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The Amazing Illegal Tax Discovery from Today's Commerce Hearing
Today's Senate Commerce hearing on the awful Marketplace Fairness Act, a bill the likes of which we've been crusading against for more than a decade now, was a comedy of errors that would have been funnier if it weren't so sad. Despite a stacked panel of six supporters testifying against just one opponent, the proceedings proved that there are huge problems for taxpayers inherent in legislation to allow states force enormously burdensome sales tax collection requirements on remote retailers WITHOUT any physical presence there. In addition, the hearing led to a stunning discovery that one panelist's business may well be collecting sales taxes incorrectly and illegally. So much for "easy" and "accurate" tax collection.
Steven Bercu, CEO and co-owner of BookPeople book store in Austin, Texas, told the committee that he felt so strongly about collecting sales taxes that his business did so even for sales into states where he has no physical presence. He has no legal obligation to do so, but he likened it to a kind of civic obligation to support infrastructure and services in other states (nevermind the fact that shipping companies that help deliver his items already do plenty of that through income and gas tax burdens of their own).
The revelation of illegal tax collection came when Steve DelBianco, Executive Director of NetChoice, gave his testimony. In it, he presented a screenshot of a purchase he made on BookPeople's website this morning which showed that he was charged what was purportedly Virginia state sales tax of 8.25%. There's only one problem: Virginia's sales tax is 5%. Mr. Bercu quickly proclaimed that a mistake had likely been made and that he'd look into it with the provider of the service that calculates sales tax collection for his business. It turns out that 8.25% is actually the prevailing sales tax rate in Austin, Texas, where BookPeople is physically located. In all likelihood, this is the source of the mix-up.
While it was somewhat amusing to uncover this mistake, it also suggests that the tax was illegally charged to DelBianco. If BookPeople collected and remitted on behalf of Virginia, they illegally overcharged him because no business can collect more than the legal sales tax rate. If they collected and remitted to Texas, they illegally charged DelBianco on a transaction which was not subject to sales tax. Under current law DelBianco has no sales or use tax obligation whatsoever in Texas and if BookPeople charged him one, that was just as illegal as a grocery store charging someone sales tax on something in a state where food is exempt from it.
Let me state that I don't believe that Mr. Bercu and BookPeople are intentionally defrauding customers or governments. This is almost certainly an honest mistake made in the process of a good-faith effort, but it shows just how difficult accurate sales tax collection and remittance can be. His business was supposed to be the poster child for how easy collection is. After all, it's so easy that he does it even though he isn't legally required to! But even the best of intentions can't iron out mistakes resulting from the confusion of 9,600 taxing jurisdictions with different rules across the country. It also suggests that perhaps the reason Mr. Bercu and BookPeople were so convinced of the ease of collecting is that his business was simply charging everyone Austin's sales tax. Current law would need to change in order to accommodate that, but that sort of an origin-based taxation system is dramatically simpler and easier to comply with than what the Marketplace Fairness Act would impose.
In the end, the hearing was mostly a jumble of minimally-useful talking points from supporters and some brief but passionate questioning from the likes of Senators Jim DeMint (R-SC) and Kelly Ayotte (R-NH). The bottom line for taxpayers is still this: the Marketplace Fairness Act undermines basic taxpayer protections by eliminating the physical presence standard, imposes huge compliance and interstate commerce burdens, and does little or nothing to promote tax reform and revenue neutrality.18 Comments | Post a Comment | Sign up for NTU Action Alerts
The Wireless Tax Fairness Act, a bill that NTU has strongly supported for years, might be a step closer to becoming law if its sponsor Senator Ron Wyden (D-OR) has his way. He intends to introduce it as an amendment to S. 2884, a bill the Senate may consider next week. Wyden's legislation would protect taxpayers by freezing state and local charges on wireless phone service for five years and preventing them from imposing multiple and discriminatory taxes and fees.
This common sense legislation is one of few bills that enjoys wide bipartisan support both in and out of Congress. According to a MyWireless.org survey, 80% of respondents support the goals of the bill and Republicans and Democrats alike have aided its movement on Capitol Hill. Late last year, the House actually passed its version (sponsored by Arizona Republican Trent Franks and California Democrat Zoe Lofgren) unanimously on a voice vote. Wyden's amendment gives us hope that the Senate will pick up on that sentiment and pass the bill promptly.
