How much will the market tank on tax bill failure?

Since the odds never favored a deal, Boehner's Plan B failure isn't that surprising.

By Jim Cramer Dec 21, 2012 10:05AM

Street logoCorbisWe're stuck with bad templates: TARP votes one and two and the Grand Bargain No Bargain moments of 2011.

These two Washington-orchestrated calamities caused the stock market to plummet each time, which then helped get a deal done.

Anyone who remembers the chaos after the failure of TARP to be passed knows that a 7% drop can occur when Congress chooses not to save the Republic's banks.

The failure to raise the debt ceiling or come up with anything responsible led to a 19% fall until we got something that worked then, but isn't working now. We were paralyzed by the possible ratings agency downgrades and when we got one we thought, somehow, it was the end of the Earth.

It wasn't.

Bonds did the opposite of what we thought and staged a remarkable rally. In that sense the selloff was about nothing.

I think that these two analogies, which are being trotted out quickly Friday morning after the failure of Plan B, simply don't work.

First, the hated TARP came at a time when there was a run on the banks. You could argue that your ATM might not even have worked if that didn't pass. That one was huge.

Second, the debt ceiling deal turned out not to matter, at least when it came to the ratings agencies. It was, alas, almost much ado about nothing. This time around it would not shock me if the president just raised it himself and accepted a court challenge. Bills need to be paid, that's the law. One law -- that the Congress has to approve a debt ceiling raise -- conflicts with another. The payments that the federal government must pay on time.

Now I am reading that this failure of Boehner's Plan B is the equivalent of both. You can almost take an average of the two and arrive at what we are supposed to be done, call it 12%. And yes, those are precisely the numbers I am being told we will fall.

Now there are several things at work here. First, I don't know anyone who really thought the GOP would ever vote for a tax increase, period. Grover Norquist has made most Republicans sign a pledge. They will, according to Norquist, be challenged in the primary by Tea Party members. The pledge will not be broken.

I have thought, ever since I came back from Washington not that long ago, that it was clear this meant there could be no deal. We had hopes there would be another Grand Bargain driven this time by the president's big win, but these Republicans won regardless of the president. He means nothing to them. Nothing at all.

So, now we go over the cliff. I believe once Americans have seen their truncated paychecks -- both the people who are paid weekly and the ones paid monthly -- talks would begin in earnest to make some sort of deal to cut taxes with the Republicans actually leading that fight, urged on by Norquist. So Boehner's gambit was always a charade.

So, why should we sell off big on a charade? The Super Bowl plan is in effect. My take, the odds always favored no deal. We aren't going to get a deal. We fall of the cliff.

What gets repealed? The whole 7.5% gain since the November lows?

Nah, I think the gain from when there seemed to be a deal last week, call it about 2%-3%.

We always overdo it intraday, so it could be more. But the idea that "suddenly" there's no chance of a deal is pretty ludicrous.

The GOP will not vote to raise taxes, just to cut them. And I actually expect that to happen because Norquist will urge them to do so.

If it doesn't? Well, we won't know that for another month. And that's how it will go.


Cramer's face 


Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.



More from

Dec 21, 2012 11:22AM
If we go over the fiscal cliff, all taxpayers will have to sacrifice yet again.  IMO, taxpayers have always been willing to sacrifice a little bit to get us back on track and headed toward a better position.  The problem is, all of our sacrifices are in vain, and have been for decades.  And this time will be no different - the increased tax revenue will be wasted as it always is.  When is the last time we payed down the debt?  When is the last time we actually rooted out and eliminated significant waste and fraud?  When is the last time the fed gov acted responsibly and prudently with our tax dollars?  The taxpayers have sacrificed long enough, it's time for the gov to sacrifice now.  They need to find a way to function with less, much less.
Dec 21, 2012 11:09AM

Like Obama said,"we need a balanced approach to the fiscal cliff".I want all those companies like

GE to start paying taxes.The billionaires won`t lose their ROLLS ROYCES if they pay

some taxes.

Dec 21, 2012 11:35AM

the cliff happens.  each party says it was the other one that allowed it to happen.  next year they vote in tax cuts and spending increases - applicable to their voting ideology. 


the average american sits on the floor at the bottom of the same cliff and ask WTF are these politicians doing?!?!?!?!

