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Three Facts About Maryland’s Special Session
Posted By: Brent Mead - 05/15/12

Last month, the clock struck midnight on the Maryland Legislature’s plan to pass a broad-based income and excise tax hike. However, because officials in Annapolis really want to confiscate more of their constituents’ money they reconvened for a special session this week.

Here are some quick facts on O’Malley’s job-killing plan;

  • Despite the “doomsday” moniker, the current budget increases spending by $700 million compared to last year. The $500 million in “cuts” cited by Governor O’Malley are a decrease in proposed spending increases, not actual cuts in spending. If Maryland simply held spending level with last year there would be no need to raise taxes.

    The Tax Foundation produced a report on the budget fallacies being perpetuated by the Governor and his legislative allies. Spending has increased every year under O’Malley and shows little sign of abating.

  • On the income tax side, the proposal would raise levies on single filers earning more than $100,000 and joint filers earning more than $150,000. According to the Tax Foundation study, for a couple earning $250,000 in Maryland this means they would pay almost $1,000 more per year in taxes. Additionally, by remaining in the state, the couple would pay higher taxes than in either the District of Columbia or neighboring Virginia.  

    Maryland taxpayers have been to this rodeo before. In 2008, after the first millionaire’s tax went into effect the state saw an exodus of high earners. The results of the current proposal will be no different.

  • Finally, the raising excise tax rates on little cigars and smokeless tobacco will only punish poorer residents, who are more likely to use such products, and will fail to raise revenue. For proof of this phenomenon, in 2009, Washington, D.C. raised its cigarette tax from $2.00 to $2.50 per pack. The District projected the new tax would generate $45 million in revenue, about 20 percent above 2009 levels. Instead, revenues came in $12 million below projections and $4.2 million lower than before the tax was imposed.

    The proposal would also have a real negative effect on small businesses throughout the state. One store owner in Annapolis said; "It will kill the business, and in the end result, it would kill my business," Keller said. "(Our customers) say they'll just go somewhere else."

While Assembly leaders are trying to rush this tax hike through with minimal public input you can still reach out to your elected officials and urge them to oppose these ill-conceived tax increases.

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DC City Councilman Calling for Higher Drink Taxes
Posted By: Brent Mead - 05/07/12

Yesterday, I am sure the sight of Philadelphia Phanatics occupying Nationals Park…again…made some locals want to hit the hard stuff.

Unfortunately, D.C. continues to ban Sunday sales at package stores, so those folks had to struggle through a 6-run ninth inning with nary a drop of liquid comfort. If baseball isn’t your thing, Washington City Paper compiled a list of 10 other reasons to support ending the blue law insanity.

The good news was that for a while it looked like District imbibers might finally be able to have the beverage of their choice, at home, on the day of their choice. Opening up Sunday sales carried the nice side benefit that it would increase revenue for the city government at a time when there are mounting concerns over possible budget cuts.

This posed a conundrum for Councilman Jim Graham (D-Ward 1);

A)     He could repeal onerous regulations, increase economic activity, and raise revenues for the District’s coffers. Or;

B)      He could raise taxes.

When you look at Councilman Graham’s history it should not be surprising he chose option b. Last year, he supported efforts to raise the sales tax rate for liquor stores. This year, short $3.2 million after opposing the Mayor’s proposal to extend bar hours, the Councilman decided on pushing an increase on the wholesalers excise tax rate.

Councilman Graham’s proposal manages to distill everything wrong with government thinking into one bad idea. Raising the wholesale liquor alcohol tax hurts consumers through higher prices, hurts the hospitality industry by driving customers to Virginia or Maryland (both of which would have lower tax rates), and hurts wait staff who will likely see their tips suffer.  

All is not lost. Instead of sitting at home, drinking away the sorrow of D.C.’s latest rejection of common-sense, free-market reform I would encourage you to join the facebook group End DC Blue Laws.  Like them, share them, and join the cause. As they say, it is time to end blue laws, not raise taxes.

