Why we're headed over the fiscal cliff

The GOP's effort to avoid raising taxes won't work without concrete spending cuts both parties can agree on.

By Jim Cramer Dec 11, 2012 10:15AM

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CorbisWhat a chump I am. With the help of my colleague Matt Horween on Monday night, I went rooting around for ways to actually cut spending, something that many people talk about but few actually want to do. I did this because I am spending the morning in Washington, D.C., and I know that the tax hikes, while important, are being used by both sides to avoid concrete ideas for spending cuts.

 

Defense? Medicare? Social Security? What would these people do, concretely, to make the deficit smaller now? How about in the next two years? How would they do it better than the fiscal cliff would?

 

For example, look at Medicare. There are a whole host of ways to have people pay more into the system or to cut back certain procedures or to get the government to negotiate hard with the drug companies. There are real specifics that could be discussed. We could create some true competition by outsourcing the darned thing to a company such as Accenture (ACN) or IBM (IBM) to consistently check how hospitals and doctors are doing. We could exempt Medicare from legislation that requires quick payment in order to smoke out fraud.

 

But I think these all come under the "so-and-so slashed Medicare" concept that makes it so easy to vote people out -- even people with very solid seats.

 

Nevertheless, while I'm in Washington, I'll ask about what people are willing to cut and what kind of trade-offs that, say, a person like tax activist Grover Norquist is willing to make. If you give Norquist spending cuts, I imagine he will simply say they aren't big enough. If you ask him whether he would allow his congressmen and Senators out of the no-tax-hike pledge at a particular level of spending cuts, I imagine he would say something like this: "No, there is no level, because if you cut like you are supposed to do, then you don't need to raise taxes anyway. In fact, you can cut them, too."

Left out of the equation is that, eventually, someone has to buy the debt being issued by the U.S., because we can't seem to cut spending, and we won't raise taxes. The Federal Reserve isn't always going to be there to keep buying it.

 

What's so beautiful about Norquist's position and logic is that nobody wants to pay more tax and you can simply say no by voting for Republicans to take the pledge. It means nothing that there is actually some cost for government, because most people I talk to believe that government doesn't give people anything they need, and that it takes more than they want it to take. That's standard. It's an ineluctable, circular, beautiful position.

 

You occasionally hear about these people who say, "Look, I am not going to pay my taxes because it's illegal for the government to tax me."

 

We throw those people in jail.

 

But I believe that the beauty of the pledge is the illegitimacy with which it frames taxes. "Hey, we only need to tax because the government spends more than it should -- so if it spends less than that, we don't have to pay those taxes."

 

Of course, this circular bit of logic ignores the fact that the nation ran up $4 trillion in deficits fighting the Global War on Terror. Was that illegitimate? Was that something we didn't need, and therefore something we shouldn't have had to pay for? It wasn't all social programs that got us into this fix.

 

To me it seems the Republicans want to keep spending on defense no matter what, and the Democrats want to keep spending on Medicare, Social Security and other social programs no matter what. When it comes to the arguments here, the only real advantage the Democrats have is that they know it must hurt the Republicans to cut any defense at all -- and defense will get cut.

 

Nevertheless, in some ways Norquist's logic is more powerful than President Barack Obama's. The president campaigned on raising taxes for the wealthy, and he's sticking by that. Norquist doesn't want anybody to pay more tax. Moreover, so far it hasn't bothered him that the media is typecasting him as someone who just wants to protect the rich -- a caricature that has not resonated. I keep hearing in the media that he is finished, but when you watch him on my Mad Money show Tuesday, I am confident you will see a man who is just getting started.

 

While the president was recently elected and will be finished after his second term, in the next election the Tea Party people will target any Republicans who broke their no-tax-hike pledge by compromising. So they have more to lose than the president does -- which is why, alas, I think the U.S. is going over that darned cliff. We won't come back, either, until Norquist says it is OK to vote for a tax cut, even if it is only for the 98% -- provided that they immediately dig in on the debt-ceiling fight and again try to shut down the government.

 

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 and is long IBM.

