Bowing to intense criticism, the government of President Enrique Peña Nieto yanked a contract worth nearly $4 billion from a Chinese-led consortium to build a bullet train, billed as one of Mexico’s largest infrastructure projects in recent times.

The government ordered a new bidding process after the awarding of the concession to the Chinese group was attacked by legislators and others for its lack of transparency and apparent favoritism benefiting allies of the president. The bid was uncontested.

The consortium included several Mexican construction companies, one owned by the brother-in-law of former president and Peña Nieto mentor Carlos Salinas, Mexican news outlets have reported. Another won millions of dollars’ worth of projects in the State of Mexico when Peña Nieto was governor there.

Aside from the financial problems, Mexico has a problem similar to California’s: not enough people for a bullet train. Here are some population densities, per square kilometer:

• Japan: 336
• China: 142, mainly in the Eastern one-third of the country.
• California: 95
• Mexico: 62

California also is different because the lion’s share of our population is centered around two large areas more than 300 miles apart: Southern California and the Bay Area. It’s easier and cheaper just to hop on an airplane than to mess around with a train, however fast.

Also note that Mexico’s project would cost $4 billion, compared to California’s $68 billion. Even though labor is cheaper in Mexico, that’s still a big difference.

“The Mission will focus on boosting direct investment in the state, expanding bilateral economic and environmental cooperation and connecting California businesses with new opportunities and partnerships.”

He also will witness a Mexico that’s much different from the country that crashed and nearly collapsed just two decades ago during the 1994-95 Mexican Peso Crisis. Since then, Mexico has conducted numerous free-market reforms, first under the Presidente Ernesto Zedillo from 1994 to 2000 and his Institutional Revolutionary Party (PRI), which had ruled the country for decades.

Then, in 2000, PRI’s 71 years of rule came to an end with the election of Presidente Vicente Fox and his conservative National Action Party (PAN). Fox’s further reforms were continued by Presidente Felipe Calderon, elected in 2006, also of PAN. PRI took office again in 2012 with the election of current Presidente Enrique Pena Nieto.

Nieto had no intention of returning to the socialist policies PRI followed before the Zedillo reforms. Instead, he has kept Mexico on a steady market footing.

According to a recent survey by PriceWaterhouse Coopers, in 2014 the Mexican top corporate tax rate dropped to 28 percent from 30 percent in 2012. By contrast, the United States‘ top corporate is 39.1 percent, the highest of the OECD countries.

California piles another 8.84 percent on top of that. Total in corporate tax rate in California: 47.94 percent.

Texas, where Toyota will be moving its headquarters, has no state corporate tax rate.

Mexico’s top personal income tax rate is 30 percent. The U.S. top income tax rate was raised in 2013 to 39.6 percent from 35 percent. And in California, the top state income tax rate was raised in 2012 to 13.3 percent from 10.3 percent under Proposition 30. Total top income tax rate in California: 52.9 percent.

Texas also has no state income tax.

No wonder PWC concluded:

“Mexico has kept its fiscal and monetary policies under strict discipline, a situation that has maintained the country with an adequate macro-economic position and suitable for an investment from that perspective, as well as maintaining an ‘investment grade’ from the international financial community.”

‘Highest growth’ in the world

Earlier this month, PBS Newshour ran a report on the Mexican state of Querataro:

“Of all the cities in the world, this small Mexican town had the highest growth last year in foreign direct investment — that’s money invested directly into local business. And its population is growing rapidly too.

“With its colonial center, a UNESCO World Heritage Site, and its new industrial parks, the poster child for Mexico’s burgeoning new economy is here in Querétaro.”

Of course, like any country Mexico has problems. The main one is the continuing violence of the drug cartels. But even that has been improving.

The University of San Diego’s Justice in Mexico project just released a new report, “Drug Violence in Mexico.” It found:

“The total number of homicides appears to have declined by approximately 15% in 2013. While INEGI’s figures are not available for 2013, preliminary data from Mexico’s National Security System (SNSP) suggests that the total number of intentional homicides in 2013 declined again this year, and more than in 2012.”

However, the report also noted that the data may not be completely reliable and will need to be confirmed by further study.

Brown will witness a vibrant Mexico that is going places under a much smaller burden of government than people and businesses must put up with in California. Perhaps he will bring those lessons home.

