News & Notes

As we roll over into Black Friday week (fortnight?), I’d like to offer you something practical: a personal finance suggestion for the current economic moment.

A multinational perspective

One thing I suspect most Americans don’t know about Mexico — I certainly had no idea, before we moved here — is that the cost of living here is not universally cheaper than in the States. It’s not even mostly cheaper.

Housing is cheaper in Mexico, and housing is such a giant percentage of living expenses for most Americans that a lower cost of housing can make the expat math work out. Also, lower wages make most kinds of private services more affordable — Jak and I hire housekeeping help for several hours a week, for example, something we never had the budget for at home.

But nearly everything else that a (former) middle-class American might want to buy turns out to be pricier in Mexico. Notably, almost any kind of manufactured good costs somewhere between 120% and 200% of its US price. Appliances, electronics, computers, clothing, household fixtures and furnishings are reliably more expensive here … if they’re available at all.^[1] For many categories, the level of quality that I took for granted in the States is simply not an option in Mexico, at any price.

So to live in Mexico as Jak and I are — with the goal of keeping our costs down and building up savings — has required on the one hand a certain commitment to material self-deprivation, and on the other an often-complicated logistical contrivance of personally, physically transporting as many items as possible from the US.

For the first eight years of our expat life, while we were building up savings and paying for our house, we leaned a lot more towards doing-without. Our annual imports were limited to what would fit in a couple of carryon suitcases; I got used to buying a years’ worth of clothes all at once, in a giant multi-Goodwill spree.

These last three years, as we’ve been remodeling our house in stages, have been more about the logistics of schlepping as much as possible from the States to central Mexico — and yet it still has that kind of feast-or-famine rhythm. Twice Jak and I have driven a car up to Texas and come back with it stuffed to the gills. And we’re about to do it a third time: for most of the last year I have been compiling a long and complex list of items to buy, most of which I will purchase at maximum Black Friday discounts (currently from twenty-three different stores and counting, because I’m trying to support Amazon as little as possible) and ship to reside with my in-laws in Austin until we can come pick it up next month.

It’s a veritable orgy of consumerism — buy everything! everywhere! all at once! — followed by eleven months of near-celibacy, where we buy almost nothing except groceries.

Buy now, offer expires soon

It’s really just coincidence that our remodel schedule already had us making all these major purchases in the final weeks before the transition from Biden’s government to Trump’s. But if that had not already been the plan, I would have had to change the plan after the election. Because economically, the shit is about to hit the fan in both countries.

Most of the time you don’t get to see these sorts of things coming. No one in November 2019 foresaw where everyone would be in March of 2020, for example. But in this moment, the economic forecast is … unusually clear.

Economists left, right, and center agree that the tariffs Trump keeps promising are going to spike American inflation. And while some of his campaign promises will doubtless not come to pass, tariffs are pretty much a guarantee. (Trump likes nothing more than a big unilateral show of power, and tariffs give him that — and there’s nothing really standing in his way.)

In fact, I expect US inflation to begin to rise immediately after the new year, even just on the expectation of tariffs, as companies begin to adjust their strategies for the policies they know are coming.

So the smart thing to do, if you can afford it, is to buy now instead of later. Thinking about upgrading your TV in the next couple of years? What about your cell phone, or your laptop? Been planning to install solar panels, but not quite getting around to it? Is your water heater nearing the end of its lifespan? Are you planning a baby in the next year or two? Look around at your house and think about everything you might need or want to replace, upgrade, or add over the next two years, and consider doing it now, before the end of 2024.

This only works if you have some personal savings — such as an emergency fund — or if your income allows for discretionary spending over and above subsistence expenses (like housing and food); if you have to carry a credit card balance to make these purchases now, the interest will more than negate the savings against future inflation.

Unless the purchase in question is for clean energy tech that currently qualifies for federal tax credits thanks to Biden — things like electric vehicles, heat pumps, and solar panels. Trump has indicated that he would like to repeal all of those tax credits, and with a Republican Congress he can probably do it pretty quickly. Those credits represent thousands of dollars in savings — up to $7,500 for a new electric vehicle, $4000 for a used EV, and up to $3,200 for home energy upgrades, as well as 30% of the cost of solar panels, wind turbines, or battery technology — enough savings that it could be worth buying now on credit even if you can’t pay it off right away.

Why so pricey?

Economies are complicated and I don’t imagine I know all the reasons why goods in Mexico are more expensive, but one obvious contributing factor is consumption tax.

America has no federal consumption tax, but rather a hodgepodge of different state and local sales taxes, so that the final tax rates are literally all over the map. What you personally pay might be as low as zero (in Oregon, Montana, New Hampshire, and Delaware) or as high as 11.45% (in certain parts of Louisiana). On average, however, Americans pay 6.6% in sales tax.

Mexico, on the other hand, levies a federal VAT (value-added tax), which is another form of consumption tax — basically a sales tax with extra bureaucracy. Just like with a sales tax (or a tariff), the end consumer bears the full cost of a VAT. Mexico’s national VAT is 16% … or well over double the American average.^[2]

And even Mexico’s 16% is moderate compared to Europe, where VATs start at 17% and climb as high as 27%, with an average of 21.6% … or more than triple America’s 6.6%.

Just, you know, a little global perspective for any Americans in the audience who might be feeling overly burdened by taxes.

Of course, consumption taxes — whether sales or VAT — are “regressive”, meaning they put the biggest financial burden on the people with the least money. That’s why plutocrats — billionaire politicians like Trump and his new advisor Elon Musk — tend to prefer them over “progressive” taxes like income and wealth taxes.

Interestingly, the country in Europe with the highest VAT — that 27% — is also the least democratic country: Hungary. Donald Trump openly admires Hungary’s longtime autocratic leader Victor Orbán; key strategies of Project 2025 which Trump seems eager to adopt were directly copied from Orbán’s 2010 takeover of the Hungarian government.

One of the first things Orbán’s government did after consolidating power was to raise the VAT by two points, and it’s been the highest consumption tax in Europe ever since.