Contempo Magazine Blog

By Dr. Tony Magana

The Obama administration and the leadership in Congress sees taxing small business owners as the solution to the nation’s financial woes but in doing so will they not only be breaking a promise but also create more job loss?

On March 16, 2009 Treasury Secretary Timothy Geithner and President Obama addressed the nation about small business. The Secretary called small business “ the anchor of the economy which will lead us to recovery”. At the time the administration promised to give middle America a tax cut and direct the government in such a manner as to maximize the potential for small business growth.

Across the nation as a whole at least 50 percent of employees for private concerns work for a small business with less than 500 workers. The U.S. Department of Commerce estimates that as much as 80 percent of all new jobs created in America over the last ten years originated in these firms.

The State of Texas has over 2.1 million small businesses and counting. Almost 99 percent of the state’s employers are small business owners who provide jobs for half of the Texas workforce.

The greater McAllen area in the Rio Grande Valley has been a leader in economic progress over the past few years. Unlike most of the United States, the city has been able to maintain a positive percentage of economic growth and job development but has not totally escaped the national economic tide.

The proportional average age of the population under age 25 at 45 percent is higher than just about any other place in the nation and unfortunately there remains high numbers of Hispanics who make up 90% of the population that never finish high school. Despite this situation a strong cultural work ethic and a tradition of pro-business civic government have combined to create an economic juggernaut. The community had hoped to invest the rewards of economic success into better educational programs but now the future may be less bright.

Like the rest of Texas the business profile of the region shows the greatest number of jobs are in the retail industry. The health care industry and service industries have remained somewhat strong while manufacturing has decreased. Although trade with Mexico remains strong there have been significant decreases in trans-national commerce creating pressure on the Valley to intensify economic diversification. What the administration said about small business being key remains true for McAllen and the Rio Grande Valley.

Recently several initiatives being put forward by the President and influential Democratic members in Congress are threatening the vitality of small business and consequently the economic recovery of not just McAllen but of the nation.

To help pay for the massive government spending and new government health care reforms, the Democrats have proposed placing a surtax on the income tax of joint filers who make over $350,000 and single filers at $280. The surtax progressively increases beginning at 1 percent and extending to 5.4 percent for an adjusted gross income over $1 million. In an unprecedented move, the Congress would also surrender the power to set tax rates to the President’s Office of Management and Budget including a proviso to double the surcharge if they deem it necessary.

A new government mandate demanding additional taxes in support of national health care plan be paid by employers not just for their employees but to help fund others will require employers with a base income of $250,000 to come up with an additional 8 percent of the salary of each employee for the government’s benefit.

Unless Congress acts affirmatively to extend the Bush tax cuts, the combined effect of the new surtax and increased tax rates will be to place many small business owners into actual tax rates of over 50 percent. Rea Hederman of the Heritage Foundation has analyzed the data with the conclusion that the new tax plan would inflict arduous consequences to small business.

Just the discussion of escalating the tax burden for small business has discouraged investment in expansions, new equipment, and most importantly the generation of new jobs. The costs will be born eventually by small business employees in the form of lower wages, less jobs, and fewer hours of work. There will be very few exemptions for about 1/5 of small businesses that have less than nine employees and a payroll of less than $250,000.

It is not hard to imagine that the robust economic miracle of the McAllen area could be stopped dead in its tracks by the Democratic plan. With unemployment hovering near the 10 percent level and rumors of coming anti-NAFTA measures, the prospect of a rapidly escalating job loss in the Rio Grande Valley could move from conjecture to reality.

Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin

Copyright 2009, Dr. Tony Magana. Some rights reserved.
To reproduce or distribute, visit: drtonymagana.icopyright.com

 By Dr. Tony Magana

The enactment of the proposed cap and trade legislation creating a new levy of taxes on energy for carbon emission undoubtedly begets a negative economic impact on South Texas of historical proportions.

The Texas A&M Real Estate Center reports the state economy is “sliding deeper into recession”. Over the past year the overall unemployment rate has increased from 4.7 percent to 7.1 percent. Although the McAllen-Mission Edinburg area still has a positive growth rate over the past year it is barely so at 1.8 percent.