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Affiliate Nexus Taxes: Still Unconstitutional
Posted By: Brent Mead - 04/25/12

Good news today out of the Land of Lincoln. Cook County Judge Robert Lopez Cepero ruled Illinois’ affiliate nexus tax, or Amazon tax in layman’s terms, unconstitutional and struck the law in its entirety. This is a great, if not wholly unexpected, win for Illinois taxpayers and sets precedent that other states would be wise to follow when considering such schemes.

For background, following the 1992 U.S. Supreme Court decision in Quill v. North Dakota, all businesses have followed a common set of rules. In order for a state to subject a business to its tax laws, that business must be physically located in the state. This “physical presence” test protects taxpayers from rogue state tax collectors and prevents businesses from shouldering the heavy burden of complying with the rules of thousands of different taxing jurisdictions nationwide.

Affiliate nexus schemes attempt to undermine this standard by creating a false physical presence by linking out-of-state retailers, such as, to in-state websites who advertise for the retailer. Such schemes are constitutionally dubious as they clearly violate the intent of the 1992 ruling and create onerous barriers to interstate commerce.

That simple principle is at the heart of today’s Illinois ruling. The circuit court judge ruled the statute facially unconstitutional and held the state law violated the federal Internet Tax Freedom Act, which prohibits states from unfairly targeting online activity for tax purposes.

Of course, as stated above, none of this should come as new information. In fact, this is what NTU wrote to Governor Quinn during last year’s debate;

States that have attempted to prey upon online retailers beyond their borders through the  “affiliate nexus” route have not raised the desired revenues. In fact, North Carolina officials report that they are not keeping track of collections from their tax scheme. Additionally, Rhode Island’s tax administrators say that their treasury has actually lost revenues following enactment of the tax. What these policies have done is impose high costs on the states through litigation and lost business activity. Both North Carolina and New York have been sued over this issue and the litigation continues to this day. Several major online retailers have also terminated their affiliates programs in Colorado and Rhode Island due to those states’ sales and use tax-reporting requirements for online transactions. If Illinois enacts an affiliate nexus tax, the state’s more than 9,000 affiliates, who earned $611 million and paid $18 million in state income tax in 2009, will suffer the same fate; and have already notified their Illinois affiliates of their intention to terminate the program because of this measure.

I would love for NTU to claim some sort of prescient knowledge that Amazon and Overstock would cancel their affiliate contracts, that companies (notably would move out of state, that the law would fail to raise the promised revenue, and that the state would be subject to a successful court challenge. However, the reality is that this information is basic common sense, which the state chose to ignore. Hopefully, after today’s decision Illinois will take a hard look at its overspending problem rather than try to concoct an even more exotic tax scheme.

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Good News Everyone, You Can Now Start Working for Yourself*
Posted By: Brent Mead - 04/17/12

While you are finishing up filing your taxes take a moment to celebrate. Yes, celebrate. For today is Tax Freedom Day! That joyous occasion when the average American worker has finally put in enough hours to pay Uncle Sam’s tax bill.

This year it took 107 days for most families to pay their share, about 29.22% of income for all federal, state and local taxes. That is four more days than last year, primarily due to higher federal corporate and personal income taxes. Americans will also fork over more to the tax man than they spend on food, clothing and housing combined. Tax Foundation, who compiles the Tax Freedom Day numbers, adds the situation could be worse. If you count the $1.014 trillion deficit, Americans would have to work until May 14th before the government is paid for. As it is, residents in New Jersey, New York, and Connecticut will have to wait until at least May 1. You can check out the entire state-by-state breakdown here.

Of course, the hard work of taxpayers did not go unappreciated; Dan Bucks, head of Montana’s Department of Revenue said, “Montana taxpayers have made this a great tax season.” Hear that? It has been a great tax season! Unemployment above 8 percent, the highest corporate income tax in the world, and sluggish growth? Truly a “great” season.

What would make the season “great” in my mind is to move Tax Freedom Day up on the calendar. However, unless we rein in government spending, Tax Freedom Day will continue to fall later and later in the year. Spending pressure from entitlement programs and Obamacare is set to explode over the next ten years posing an increasing threat to taxpayers.