As it stands today, wireless tax rates across the country are mind-numbingly insane. Legislators constantly proclaim the importance of wireless access because it supports economic opportunity and growth, but the taxes they levy on it tell a very different story indeed. Five states charge more than 20% in taxes, 23 states charge combined rates of higher than 15%, and in only ONE state in the nation (Nevada) will you face a lower charge on wireless services than for ordinary sales. Simply put, most states are levying "sin tax"-like charges on a technology they claim to love and support.
It's not the federal government's job to fix the details of each state's insane tax system, but it is their job to prevent states from enacting dumb tax policies that harm interstate commerce. There are few markets that are more interstate in nature than wireless service, so it's perfectly appropriate and necessary for the federal government to exercise its power to eliminate the worst abuses. We'll still have a lot of work to do to fix state tax codes after passing the Wireless Tax Fairness Act, but this is an extremely important first step and it's up to us to make sure Congress takes it soon.
Stay tuned to these pages next week for more information about how the bill will proceed and what you can to to help. In the meantime, we'll be gearing up our grassroots army to push Congress to pass this bill immediately.1 Comments | Post a Comment | Sign up for NTU Action Alerts
NTU has been hard at work opposing the massively wasteful, nearly-$1 trillion food and farm welfare legislation that Washington knows as "the Farm Bill." In some of the best news we've had on the issue in weeks, The Hill reported today that House Speaker John Boehner (R-OH) is leery of the pork-filled legislation and could hold the key to protecting taxpayers from it. We've been watching the markup debate over 100 amendments unfold with shock and horror, as positive measures to reduce government intervention in the dairy and sugar markets failed at the hands of special-interest minded Members of the Agriculture Committee. But if Boehner comes out forcefully in opposition to the bill, taxpayers could be spared from its awful provisions in favor of a one-year extension which would allow a presumably more fiscally responsible 2013 Congress to take it up.
Boehner is no stranger to Farm Bill opposition. He opposed the travesties that were the last two versions and has always expressed his distaste for the incredible amounts of wasteful spending that get packed into them. Despite the different makeup of this Congress, the bill they came up with is sadly no different. It eliminates direct payments made for certain commodity crops, but then plows virtually all of the savings into new subsidy programs to effectively guarantee revenue for farmers. The end result, when combined with an exploding food stamp program that has doubled in size since 2008, is a bill that costs upwards of $900 billion and does almost nothing to truly begin to wean farmers off of their sweet, sweet taxpayer money.
The bill is complicated, but the issue is simple. Farm income exceeded $100 billion last year. Average farm household income has consistently grown faster than the average American household, particularly post-1995 (when the "We swear, this is the Farm Bill to end all Farm Bills!" charade began in earnest). Fewer than one in 200 farms fail per year. Crop prices are at or near record highs. Meanwhile, our fiscal challenges have never been larger with a rapidly-increasing $15.8 trillion national debt. As a result, we have a more fiscally conservative House of Representatives than we've had in years.
One could scarcely dream up a better time to truly reform farm programs. Thankfully, it appears that Speaker Boehner realizes that this bill doesn't even come close to doing that. We should encourage him to do the right thing and shelve this monstrosity for good.0 Comments | Post a Comment | Sign up for NTU Action Alerts
The so-called “Marketplace Fairness Act," a bill to impose onerous tax collection requirements on remote retailers, is back again for another bite at taxpayers' wallets. We've alerted you to this threat timeand time again, and now proponents and their big-money backers are trying to sneak it through once more. Introduced as an amendment to S. 2237 (a small business tax bill) by Senators Mike Enzi (R-WY), Dick Durbin (D-IL), and Lamar Alexander (R-TN), the measure would add to the burden governments heap upon items purchased online while undermining vital taxpayer safeguards. The Marketplace Fairness Act would…
It is particularly odious and contradictory to attempt hanging this proposal on a bill purporting to assist small businesses. S. 2237 is problematic for taxpayers in its own right, but is made all the worse with an Amendment that fails on so many counts. As a practical matter, the paltry “small seller exemption” contained in the language means that numerous firms will become ensnared in a web of higher tax-compliance overhead costs. Businesses that could be contributing to a more robust economic recovery will instead squander resources extricating themselves from this trap, or worse, resign themselves to oblivion.