McAllen has received national attention for a record achievement in job growth and business expansion in the past several years. The national recession has had a blunted local effect but not totally. Key to survival has been the function of McAllen as a gateway of trade to Mexico. The past several decades have seen the local economy gradually transform from being solely agri-business to become a more complex center of commerce and industry. Not only have financial services and health care soared but increasingly manufacturing interests are finding the area favorable.

A major tenant of cap and trade legislation will be the institution of punitive tariffs against countries which will not participate in the liberal Democrats vision of regulation. The announcements of China, India, and Mexico of their firm intention not to join the United States in carbon emission regulation as dictated by the Obama and the Democrats in Congress will have direct and dire consequences on the McAllen economy.

Many of Obama’s political supporters have long favored severing NAFTA in an ill advised protectionist measure to reward labor unions for their political contribution to the Democratic victory. Although publicly he has refuted protectionist measures, cap and trade now provides a backdoor for Obama to get out of NAFTA by using climate change as an excuse. Embargo or tariff against Mexican products will decimate the border economy of trade.

The very progressive Center for American Progress (CAP) predicted that cap and trade legislation “will generate major employment benefits for Texas”. They claimed that Texas would see a increase of $12.7 billion in investment revenues and 153,000 jobs . By enacting the Obama initiatives even with the severe penalties on the state’s petroleum industry they guessed that the unemployment will still drop to 3.6%. Not surprisingly they are alone in their assessment.

The Brooking Institute and other more highly regarded progressive or liberal think tanks have all admitted that cap and trade will be be expensive. They argue that sacrifice is necessary to prevent further harm from occurring. Critics of cap and trade point out that at best even with a major financial sacrifice only a one degree difference if any will be seen in a fifty year time period.

The Beacon Hill Institute in Boston performed a detailed analysis of the effects of cap and trade legislation on the state of Texas. They conclude the new laws would “inflict large negative impacts on the economy of Texas”. Instead of seeing positive effects on the economy, the carbon tax would increase energy costs significantly, reduce the total number of jobs in the state,  reduce wages and actual disposable incomes of workers.

The Electric Reliability Council of Texas in May took a look at what would be the effect on electricity prices should cap and trade legislation become law. In their report they assumed the government would limit the cost per ton of carbon emitted to very low prices ($40-$60), the cost of natural gas would be stable, and there would no relative increase in electrical demand. With these assumptions an increased cost to the consumer of $27 per month was estimated. Unfortunately, this is quite flawed thinking because in reality, raising industrial costs of electricity to artificially keep residential costs low will drive business and manufacturing out of Texas. Additionally, although a significant portion of wind energy and solar energy could eventually come online the penalties to Texas fossil fuel generating plants especially if fuel prices go up will lead to energy prices skyrocketing.

Texas is the largest consumer of coal and electricity in the United States. Twenty-five percent all U.S. petroleum production and refinement occurs in the state. Although some advocate that replacing coal burning plants with natural gas burning plants can be accomplished easily and economically, electricity produced by natural gas is more expensive. Currently there is a glut of natural gas supplies worldwide but many experts are predicting the eventual rise in demand in gas will lead to significant price increases in the future. Instead of being a leader in attracting Fortune 500 companies who can export their products worldwide from Texas, there will be a transformation of the state into a pariah to business.

An analysis by the Heritage Foundation comes to a much different conclusion then the CAP. Combining the effects on the two Congressional districts which currently serve the greater McAllen area , that of Henry Cuellar and Rueben Hinojosa, the following would be seen starting in 2012. There will be a combined first year $737.42 million loss in economic production which will proceed to average $ 734.08 million in losses beyond 2012 extending to 2035. Personal income will drop cumulatively $925 million initially and average $ 268.01 million in losses annually through 2035. Non-farm jobs will see 7.404 losses initially and then average 2,712 job losses per year through 2035.

Cap and trade legislation will have a double negative impact on the economic livelihood of McAllen and the Rio Grande Valley. Residential consumers will see their own energy prices rise. South Texan’s prospects for higher wages and better employment will be diminished as industry will no longer be drawn to an area with unique geographical benefits and low costs. The long history of co-beneficial commercial development along the border of two great nations will be replaced by a political trade war being waged by the Washington DC establishment against the interests of Valley residents.

Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin

Copyright 2009, Dr. Tony Magana. Some rights reserved.
To reproduce or distribute, visit: drtonymagana.icopyright.com

 By Dr. Tony Magana

Is Kino Flores a political deviant or just a continuation of a political legacy of necessity?

