Budget foes are missing the point

Neither party seems to understand the consequences of what Congress does to American businesses.

By Jim Cramer Dec 14, 2012 10:10AM

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CorbisIt hit me Thursday night: Here's what I think is so annoying and niggling about the budget talks between House Speaker Boehner and President Obama. I think they don't understand, neither one, the consequences of what they do on the American business public.

 

That's because, in many ways, the business public is not represented by either person.

 

As I parse through the Republican and Democrat posturings, I hear two major skeins of thought. For the GOP it's the worries about the small-business person and how much their motivation is being hurt by government tax policies. For Obama it's "the folks who work at places who aren't helped enough by government programs and pay more than their fair share for them in taxes."

 

That's what makes the whole thing so unrealistic. First, small businesses revolve around bigger businesses. When you set up a small business, unless it is about a particular better mousetrap, what you typically need is traffic -- that which comes from the growth of big business in the area.

 

Also, you want to create a service or hospitality business? You need someone to cater to. You aren't worried about taxes. You are worried about customers. Who is worried about the customers in Washington? Who is worried that their psyche may be damaged by what Washington is doing? Who is worried about them transacting with the small-business people and those they employ?

 

How do I know this? As a serial entrepreneur, I recognize that customers are the lifeblood of why you are successful. If you are worried about tax rates, you are going to fail. If you even consider tax rates as a reason to start a business or not to do so, you shouldn't start it. Don't waste your time. Stick to your day job.

The president's focus is equally myopic. He should go spend time with Fed chief Bernanke, who has a really good idea of how people get employed (read on TheStreet). They get jobs when demand is stimulated, and you get demand when you have a much larger employer set up near you. Otherwise, no one comes by. You don't get any customers. So all you do is figure out how few people you can hire, particularly because now you know that you have extensive healthcare costs that weren't even in the equation before.

 

You can only not know these things if you haven't been hired, fired or created a job in the private sector.

 

Now, there's another side of all of this. If we are concerned that the U.S. government won't be able to pay its bills one day, then we know a time will come when we'll have to do what Spain did, and radically cut back all of our social programs. We will have to do what the rest of Europe will do over time, which is accepting a lower standard of living for all. That, in turn, is why the longer-term austerity plan is vital, because everyone knows we can't afford what the U.S. government provides to Americans.

 

That's why spending cuts are so important. They figure in the job creation of the next 25 to 30 years, and in the ability of people to stay out of poverty longer-term.

 

But, in the meantime, you can't get the growth for the government receipts to go higher, even in the near-term.

 

Take such companies as Honeywell (HON), Eaton (ETN) or Celgene (CELG) (the last of which is one of the principal employers in the town I live in). Put simply, if someone from one of these firms were in the room, explaining the impact of the delay in an agreement to avoid the fiscal cliff, the imperative would be to get this done before vacation -- or for there to be no vacation. That's because, the longer the delay, the fewer reasons there are to start a business and the more reasons there are to shrink, lay off, build fewer houses and cars -- and take your business off shore if you are big enough to do so.

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 ETN.

 

 

 

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79Comments
Dec 14, 2012 5:01PM
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A solution to our FISCAL PROBLEM is SIMPLE (but not easy):

 

28th constitutional amendment: Yearly Balanced Budget Required

 

           Balanced definition:

                                          Debt to GDP ratio

                                         >35%            <35%

                                        balanced        allow 10% extra debt yearly

 

Dec 14, 2012 4:51PM
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The current administration is not concerned with future US prosperity, rather leveling the playing field, I.E., divvy the same size pie into smaller pieces.

 

There won't be anything resembling today's free enterprise in another four years. Prepare yourselves! 

Dec 14, 2012 4:44PM
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"we can't afford what the U.S. government provides to Americans"

 

That is a very good statement.

 

What I don't understand is - - - our government posturing around like this is just begging for a downgrade from Fitchs.  That downgrade is going to really hurt.

 

 

Dec 14, 2012 4:15PM
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Cramer comes with good picks sometimes....

And you can always go Contrarian on him....

It's about making money....As always, you should just make this ONE of MANY research stops.

Dec 14, 2012 3:34PM
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Cramer's right when he says customers drive business. However, for there to be demand the customer has to have disposible income. In the past 30 years the disposible income of 98% of Americans have gone down while the ubber rich take in more and more income. This is an unsustainable trajectory. If the 98% become poorer and poorer there will be less demand for everything.

The tax code is a big part of the problem because taxes on dividends, capital gains, carried interest,  get favorable treatment with low tax rates while taxes on wages are much higher.

Another problem is outsourcing of manufacturing jobs to the countries with the lowest labor cost. These same countries have little or no regulations protecting worker safety, or the environment.

We need to level the playing field so all Americans may participate in our bounty not just the few at the top.