As a philosophical matter, the amendment treats the Internet and e-commerce as a sinister, alien force for small business, when the opposite is true. Where would brick-and-mortar retailers be, for example, without the convenience of online inventory control, or other “B2B” transactions that make management so much more efficient today? What losses would retailers suffer without the new markets for goods and services for which the Internet has provided the portal? How many millions of everyday citizens, who have created thriving online “mom and pop” proprietorships, would be denied the opportunities to provide for their families? To be clear: No Senator who claims to support taxpayers and small businesses should vote for this amendment. There are fairer, less burdensome ways to address any real “level playing field” issues in this area of commerce.
It's unclear as of now how the Senate will proceed on this amendment or the underlying small business tax bill, but rest assured that we'll be hammering away to make sure that well-financed lobbyists don't fleece taxpayers and businesses with this awful bill.
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Louisiana readers: I have some shocking news for you. You might want to sit down for this. A taxpayer-subsidized project is rapidly turning into a dismal failure. Who'da thunk it?
An audit of a taxpayer-subsidized municipal broadband provider called LUS Fiber in Lafayette, Louisiana has revealed that the company lost $45,000 per day during the last fiscal year! The Lafayette Consolidated Government suffers from $150 million in debt and must make an upcoming principal payment next year of $3.2 million. That has led to calls to cut budgets across the board by 5%, meaning fewer police and less maintenance of things that really are basic infrastructure like roads.
In sum, LUS Fiber is losing boatloads of money and exacerbating an already-difficult budget situation in the area. There is a silver lining though! According to LUS's own numbers, the project might break even by the time 2014 or 2015 roll around. Or maybe not...you know, whatever. It's just taxpayer money, which I'm pretty sure just falls from the magic money tree in the sky when we shake it at no cost to anyone.
This is, unfortunately, just another bullet point to add to the huge list of municipal broadband failures across the country, many of which we covered in a study we released last month called Municipal Broadband: Wired to Waste (PDF). In the study, we detailed the growing trend of local governments piling hundreds of millions of dollars in debt and other costs on the backs of taxpayers in order to build entire retail television and internet service providers. It's just too bad that we hadn't written the study yet when Lafayette officials decided to approve this boondoggle.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Last week, I participated in a panel discussion on "Why Tech Issues Matter" with folks from across the ideological spectrum. Despite our vastly different views on the proper size and scope of the federal government and its approach to regulating the tech space, there were a few items where we had almost unanimous agreement. One such issue was the need to free up more spectrum for use in building out America's telecommunications networks. There is widespread acknowledgment in the tech community that we could soon face a crippling capacity bottleneck absent swift action to reallocate spectrum to where it is most needed.
In fact, the Obama Administration set a goal for federal agencies to identify an additional 500 MHz of existing spectrum that could be reallocated for use in building the capacity of mobile networks. But as Larry Downes writes at Bloomberg Law, those efforts haven't borne much fruit. Despite a lot of discussion and debate in recent years, there has been very little in the way of actual movement on this existential crisis.
One aspect of that agonizingly slow progress has been (surprise!) government failure. The National Telecommunications and Information Administration produced a report on 100 MHz of spectrum currently held by federal agencies that could be better used for mobile broadband. But, as Larry detailed,
"[The] 20 agencies involved in the study demanded 10 years and nearly $18 billion to vacate the spectrum—and insist on moving to frequencies that are already assigned to other public or private license holders."
So, instead of getting their act together and moving quickly to solve at least 1/5th of the spectrum gap identified by the Obama Administration, this group of federal agencies is instead engaged in a damaging stand-off that threatens to cause even more delay and disruption.
Another stumbling block on the road to more efficient use of spectrum is the "Hell No Caucus," a set of "public interest" groups that have loudly and repeatedly opposed many of the biggest recent spectrum plays. Though every member of the Hell No Caucus would tell you they support more efficient allocation of spectrum, their actions seem to belie their stated positions. They have lobbied Congress and the Federal Communications Commission vociferously to rig the results of voluntary incentive auctions by including rules that would exclude companies like AT&T or Verizon from bidding on spectrum, despite the fact that the demands of their customers make those companies most likely to pay hefty sums for greater capacity.