Now is the time to celebrate. After four straight years of trillion dollar deficits and looming tax hikes in December you may not have much time left before the tax collector exacts an even higher toll.

*Offer not yet valid in: CA, CT, DC, DE, IL, MA, MD, MN, ND, NJ, NV, NY, PA, RI, VA, VT, WA, WI, and WY

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Maryland, My Maryland
Posted By: Brent Mead - 04/13/12

Hark to an exiled son’s appeal.

The past four years have been a long lament for Marylanders fleeing the state’s oppressive tax burden for greener pastures. According to Rich States, Poor States, over 95,000 residents have left never to return. These are 95,000 taxpayers no longer helping fill the state’s coffers. In fact, if you do a quick extrapolation using the state’s per capita tax collections, the mass exodus has cost Maryland $218 million per year. These families are fleeing to the low tax havens such as Texas and Florida.

Why do we mention this? Very simply because Maryland has tried and failed to tax its way out of budget deficits before, and this only exacerbates the real problem that people are leaving the state precisely because of the tax burden. Residents pay over $5,200 per year in state and local taxes, roughly ten percent of household income. When you pile federal taxes on top of that burden it becomes an unsustainable situation.

Despite the economic and migration realities Annapolis showed no signs of empathizing with the common Marylander. Earlier this week, Governor O’Malley’s tax hike package fell apart when the clock struck midnight on Monday. Rather than accept the good fortune, the Governor and legislative leaders took turns blaming one another for not raising taxes on their constituents.

Early indications are that a tax deal will be reached without public input and only then with the General Assembly reconvene in a special session. All manners of tax increases will be placed back on the table, income tax increases, property tax shifts, gas tax hikes, tobacco tax increases, etc. Although, of note, one tax will not be debated and that is the “flush tax” as the Assembly managed to double the fee to $60 before adjourning on Monday.

The details of the final tax package become less important in the grand scheme of things. The Governor and General Assembly have had numerous opportunities to close the $512 million budget gap without raising taxes. Last fall, the Assembly was well aware of a growing budget hole. Rather than seek relative austerity, the state decided to increase spending. Furthermore, the Governor pitched hiking the gas tax knowing full well most of the current shortfall, such that it exists, is due to his efforts backed by the Assembly to transfer over $1 billion out of the Transportation Trust into the General Fund.

I can go on and on, but the law of diminishing returns kicks in at a certain point. Annapolis appears to have a single-minded purpose to raise taxes on its citizens. If this is indeed the case, more and more Maryland residents and businesses will flee and the politicians will be left to wonder what happened to Maryland, My Maryland.

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Should Cedar Rapids Taxpayers Still Be Paying For '08 Floods in 2024?
Posted By: Brent Mead - 03/02/12

Cedar Rapids, Iowa residents go to the polls on March 6th to decide on whether or not to extend for 10-years a temporary 1% sales tax to pay for a $375 million flood protection plan. From a purely good governance perspective, there are serious concerns with proposal ranging from poor priorities regarding current spending, an ill-defined flood protection plan, and that the current tax is not scheduled to expire for another two and a half years.

Don’t feel bad if this is all coming as news to you. Supporters of the tax extension planned a “low-key” operation in the hopes that less information in the public sphere would lead to better results than last year, when voters said NO to a similar proposal.  

The current tax was set in place in 2009 to help rebuild from the terrible flood damage suffered in 2008. As approved the measure read;

Ten percent (10%) for property tax relief; The specific purposes for which the revenues shall otherwise be expended are: 90% for the acquisition and rehabilitation of flood damaged housing caused by the flooding of 2008, and matching funds for federal flood dollars to assist with flood recovery or flood protection.