 

 

 

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109Comments
Dec 12, 2012 12:36AM
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Wisconsin now is right to work state...Michigan followed. Now we know the President slipped in a "small" fee so the insurance companies can recover some of their expense relating to the "pre-existing" condition of Obama-care when it starts in 2014. I wonder what other little "fees and taxes" he's going to "slip by" the consumers? Sounds like a tax and spend guy to me.
Dec 11, 2012 10:41PM
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Cramer, you are finally waking up to the fact that Washington is broke and bi-polar dysfunctional. Only a real disaster will wake the place up! By then it will be too late and everybody will come running to the cause of the problem for help, big daddy government, and that will make it even worse, like it did in the great depression.
Dec 11, 2012 5:26PM
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I guess filing Farm paperwork, and filing early; May get bigger bucks..??

But the Big Corporate Farms/Ranches, that do over a Million gross...Shouldn't get a dime.

They are the ones owned by investors, food companies and rich families..

And they have Accountants and Lawyers to apply for the subsidies.

 

If everytime Americans went shopping and had their bills double; Such as in the example earlier...

$107 in taxes on items totalling $100..I just can't picture many people buying much, and the possibility of a "black market" springing up...Or used items, bringing a premium..Avoiding the tax man..

Hello.....Garage sales and Victory Gardens.

Dec 11, 2012 5:08PM
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As I see it, allowing the spending cuts to take place is probably the best thing for America ! As far as I'm concerned you can shut down the whole damn country ! We are toast now anyway !
Dec 11, 2012 5:05PM
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Jim, it's all a sham. Your beloved Obama is a socialist who really doesn't care much for America, the Constitution or what we've always stood for. He doesn't really care about the fiscal cliff or , for that matter, his legacy. We're all being duped, especially liberals,who think he will create a better, fairer, more prosperous United States. He is going to take us down. We'll be a third rate power with mountains of debt when he's finished. Russia and China and perhaps other will surpass us as financial and military powers and you and your fellow liberals will wake up too late as usual to  do  anything about it.
Dec 11, 2012 4:14PM
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As a small farm owner I wonder if you realize that 87% of the farm bill goes to the WIC program,school lunches and food stamps...What help we get as farmers is absolutly rediculous..Last year during the drought I applied for drought relief emergency assistance to feed my cattle..Hay was nearly 120 dollars a roll and I needed 3 a day...After 3 weeks of paperwork I finally received a check....for 260 dollars....And I had to claim it on my taxes...It didn't even feed them long enough to take them to market at which point they sold for next to nothing...Let's get the money to the people that neeed it and control spending.We should be able to save cash and do what's right..
Dec 11, 2012 4:12PM
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Cramer you are missing the point, as usual.  Our President has failed in math.  Each person in the US owes over $53000 in debt; children, adults, old folks, workers, grand children.  A child born today in the US is saddled with $53000 in debt and growing.  Obama should give them a certificate IOU to the US government celebrating their entry into a government built community.  There has not been a budget in years.  
Dec 11, 2012 3:19PM
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going over the cliff will have a hidden benefit---congress will then be  forced into action on the taxing rates--vote to raise them up ,down, or the keep them the  same and then the people-and not norquist can vote accordingly on their own congressmans actions
Dec 11, 2012 2:54PM
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Cramer is a punk he lies,..go on you tube he brags about the scams he use to do on the people
Dec 11, 2012 2:36PM
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Jim you left out Medicaid which the largest of the government expenditures.  We as a nation spend more money on Medicaid that on SS and Medicare.  Secondly, where are the cuts on federal employees.  Tell me about a 10% pay and benefit cuts and we can then talk about increasing my contribution to medicare and SS.  Lets get serious about cuts.  It is going to hurt everybody.  I'm beginning to believe that we need to go over the cliff and let all the Bush Tax breaks go away.  When everybody has a stake in the game then maybe then will change.
Dec 11, 2012 2:34PM
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The FED says more  stimulus will save Wall Street by printing more money not worth the paper it is printed on ! The FED will bring this  economy down to a place of disaster on the ignorance of the masses !  This is a criminal organization that does not serve the people of this great country ! The sole objective of the FED IS TO SAVE THE BANKS AND SCREW THE PEOPLE !
Dec 11, 2012 2:28PM
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Why dont we stop sending money over seas why don't we cut the pay of the senate and the congress why are we not cutting ther benefits and social security why due people get money out that have never pai in like SSI so many lazy people claim they are bipolar what a bunch of bull what about all the people living off of welfare its saposed to be for people on hard times so many welfare people have child after child to get more money all welfare has done is create crime look at all the big cities and ther all trashed

