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

thestreet logo

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.




More from TheStreet.com


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

111 rated 1
272 rated 2
474 rated 3
656 rated 4
638 rated 5
699 rated 6
623 rated 7
486 rated 8
260 rated 9
128 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.