Dec 14, 2012 1:59PM
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Thanks Cramer, I have been yelling for months that no one creates jobs by some policy they promote, just doesn't happen.  People create jobs when they buy goods and services. Companies only add employees when they have demand for thier product.  This is just to darn simple and I know that even though politicians appear to be idiots that they actually have some kind of brain so what they spew is really ideology and none is actually the least bit interested in fixing the economy.  This is a huge diplay of egotistical behavior. John's "tanned" appearance everyday in front of the cameras with flags etc behind him is just to much to take. Any news for a politician is good news, be it good or bad as long as they are in the spotlight. We Americans have the oppportuntity to lead the world but these guys idiotic behaviour just demonstrates why the world hates us.  Politicians are about power while the rest of us could care less and I think we don't understand how it drives them. 
Dec 14, 2012 1:33PM
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I want to encourage all Republicans converting to the Democratic Party to help the moderate cause to get involved at the local level. We can make a difference.

 

This one party system may work after all.

Dec 14, 2012 12:41PM
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I agree with a portion of what you say about small business.  I never considered the tax consequences of adding employees; my only thought was will that employee produce income to me greater than the cost of adding that employee.  It's called leverage, and I knew that no matter the tax rate, I would still be able to keep a portion of that incremental increase in revenue.  And, for sure, growth in customer revenue is what determines the need for more workers. 

 

As to health care, Obamacare has the potential to mitigate the incredible rise in health care costs.  But much more needs to be done.  If anything will ultimately destroy our standard of living it will be the continued astronomical increases in healtcare costs to businesses and individuals.

Dec 14, 2012 12:37PM
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anyone else think that mirage guy's "business" is maybe a few boxes of Lego figures and he sits drooling somewhere moving them around imagining he is president of IBM !
Dec 14, 2012 12:32PM
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Why ask why,this guy is not for us .Never has been!

Why do folks think he will do whats best for America when everything he has done destroys a little more.

WAKE UP!

Well orchestrated plan to move our superior capitalist nation to a european socialist model, everybody will be the same,except for a few wealthy people.Hello obamacare

"Poor Dems got taken over by the far,far left.(preplanned).

Dec 14, 2012 12:29PM
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MIRAGE BRAIN:You sure are a bitter man.I have 75 employees that are like family to me.

I wrote $1000 checks to all of my people for Christmas.I hope to write more next Christmas.

I don`t havve to fire or retrain workers that takes time and money.Cutting on employees

doesn`t help me grow the business.Yes, I supply full dental and hospitalization.

Dec 14, 2012 12:24PM
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Since the Constitution gives the House control over the purse strings, I would like the Republicans to hang tough. If Obama continues to be obstinate and forces us to go over the fiscal cliff, then the new House should pass the following:

1: A bill to extend the Bush tax cuts
2: A bill to fix the AMT
3: A bill to fund Social Security
4: A bill to fund the military enough to bring all of our troops home from everywhere outside the USA.

Then the House should sit on its butt and just give speeches. The executive would NOT be funded and Obama won't even have the money to keep the lights on in the White House (or run the IRS or run the EPA or run the Education Dept, etc, etc, etc). The next election is 2 years in the future, so the House hasn't anything to worry about until then.

The result will be a much smaller Federal government and since the IRS would be closed, you wouldn't have anyone to sent your Federal taxes to. 
Dec 14, 2012 12:19PM
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I want to urge all Republican voters and politicians to quit their party and join the Democratic Party. This is the best way to insure the survival of conservative moderate policies.

 

48% of the voters (converted repubs) + now existing moderate democrats = New Majority

Dec 14, 2012 12:19PM
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I`ve made a lot of money by listening to Cramer.Thanks, Jim.
Dec 14, 2012 12:18PM
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MIRAGE BRAIN:You`ve got taxes all wrong.You want to pay a lot of taxes.That means

you made a lot of money.If you finish your taxes in an hour in April, that means you

didn`t make much money.The first time I paid the AMT I was thrilled, that means

you`re in the big leagues.

Dec 14, 2012 12:12PM
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I am your man DLH....Unfortunately, I don't want the headaches, that accompany the job.
Dec 14, 2012 12:11PM
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Well Cramer pretty much have to agree with most of what you stated..In the latter 2/3 of art.

 

Might disagree about the President's vision.....He has people to keep tabs on everything around him and afar.....He just has to be a good listener to what they have gleaned.

Dec 14, 2012 12:04PM
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I'm feeling pretty positive about my party change. I think we can make a BIG difference in the Democratic Party.
Dec 14, 2012 12:02PM
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I think I will get the jump on the rest of the Republicans and go ahead and join the Democratic Party now.......... Of course I will be looking for moderate candidates with a bit of a conservative streak.
Dec 14, 2012 12:01PM
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Mirage......Take it easy now.....Too early in the morning, to have your blood pressure skyrocket.
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