But they haven't been content to limit their advocacy to spectrum legislation; they've also been extraordiarily active in lobbying the feds to wield their power to prevent so-called "secondary spectrum market" deals. The Daily Caller covered the phenomenon last week, calling groups like Public Knowledge and Free Press the "usual DC allies" of interests seeking the destruction of spectrum deals between private entities.
First it was the proposed merger of AT&T and T-Mobile, a deal widely viewed as an attempt by AT&T to secure T-Mobile's valuable spectrum. Opponents of the deal claimed they were defending competition, but T-Mobile's parent company, Deutsche Telekom, has repeatedly stated that they're not interested in operating the company and as such it has been withering on the vine. The (unfortunately) successful effort to kill the merger, which NTU strongly supported, has left AT&T without the additional spectrum it sought and T-Mobile is now a "zombie carrier," in the words of one analyst, incapable of providing much in the way of vigorous competition. So, mission accomplished for the Hell No Caucus.
Now the big food fight is over the new Verizon-SpectrumCo deal (SpectrumCo is a joint venture of Comcast, Time Warner, and Bright House). Verizon seeks to buy $3.6 billion worth of spectrum on which SpectrumCo is not building, but the Hell No Caucus has come out in full force to oppose the transaction, again citing nebulous concerns about "competition." They are vesting their hopes in a friendly FCC which, after squashing the AT&T-T-Mobile merger, has clearly shown a propensity for killing mutually-beneficial agreements between private companies.
This is frustrating, to say the least. We're staring a very real crisis right in the eyes, one that threatens to bring the scintillating pace of innovation and improvement we've seen in mobile broadband over the last decade to a screeching halt within a few short years, and the response from some groups has been to delay and destroy many of the deals that would offer hope in avoiding that fate. Even more frustrating for me, as a lonely pro-taxpayer, limited government activist is how they pass that off as "public interest" lobbying when the public interest has suffered such damage from their work.0 Comments | Post a Comment | Sign up for NTU Action Alerts
So, net neutrality. Misguided policy, likely imposed illegally by the FCC, and subject to an ongoing court challenge. In short, it's a bad idea. But that hasn't stopped advocates from continuing to sing its praises while concocting horror stories of a world without it.
First, it was Susan Crawford. Writing on Wired.com, she posited that her inability to store her viola in the first class cabin of a U.S Airways flight while on a coach ticket somehow spelled doom for an internet without net neutrality. The solution of many who think like Crawford is to impose restrictive, 1930s monopoly telephone-style regulation on internet service provision and pricing (via reclassification of internet services under Title II). If we extended that logic into Crawford's airline example, this type of regulation would rewind the clock back to the days when government bureaucrats dictated flight routes and prices, creating massive inefficiencies and effectively locking millions of Americans out of the commercial flight market. The deregulation of air transportation is considered a huge success by people across the ideological spectrum, and yet Crawford and her ilk are encouraging a return to that anachronistic model for the internet.
Then came the New York Times' Eduardo Porter, who spun a tale of the horrors of Comcast's attempt to exempt its Xfinity app on Xbox 360 from usage limitations. Luckily, free market-oriented folks much smarter than I were quick to respond. Eli Dourado pointed out the raw economics involved: broadband networks are expensive to build and those costs must be allocated among consumers somehow. They don't just disappear because Netflix delivers content via the internet.
The incomparable Adam Thierer followed on Eli's post by pointing out that the bandwidth caps Porter, et al, so detest only exist because of net neutrality regulations:
"Consider bandwidth caps, which critics paint as some sort of nefarious, anti-consumer plot. In reality, they are just a tool to manage capacity; a tool that has been necessitated by Net neutrality regulation. When the law says you are not allowed to differentiate or specialize service offerings, you have to find other ways to manage capacity and make sure you can recoup fixed costs."
Adam concluded with a few ruminations on experimental pricing structures, the likes of which you'll surely see much more in the future.
