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 11:17AM
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Good point. Once Fiscal Cliff can kicked down the road a few additional torments:

 

1)  Obamacare overcosts

2)  Dodd Frank (and others) regulation strangulation of business

3)  Immigration non-reform

4)  The National Debt will continue to grow without a Balanced Budget Amendment to the Constitution  

Dec 14, 2012 10:55AM
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The other thing is that these two ego maniacs are not just bashing the American economy ,but all of North America and beyond, like us here in Canada.

What ever happened to " Government by the people for the people?"

I'm not sure they don't get it, I believe they are quite aware, but the politics are ,to them, more important.

Arrogance at its finest.
Dec 14, 2012 10:56AM
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With taxes at over 60% with a income of 200K  in CA why would anyone want to be a big business
Dec 14, 2012 10:40AM
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Way to go, Jim!  I don't always agree with what you say, but this time you are right on the money.  It seems like our clown of a President, and most of his party, have lived in caves all of their lives  They don't have a clue!  And the Republican leadership in Washington aren't much better.  They have mostly lived upper-class lives all of their lives and don't understand the plights of most of the rest of us!
Dec 14, 2012 11:36AM
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Actually Cramer, as usual, it's YOU who is missing the point.   And you are one to talk about someone not understanding the consequences of their actions?  Lest we forget, you were singing the praises of Lehman about 10 minutes before they went belly up.  And weren't you marveling at the brilliance of the Time Warner - AOL merger? Ooops.  Your head is so far buried in Wall Street that you've completely lost sight of main street.
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 12:24PM
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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 11:42AM
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Moody's Outlook on Illinois moves to negative due to public pension concerns.What don't we understand,am I missing something? Or is the plan to let it go down and the Feds Bail them out?

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 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 10:43AM
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did you say that big biz is important?  wow
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 11:14AM
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"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."

Absolutely true. This is why we need to suppress hired-in executive compensation packages and homogenize corporate employment. The Founder built an empire business. Once gone, it isn't an empire, it's a cancer. That "big" created a venture window with excellent customer attraction. There is ample enterprise opportunity for those better mouse traps. There is also fuel for shift and that's really what progress is all about. I also agree that NEITHER Obama or Boehner know what they're talking about. Boehner doesn't have a clue about modern small business... which is extremely rare right now. Middle Market businesses still exist but new small ones quite lacking. As for Obama- when fools like Michigan's Governor Snyder gets a Right To Work Act passed in a union-reliance state, something is wrong. What was truly needed in MI is a cap on years in a unionized role and a structured education program to ensure competent skills on your way out. Cars are a fixed asset in America. Therefore, car pricing is a fixed aspect in our economy. Unions can't ask for raises without bumping up the cost to customers who are not as cash flowing as they used to be. That said, there isn't a reason why executives should earn the top wages because they didn't Found the business and are not critical to the broad business... maybe certain quality and integrity people are because they relate to safety and security laws.

I hate to say it Jim, but we NEED to crash to level the playing field and get down to brass tacks. The revenues need to come from working people. If there will be wealth, then a flat unwavering tax rate must exist.
Dec 14, 2012 11:41AM
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consumer demand creates jobs? Jim, how dare you! *L*

Now, I have to disagree that ALL big business creates traffic for small business - if it's too big, like Wal-Mart, they will eat you alive.


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 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 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 11:31AM
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DLH....Foxy has gotcha there....I wondered how long your statement or contradiction would hold up.
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 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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