Dec 21, 2012 10:59AM
Sometimes it is best to sit, watch, and learn.  Most folks were yearning for a giant bull run once the budget drama was dissolved.  But hey ever try and get a politician off a stage.  So lets return to the fundamentals we all know to be true.  The American worker is being forced to compete with one arm behind his back.  The unfair trade argument should now be best applied to the American worker.  The International Corporations are hooked up with the necessary politics to completely bury and destroy any workers groups ability to stand up against both political houses and the executive branch of our Government which is being led and supported by organized business.  As in the Vietnam war the US guberment would not allow the American kids to shoot West into Cambodia where the enemy would rest, restock, and regroup.  And Obama just like Clinton was able to completely pull the wool over the American middle class convincing them he had their best interests at heart all the while rubber stamping the New World Order.  Why just yesterday Obama granted most favored nations exemption to Russia.  With the huge uphill run required for most Americans to just survive the powers at be continue, with Obamas blessing, allowing foreign products free access to have their way with the American worker.   We have been hugely misled by this Administration but most here already knew that.  So most of us clearly understand the present goal is to force the American worker to submit without recourse to the Corporatism now controlling the worlds jobs.  I am not or ever could be accepting of many Union excesses.  However we need to remember Capitalism works when two sides fairly compete with the goal of the betterment of all.  We do NOT have that in America at this point in time.  And without free competition we all know Capitalism does not work.  This currency, this market, and this Country are doomed without the proper "competitive" policies fostering a balance between worker and employer in place.  So really should any of us feel a loyalty to this present process?  We are excluded by design and any ideas we have  are unimportant to this system in that the entire process has been already decided.  America as we knew it is over with.  The New World America will rise out of the present programmed destruction and you and I will be just bystanders. JMHO
Dec 21, 2012 12:05PM
I told my wife over a month ago that we were going to go over the fiscal cliff, I could not see anyway the more militant in Congress would act in a pragmatic way.  She asked what we would do then, and I said pay more taxes and tighten our belts, that we would get by and survive, but others may not be able to do that, so we should not be surprised to see a noticeable increase in crime, desperate people do desperate things. What is truly amazing is that the wealthy will take a bigger hit going over the cliff (e.g., all tax bracket rates (and capital gains tax) will increase, spending will decrease, profits will shrink) than if they agreed to a compromise increase to avoid the cliff.  But this is what the GOP/TP wants, a strict adherence to principle, not common sense.  There is an old saying, "Be careful what you ask for, you just may get it".  It will be interesting to see how the majority of Americans react to this, and that will be shown in the 2014 elections.
Dec 21, 2012 11:33AM
I've always thought we were going over the cliff.  Once we go over the Republicans can vote to cut taxes instead of raising them.  The results will be the same and I expect a deal sometime in January.  Hopefully with some meaningful spending cuts.  I don't think there is a backbone in the entire District of Columbia.
Dec 21, 2012 12:55PM

What everyone does not understand -- no matter what is done the Republican plan or the Obama plan either one is going to be too little too late.


By either plan the US debt will be at least $25 trillion by 2020 and the GDP officially about $17 trillion


However the GDP is so inflated it is no longer a true measure of the country's economic output.

For starters the $1.8 trillion federal deficit is a positive on the GDP raising it by $1.8 trillion instead of decreasing it $1.8 trillion. Secondly everyone in America is suppose to live somewhere for free and get rental money for renting their homes which adds another $4 trillion to the GDP which I don't know about you but I do not live somewhere for free and get rental money for my house.


So the $16 trillion GDP is overstated by at least $5.8 trillion add in about $1.2 trillion or more for over estimated numbers and you have real GDP at about $11 trillion which sounds about right for the way the real economy is doing.


So right now with GDP at $11 trillion the $16 trillion debt is in crisis mode at 1 1/2 times GDP


Add in the fact that incomes are just below $4 trillion the real spendable GDP is only $4 trillion so the debt to income ratio is at a deadly 4 times income.


If the Federal Reserve was not buying US T-bills and loaning money to the banks at zero percent and having them buy US T-bills with the money (why do you think with all the money out there going to the banks that no one can get a loan hardly???)


Pretty much I give the system only 1 to 2 years before it collapses. The same is true of Europe and Japan is already collapsing before our eyes.