Crawford and Porter seek a world of free-flowing Netflix, ever-rising internet speeds, ever-dropping consumer prices, and vigorous competition to win the favor of consumers. So do I! The question is how best to achieve it. They seem to believe the answer is in empowering Washington to regulate just about everything internet service providers can and can't do. I can't pretend to speak for Eli and Adam, but I vehemently disagree and I think the arc of history bears out my belief that restrictive federal regulation puts a damper on innovation and proliferation of telecommunications services.0 Comments | Post a Comment | Sign up for NTU Action Alerts
30 House Republicans have made waves in the ongoing saga of the odious Export-Import Bank by writing a letter to House Leadership urging its reauthorization. The Ex-Im Bank is almost universally opposed by conservatives and true supporters of free trade because it subsidizes exports on the backs of the American taxpayer, but the signers of the letter call themselves conservatives and much of the coverage of it has asserted the same. So, how conservative are the signers of this letter?
Of the 30 signers of the letter, their average score on NTU's 2011 Rating of Congress was a whopping 72.8%. Only two received Taxpayers' Friend Awards, meaning they scored higher than 85% for an A grade: John Campbell (R-CA) and Cynthia Lummis (R-WY). Only five scored higher than 80%, while 13 scored somewhere in the 70s, and 12 scored in the 60s. In short, many of the signers have middling fiscal records.
The letter is full of the same pablum we've been hearing from the Chamber of Commerce and other supporters of subsidies for big business. Perhaps my favorite line is when the Members say, "it seems counterproductive to unilaterally disengage," meaning that it would be unwise for us to wind down our export subsidies while foreign countries like China maintain or expand theirs. This sort of a statement has intuitive appeal for some, but it's simply foolish.
China's export subsidies are an economic distortion that comes at the cost of their taxpayers and citizens and accrues to the BENEFIT of American taxpayers and citizens (and others that import things made in China). If the Chinese government insists on taxing its citizens in order to make the products they sell to us cheaper to purchase, the correct response to that is not to turn around and tax OUR citizens to make the products we sell abroad cheaper. The correct response is to say, "Thank you for the free money" (in the form of cheaper products for us) and shut down our damaging export and tariff programs.
Most conservatives understand that message. Apparently at least 30 of them need convincing.3 Comments | Post a Comment | Sign up for NTU Action Alerts
I have a confession to make. You are reading the words of a man knee-deep in one of the broadest political conspiracies in America today. I and my organization, the National Taxpayers Union, are deeply involved in a coordinated campaign to achieve certain goals. What are those goals? Glad you asked! We're so secretive about them that you can find them right on our website: fighting for lower taxes and smaller government at all levels. In pursuit of those goals, we have long partnered with the American Legislative Exchange Council. You'll find that they're quite secretive about their principles as well, but I'll let the cat out of the bag: they work towards free enterprise, limited government, and federalism at the state level.
As just one example of how the organization works, NTU and ALEC joined together to craft model legislation on spending transparency. At ALEC conferences, we worked with other like-minded groups and individuals to discuss best practices and potential pitfalls, heard from success stories in pioneer states, and developed a base for legislation that puts governments across the country on a path to publicly disclosing (in real-time, online, in searchable format) every taxpayer dollar spent.
Obviously I'm being a little facetious here, but I suppose that's because I just don't understand what all the fuss is about. You may have heard about ALEC in the news recently as bored liberal activists have made it their newest target for destruction after tiring of pillorying the Koch brothers for being wealthy and daring to be involved in politics and policy (apparently it's only acceptable if you lobby for higher taxes like Warren Buffett). In their strange world, the existence of an organization that provides a forum to educate state legislators and arm them with the tools to advance limited government solutions is unacceptable and they will stop at nothing to cripple it.
ALEC's opponents claim that its model of discussing, drafting, and distributing model legislation to address policy issues undermines democracy as we know it. Funny, I haven't heard the same concern about the existence of the National Conference of State Legislatures. NCSL is a similar organization that uses many of the same "tactics" (educating legislators and providing model language for them to use) as ALEC.
Are there differences? Sure there are! ALEC's opponents will point out that it has private sector members which, because business is evil and must be stopped, makes it quite different. But don't be surprised if they neglect to mention the fact that NCSL is the beneficiary of $10 million (well more than ALEC's budget) in taxpayer money! Which do you find more offensive to the interests of democracy: an organization that has private sector members freely choosing to be involved (or not), or an organization that gets your tax dollars to fund its activities whether you support it or not?