Unfortunately, according to groups like We Can Do Better, there are serious concerns over fund mismanagement and misappropriation of existing revenues. Since the measure passed, Cedar Rapids has spent $130 million on a hotel and convention center complex, $8 million on an outdoor amphitheater and $50 million on a new library. It comes down to priorities. If flood protection and rehabbing the damage from the 2008 flood are a true priority then such activities should come before expensive indulgences like a $130 million convention center.

A 10-year extension of the local option sales tax would cost Cedar Rapids’ households over $3,000. This is on top of $2,500 per household already spent since 2009 on the aforementioned side projects. Moreover, the existing tax was designed to be temporary. The March 6th vote would extend a five-year tax to fifteen years in total. The existing levy does not expire until mid-2014. No doubt strong memories still exist from the 2008 flood. However, supporters of the tax extension think residents in 2024 should still be paying for the damage done 16 years prior.

As to the plan itself, the city of Cedar Rapids’ preferred plan projects costs of $375 million ($200 million for east-side protection, $175 million for west-side protection). The Army Corps of Engineers approved plan covers parts of the east-side at a cost of $104 million with a 65/35 federal to local cost share. For those math majors out there, that means a cost difference to local taxpayers of $339 million between what the Army Corps recommends and what the city is pursuing. If the Corps goes along with the preferred plan for the east-side the cost to local taxpayers would only be $310 million. Before launching into a 10-year extension more questions need to be asked of city leaders if they have fully explored both the existing Corps plans for the east-side and what discussions have been had with federal officials to develop a strategy for the west-side of the river.  

NTU is not so callous that we oppose local efforts to rebuild after major events. But what is being asked here is not reasonable. Voters are being asked to extend a tax that is not set to expire any time soon for an undefined $375 million plan.  All the while serious concerns surround current city expenditures on redevelopment projects. Cedar Rapids needs to think carefully if such a long term commitment is truly necessary at this time.

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NTU Rates Congress and Presidential Candidates
Posted By: Andrew Moylan - 02/24/12

*Important note: NTU has not endorsed and will not be endorsing any Presidential candidate, nor is this post intended to suggest support or opposition for any Presidential candidate.*

There's been a lot of attention paid to NTU's annual Rating of Congress recently with regard to the Republican Presidential candidates. Since 1979, NTU has performed an annual Rating of Congress where we look at every vote on tax and fiscal policy, weight it from 1 to 100 based on importance, and calculate a percentage score indicating a Member's support for limited government (We did ratings before 1979 too but used a "key vote" system that's not directly comparable to our modern Rating). You can look at the entire record post-1992 (the year we began issuing letter grades) on our website, and our 2011 analysis will be available in a few weeks.

To clarify the record given the recent coverage, we released this statement yesterday where we published the entire Rating history for Rick Santorum, Ron Paul, and Newt Gingrich going back to 1979.

In last night's debate, Rick Santorum cited NTU in an exchange with Ron Paul...

"Ron, The Weekly Standard just did a review, looking at the National Taxpayers Union, I think, Citizens Against Government Waste, and they measured me up against the other 50 senators who were serving when I did and they said that I was the most fiscally conservative senator in the Congress in the -- in the 12 years that I was there.

My -- my ratings with the National Taxpayers Union were As or Bs."

The analysis to which Santorum is referring was performed by Jeffrey Anderson, a writer for the conservative Weekly Standard. Anderson did a couple of interesting things with the data, some of which I think are insightful and some of which I think are misguided. I'll try to lay my thoughts out in detail here, but it would really behoove you to go read his piece first for reference.

The first thing Anderson did was to confine his comparison of Santorum only to other Senators that served the entirety of his twelve year tenure in the Senate (from 1995 to 2006). While I suppose he would say he was trying to compare apples to apples, I think the end result is a bit of data cherry-picking which paints Santorum in a more positive light than would otherwise be the case. This restriction necessarily compares Santorum only to long-serving Senators, many of whom (like Robert Byrd or Daniel Akaka) had decidedly poor records based on NTU's metrics.

