medicaid program compared with other states that provides some level of health care coverage for many working poor of small businesses.  Obama would penalize the owners of small business for failing to provide health care coverage while McCain would make health care insurance no longer primarily the responsibility of the employer. To date Mr. Obama has been very vague in discussing details of his health care plan and refused to say how much the fines would be even in the Presidential debate held yesterday.  Forcing small business to issue insurance probably represents the greatest threat to economic survival of small business.

The irony of the Texas-Mexican border region is that it may very well be punished for being successful.  The promises necessary to win the election in the battle ground states of the “Rust Belt” may well result in another economic casualty of politics in government.

Go To Contempo Magazine Home Page

This entry was posted on 9. October 2008 at 00:30 and is filed under politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

| Print