I, for one, find it pretty darn offensive that my state of Virginia sent more than a quarter million taxpayer dollars to an organization that just came out this week in favor of the odious corporate welfare program known as the Export-Import Bank. Yes, NCSL supports the same Ex-Im bank that conservative AND liberal organizations have opposed because it doles out taxpayer money to wealthy corporations in order to subsidize their export activities. But remember, conservatives are the corporate shills.
So, is the existence of ALEC's private sector membership really driving all of this? I doubt it. Another similar organization, the National Caucus of Black State Legislators, allows for businesses (and labor unions) to be members. On their website, they tout the fact that they have "over 120 corporations and labor unions" as members, worth $1.2 million (at least) to their annual budget. Yet, strangely, I haven't come across any complaints about NCBSL's business model as being corrupt or damaging to democracy. Perhaps that's because, generally speaking, they advocate for liberal policy positions rather than conservative ones. Like ALEC, NCBSL attracts public and private sector membership based on the principles they stand for. I may disagree with some of NCBSL's positions, but I see nothing untoward with their model just as there's nothing untoward about ALEC's model.
What's really going on here is pretty simple. Liberal activist groups hate the limited government principles of ALEC and other organizations like it and they are intent on stamping them out of existence. I hope that ALEC, its member organizations (which includes NTU), and the state legislators across the country that are involved in it and support its work will stand up to these intimidation tactics. ALEC as an organization and the principles for which it stands are too important to give up without a fight.1 Comments | Post a Comment | Sign up for NTU Action Alerts
In a Miami Herald op-ed last week, Sen. Marco Rubio of Florida included the National Taxpayers Union in a growing list of supporters for S. 1506 , a bill to prevent the Secretary of the Treasury from forcing financial institutions to report interest on deposits paid to “nonresident aliens.” You can read NTU’s letter of support from last August here.
For those not hip to the international banking scene, this might not seem like a big deal. But the sudden exodus of upwards of $87 billion from U.S. banks when nonresident alien customers move their money to more secure countries would be severe shock to the already fragile banking sector. With U.S. personal savings rates still in the cellar, thanks in part to interest rates so low they can barely be perceived by the naked eye, deposits from outside the States provide some much needed liquidity in the credit market for small businesses, personal loans, and other job-creating endeavors.
When U.S. savings are being eroded by inflation and very little return, it does warrant the question why would anyone else send their money here? Despite the economic upheaval of the past several years, U.S. banks are still considered extremely stable. Plus, at least before the advent of this new regulation, U.S. banks offered privacy and security for people where unstable governments and political environments threatened their finances. CEI’s Ian Murray writes in The American Spectator:
The IRS doesn't tax foreigners' interest on U.S. deposits, but this new reporting rule would actually be worse than if it did. Conservative estimates of a previous version of the rule, which affected just 15 countries, found that it will suck at least $87 billion out of the economy. This is because foreigners often invest in the U.S. because their money is protected from their home government. Consider that as much as one third of all bank deposits in Florida are owned by foreigners, which might be surprising until you look immediately south, to Cuba, Venezuela, and beyond. Many Florida banks could go under if this rule goes ahead.
To sum up, credit contracts as money leaves the U.S., citizens living under despot rule are subject to greater personal risks, and banks could go under. Simply complying with this new burdensome regulation will add a not-insignificant cost to the business of banking. All told, the Mercatus Center estimated that an even less all encompassing IRS rule could lead to a negative impact of over $100 million annually. Taken together, it’s hard to see the upside of this new rule. And neither can the IRS. That’s because no cost-benefit analysis was completed before enacting this rule. Murray goes on:
These costs are also a problem for the IRS. Executive Order 12866 requires that any regulation with "an annual effect on the economy of $100 million or more" to be subject to a cost-benefit analysis. Yet the IRS hasn't performed any such analysis for its proposed rule. It is easy to see why. The costs, as we have already seen, are likely to be huge. The benefits? They amount to some goodwill from the few legitimate foreign governments that take an interest in offshore holdings of their citizens (most, like the United Kingdom, do not), and a lot of goodwill from dictators who will use this information to monitor and punish dissidents.
With U.S. banks standing at the very threshold of a fragile recovery, this isn’t the time to impose big government regulations and drive money out of our economy. That money still comes to U.S. banks is a mark of confidence not just in our economy, but also in the dollar. We shouldn’t be snubbing that largess.