Get ready folks in two years your savings will be worhtless and you will not make enough money to pay the taxes on your houses let alone buy food


Merry Christmas and Happy New Year

Dec 21, 2012 11:32AM
good day to buy new stock till perhaps 1pm.  then resell next week for some quick cash
Dec 21, 2012 1:03PM
The over riding philosophy for folks such as MG is's all based on GREED AND ARROGANCE which our government has fostered since NIXON, FORD, AND REAGAN.   And of course, if you disagree with folks such as MG, you automatically are labeled as part of their so-called leech class.  They fail to realize that 47% includes students, elderly veterans, and disabled.  No matter what the rates, those folks didn't pay prior to the rate changes either.  And just for a matter of record, MG, I know I probably don't pay the taxes you pay, since you are part of the upper 2%, but I will tell you this that this year myself and  Mrs. Doda will be paying over $10K in Federal Tax, over $3.5K in State Taxes, over $2.8K in Social Security Taxes and $1.8K in Local Property Tax.  We feel genuinely fortunate to be able to have the earnings base to pay "our fair share".  We look upon these fees as the cost of an orderly society and civilization, while not perfect, is the best in the world.
Dec 21, 2012 10:11AM
No deal with increasing taxes, until the President and the democrats, PRESENT a balanced budget.  The MUST cut  spending.  All of Obama's new 850 billion in special interest spending MUST be rolled back.

And if taxes MUST be raised they MUST be raised on the 47% that pay ZERO.   This will happen with the Cliff.  The deadbeats will have to start paying for Obamanomics.  Once they  have to start paying for it, we will see if they like Obamanomics as much as when someone ELSE was paying their freight...
Dec 21, 2012 11:47AM
This is a more promising day for the Gold bugs.  As long as gold is improving as an inflation and "trust" hedge we will continue to see the disconnect from stocks.  This is very positive in my opinion as the last several months have exhibited a contrived price for the PMs.   JMHO
Dec 21, 2012 2:45PM

The debt will not be paid down.

Waste and fraud will continue.

The Federal government will continue to spend money just like a drunken sailor on leave.

Now they want us to pay for their good time.

Dec 21, 2012 12:19PM
Norquist gotta go! That POS has pushed the stupid into a corner that prevents them from doing what is good for the country. He was hired by the rich to protect the rich, nothing else, and to hell with the rest of the country, and the GOP fell for it.
Dec 21, 2012 2:46PM

WE the People are required to fix it.



Poor foresight by all Americans regarding Washington legislation have created decades of inept policies. A simple, strategic, powerful fix to jump start the process:

 28th constitutional amendment: Yearly Balanced Budget Required

Balanced definition:

Debt to GDP ratio

>35% =   balanced               

<35% =   allow 10% extra yearly spending


This will not be easy to get congress to enact. The good news is we don’t need Washington to move this: The Constitution provides that an amendment may be proposed either by the Congress with a two-thirds majority vote in both the House of Representatives and the Senate or by a constitutional convention called for by two-thirds of the State legislatures.


It will take only one state to get the ball rolling!!!!!!! A STATE CONSTITUTIONAL CONVENTION!!!!!!!

Dec 21, 2012 1:34PM
WAIT A MINUTE - This weeks "HOPES" rallies aren't enough to hold up the market today ?? I thought the world not ending would have been enough BS for a little rally today.Oh,well.
Merry CHRISTmas,everybody ! ! ! !

Dec 21, 2012 1:32PM

PLAN B.....Was never a FAILURE....It was never a PLAN.


Buffoonery at it's best...

Dec 21, 2012 1:11PM
By going over the fiscal cliff the Republicans will let the tax cuts expire, thus raising taxes for all.  The thing they allegedly are against but will do it.  Once we get to the tax rates that were in affect before the Bush tax cuts then they will compromise and cut those tax increases by half, which turns out to be a tax hike for some people.  This way they can say they cut taxes.  if this isn't politicizing the situation at our expense then what is?  Perhaps we should make some propositions as a voter.  You want to cut entitlements?  Cut the health and retirement benefits of each and every Government politician, then i am sure they will listen.  Let's see how they feel when it is their pocket that is being picked instead of ours.
Go over the cliff. No REAL change will happen until this gets much worse. Why keep sputtering? The sooner we hit the absolute bottom, the sooner we will fix things and come back up.
Dec 21, 2012 11:30AM
the market should disregard these foolish discussions, we all know that in the end they have to reach a compromise
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