The indictment of Texas State Representative Kino Flores this week by the Travis County grand jury for felony tampering with governmental records on multiple counts is just the latest in a growing swirl of controversy to surround the Rio Grande Valley politician in recent years.

Following his election in 1997, Flores consistently showed a keen political intuition and deftness in political affairs both at the state capital and in the Valley. His political education began however well before he was elected to the legislature. He served as an apprentice to the powerful Leo dynasty in La Joya whose influence ultimately helped connect him into a job with the state comptroller’s office in Austin where he worked for a time before returning to Hidalgo County.

Despite being from almost exclusively Democratic South Texas, Flores and some other fellow Democrats became key players in securing the election of Republican Tom Craddick to Speaker of the House. The resulting legislative sessions resulted in a powerful speaker who controlled the agenda and progress of bills very tightly. During this “glory” period for Flores and fellow allies of Craddick, the Rio Grande Valley saw significant funding increases for roads, highways, education, and more.

Albeit, last year Craddick was removed and replaced by a much less powerful but antagonistic Speaker, Joe Straus, without close ties to Flores. Unfortunately over the past two years Flores himself has been increasingly accused of accepting gifts, special favors, and not reporting income for various business and local governments as has been widely reported. Under Texas law, the lawmaker is required to file income sources, gifts received, property holdings, and real estate sales to the Texas Ethics Commission.

The indictments against Flores claim that over a five year period beginning in 2004 he failed to declare more than $115,000 every year. Some of those named as sources of the unreported income or benefits include the city of McAllen, D. Wilson Construction, Broaddus and Associates, Health Systems Resources, Inc., Rio Grande Steel, and Renegade Enterprises. His investigation was precipitated following an allegation that he received inappropriate plane rides from the La Mantia family in McAllen who have ties to the racehorse and gambling interests as well owning a Budweiser dealership. There is a accrued history of favorable consulting contracts, leases, land purchases, and other relationships between himself or his interests with those that could potentially seek illicit legislative favor.

Representative Flores was stripped of his chairmanship of the powerful committee that oversaw racing, liquor, and gambling in Texas with the downfall of Craddick. In addition, in December of 2008 the Texas Ethics Commission fined him $1,100 for improper accounting of campaign reports. This year in the legislature, he served essentially without seniority on the appropriations and border & intergovernmental affairs committee. He became a very outspoken advocate for Veterans during the legislative sessions often to the point of distractingly annoying his fellow lawmakers in meaningless ways that some say were more grandstanding than substance.

Supporters of Flores will note that the growth of the green economy of birding in the Valley, higher education especially at South Texas College, and many other things are better because we had a skillful and powerful advocate in the Texas legislature. All too often the Rio Grande Valley has historically had to struggle just to get a voice.

Unfortunately both his supporters and detractors have to admit that now that voice is muted. Already stripped of his seniority and influence added to having to face felony criminal charges which will likely take years to resolve even if he is ultimately acquitted, one must question what benefit will there be to him or his constituents to continue holding his seat in the legislature?

The Texas Monthly labeling of Kino Flores as one of Texas’s worse legislators is truly disingenuous. By default it portrays that the other members of the legislature are contrarily different. Instead our part time legislature is full of back door deals and political swaps. Their minimal hearings on issues and lack of media attention due to the demise of the newspaper has given the whole Texas legislature carte blanche.

The reality is that at this point, Kino Flores needs to focus on his defense and the welfare of his family. His demotion and indictment have rendered him indisputably unable to represent South Texas District 36 effectively. His continued presence in the legislature will become a handicap for the region. This does not mean or imply that he is guilty of any wrongdoing.

Should we condemn Rep. Flores as a totally wayward deviant from proper legislative conduct or he is just a very visible symptom of a much deeper hidden cancer in the state government? There is still a regional discrimination against the Rio Grande Valley in state politics. Long ago political machinery was developed as a means to compensate for this bias and today it still serves as the principle route of political advancement. Was Flores just applying what had been passed down as political reality for the past 50 years?

The State of Texas has to change the way it deals with the Rio Grande Valley and hopefully then we can change the way we do politics so that in the future we will not need a Kino Flores to get done what needs to get done.

Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin

  Copyright 2009, Dr. Tony Magana. Some rights reserved.
To reproduce or distribute, visit: drtonymagana.icopyright.com