Dec 11, 2012 2:15PM
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Cramer is out of touch with reality. Anyone who has worked for or just around government
knows first hand that our government is ludicrously inept, inefficient and corrupt. That includes
the Dept of Defense and thousands of other programs and agencies. The entire civil service system needs to be revamped. The legislative and executive branches do virtually  nothing but
posture and puff while the arrogant , faceless bureaucrats run everything for their own benefit.
Trillions of dollars could be saved by good management and personal accountability. 
Dec 11, 2012 2:10PM
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Its funny to see republicans held hostage by the tea baggers ! I say there was a few republicans that got re-elected with out the tea baggers and having them try to smash their elections ! So the tea party is starting to lose their hold on REAL REPUBLICANS who represent THEIR people in their districts.. Not some right wing nuts that have no votes in their districts..Their job is to the people they represent ! And who elected them !
Dec 11, 2012 1:48PM
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Remember the fascist government wants to bring everything to a halt while ALL 50 state succession petitions are being filled out by the hundreds in all states with over 70,000 plus each wanting to peacefully succeed these United States.....gaining more popular by the day and soon to be a force if this very corrupt government does not want to have a problem. THE WHITEHOUSE HAS NOT RESPONDED........Communisms and fascist forces have hijacked this country and want to take control....Beware...YOU ARE BEING WATCHED...!!! A POLICE STATE IS BEING IMPLEMENTED...LOOK AT ALL THE CAMERAS EVERYWHERE....AND THE SHEEPLE WILL BE SLAUGHTERED...!!! So the New World Order thinks...!
Dec 11, 2012 1:45PM
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This fiscal cliff penalty has sure ended up being a way to get what needs done without a scapegoat taking a fall. Pretty smart of someone  in Congress. Too Bad it is too little/ too late.
Dec 11, 2012 12:45PM
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I sent an email to Boehner yesterday suggesting he

 

1. Detail out the loophole and special treatment tax changes the Republicans are willing to make.

2. Present cost cutting proposals.

3. Balance the above ideas with a tax cut for the middle class.

 

Time to get out of the crosshairs.

Dec 11, 2012 12:42PM
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Final consumption sales tax only - no item or person exempt – When a family goes into a grocery store and buys $100 in groceries and the clerk adds $5 for local tax, $7 for county, $15 for state tax, $35 for federal tax and $45 to pay off the federal debt, the crap will come out of the American peoples head about the cost of government.

Then give the American people the right to directly decide what they are willing to buy through government, (by pass congress). Socialism, liberalism, high government spending will end. In 4 years the American people will reduce government spending by 35% and increase the productivity of our tax dollars by 400%.,

Final consumption tax would make America made products and services more competitive. Taking taxes off business will bring business, their money and jobs back to America. Also, if the fed were to make the (real) inflation rate between a deflationary .5% and 0% inflation foreign money would move to America and keep interest rates low in a free market.

Dec 11, 2012 12:34PM
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In my opinion Norquist and President both do not understand the change taking place in the world and economy. Both are fools and ignorant.

 

Technology if not properly handled is going to create lots of dislocation. Technology does not allow us to think in terms of traditional economic theory. Value of specific goods or service can drop or rise without much notice. A sudden change in solar collection efficiency let us say 25 % collection efficiency can turn energy market upside down. A change in man's potency and bragging point in physiology that can be if easily increased it can change very dynamics of sex creating upheaval in a way we live. Ability to grow fruits in sand deserts can create havoc in fruit market.

 

There are three factors they are key:

(1) Dramatic reduction in birth rate among those who cannot afford or know how to raise babies

(2) Social acceptance of death at earlier age due to serious sicknesses that creates unproductive longevity can improve economic situation for everybody in any country

(3) Ability to keep people productively employed can create better society with less anxiety and more positive happier society.

 

To assume technology will solve all problem or will unlimited access to better health at affordable cost is not viable. The ratio of no productive years/productive years cannot be sustained at current level. We have to understand promise, viability and affordability of technology. One can go to Mars does not mean any one or even few will be able to go.

 

 

Dec 11, 2012 12:29PM
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message to mirage gal ----- YOU GUYS LOST !!!!!! 
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