]]> https://calwatchdog.com/2014/04/29/gov-brown-will-see-mexicos-low-taxes-in-action/feed/ 7 63072 https://calwatchdog.com/2012/11/30/californians-fleeing-to-mexico/ https://calwatchdog.com/2012/11/30/californians-fleeing-to-mexico/#comments Fri, 30 Nov 2012 17:24:45 +0000 http://www.calwatchdog.com/?p=35031 Nov. 30, 2012

By Chriss Street

On Tuesday, President Obama met with the newly elected president of Mexico, Enrique Pena Nieto.  While the press focused on the Administration’s talking points for discussions on a wide range of issues from energy to climate change, the real concern is that the Mexican economy is far outperforming the U.S. economy and the new immigration concern is increasingly from Americans illegally moving to Mexico.

Nowhere is this trend more challenging than in California, which was just awarded the booby prize by 24/7 Wall Street survey, as the “Worst Run State” in the United States.  The state has:

* Unemployment: 10.1 percent (3rd highest);

* Budget deficit: 20.7 percent (17th largest);

* Debt per capita: $4,008 (18th highest);

* Median household income: $57,287 (10th highest);

* Percentage in poverty: 16.6 percent (18th highest);

* The worst credit ratings.

State politicians’ answer to get finances back on track was to convince voters to raise sales taxes and increase the income tax rates for people making more than $250,000 a year to the highest in the nation.  This wasn’t difficult, since 40 percent of Californians don’t pay any income tax and a quarter are on Medicaid.

Residents making $1 million per year saw their state tax burden rise to $96,189 from $87,459 last year.  For every dollar earned over $1 million, the California income tax rate jumps to 13.3 percent.

To complement California’s ludicrously high personal tax rates, the state is also rated as the third-worst business tax climate by the American Tax Foundation.  Forbes Magazine publishes a formula for states that measures how many “makers” (those gainfully employed in the private sector) are necessary to support takers (those drawing state dollars as employees, pensioners or welfare recipients).

A software entrepreneur with 100 employees in San Francisco must support 139 California takers.  The same entrepreneur with 100 employees in Austin only has to support 82 Texas takers.  This punishment of success explains why California’s share of the U.S. economy peaked in 1990 and has shrunk faster than all but three states over the last 12 years.

Goin’ South

California millionaires rebelling from Taxafornia tended to move to the income tax-free states of Texas, Washington and Nevada.  But increasingly, Californians are headed for Mexico.  A Google Internet search for “emigrate to the United States” generates 3.3 million hits. But “emigrate to Mexico” generates 1.3 million hits and the number is rising fast.

Beside low taxes, Mexico has six times the beachfront, half the food prices and a third the real estate costs versus California.

Because Mexico officially bans foreign ownership of land, disallows birthright citizenship and tries to make it difficult for foreigners to find work, there are only 150,000 Americans who live legally in the Empire of the Sun.  But more than one million Americans live in Mexico illegally.

These American expatriates can establish property trusts and take advantage of bank secrecy laws to hide assets from the prying eyes of the IRS and the California tax collectors.  American expats can roll over six month tourist visas for $25 and vehicle permits for $30.  Mexican businesses seldom ask for identification.

Mexican boom

While California’s economy is in the doldrums with 10.1 percent unemployment, Mexico’s economy is booming with only 5.0 percent unemployment.  The Mexican business climate is benefiting from strong production growth and increasing job opportunities.

More than 1.4 million Mexicans — including about 300,000 children born in the United States — returned to Mexico from the United States between 2005 and 2010.  Net immigration to the U.S. dropped to zero since 2008, while American immigration to Mexico is thriving.

UCLA predicts that California’s employment growth will average less than 2 percent for the next three years.  The Economist magazine expects the Mexican boom to continue; since manufacturing costs are more competitive in Mexico than in China:

“Mexico is already the world’s biggest exporter of flat-screen televisions, BlackBerrys and fridge-freezers, and is climbing up the rankings in cars, aerospace and more. On present trends, by 2018 America will import more from Mexico than from any other country. “Made in China” is giving way to ‘Hecho en México’.”

A key competitive factor, according to accounting research firm KPMG, is Mexico’s #1 international ranking as the best place to do business from a tax burden point of view.

President Peña Nieto told President Obama he hopes they can work together to create jobs.  The Mexican president also invited Obama to return to his country — he was last there in June for the G20 Summit in Los Cabos.  Obama said he looks for “any excuse to go to Mexico, I’m always game.”  When President Obama visits Mexico, he can wave to all the Taxifornians who have already escaped there.

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