Anderson also converted each Senator's letter grade to a "grade point average," not unlike that which terrified you during your high school days. Anderson's conversion yielded a GPA of 3.66 on a 4-point scale for Santorum, a result which sounds quite good to anyone who remembers college applications. The problem with this is that it converts a short-hand measurement intended to give readers a general sense of a Senator's voting record to a precise number when our analysis already has precise numbers that do a better job. For example, Santorum's lifetime average score out of a maximum of 100% was 75.2%, including his House and Senate years. His Senate-only average was about 77.7%.

Another very instructive metric that doesn't garner quite enough attention, in my view, is the average rank. In addition to letter grades and percentage scores, we indicate how a Member compared to his or her peers by including their rank within the Chamber. To illustrate how useful it can be, look at Santorum's last year in the Senate, 2006. He received a grade of B+ and a score of 80%, but how did that compare with his peers? Well, it yielded a rank of 27th out of 100 Senators, meaning that 26 Senators had more conservative voting records that year and 72 had less conservative voting records. Santorum's average rank in the Senate was 19.5, which reflects a decent record (after all, he never received a grade worse than a B) but also one with a fair amount of variance (he ranked as high as 3rd overall in 2002 and as low as 33rd overall in 1999). Perhaps I'm biased because I work on the Rating, but I think these numbers are more instructive than the converted short-hand GPA from Anderson's analysis.

Beyond these quirks, Anderson actually did something quite interesting in comparing Santorum's voting record to how conservative (or not conservative, in this case) his state was...

"Based on how each state voted in the three presidential elections over that period (1996, 2000, and 2004), nearly two-thirds of senators represented states that were to the right of Pennsylvania.  In those three presidential elections, Pennsylvania was, on average, 3 points to the left of the nation as a whole.  Pennsylvanians backed the Democratic presidential nominee each time, while the nation as a whole chose the Republican in two out of three contests.

Among the roughly one-third of senators (18 out of 50) who represented states that — based on this measure — were at least as far to the left as Pennsylvania, Santorum was the most fiscally conservative.  Even more telling was the canyon between him and the rest.  After Santorum’s overall 3.66 GPA, the runner-up GPA among this group was 2.07, registered by Olympia Snowe (R., Maine).  Arlen Specter, Santorum’s fellow Pennsylvania Republican, was next, with a GPA of 1.98.  The average GPA among senators who represented states at least as far left as Pennsylvania was 0.52 — or barely a D-.

But Santorum also crushed the senators in the other states.  Those 32 senators, representing states that on average were 16 points to the right of Pennsylvania in the presidential elections, had an average GPA of 2.35 — a C+."

This is a rather novel way to look at things, and one I'd admit hadn't really occurred to me before. It is, of course, true that a Republican Senator from Utah can "afford" to vote in a much more conservative manner than a Republican Senator from Massachusetts and still keep his or her job. The cynic in me decries the fact that politicians test the winds before casting votes, but it is an undeniable fact of life and it manifests itself time and again in Congress.

While I've spent most of this post talking about Rick Santorum, I'd be remiss if I didn't mention Ron Paul, with whom Santorum had the debate exchange. On our Congressional Rating, Ron Paul is almost without peer. His lifetime average is over 90%, he has snagged the top spot four times, ranked 2nd overall seven times and has never ranked lower than 10th overall in the House. In other words, in his "worst" year on our Rating, he still had a more fiscally conservative voting record than 425 out of 435 Representatives. I haven't done any in-depth analysis on this question, but the only Members I can think of that could claim to equal his performance would be Jeff Flake (92.4% lifetime average, 1st overall eight years in a row, never lower than 2nd overall) and Jim Sensenbrenner (85.9% lifetime average, 1st overall twice, 2nd overall four times, never lower than 13th overall).

The only issues I can think of on which Ron Paul might have harmed (obviously only by a very small amount) his Rating would be free trade agreements (which he generally votes against and NTU supports) and the myriad earmark elimination amendments that Jeff Flake carried from 2006-2009 (which NTU supported and he generally voted against). But on the whole, his record is exemplary.

Hopefully this is helpful in adding to the debate, and stay tuned for our 2011 Congressional Rating release in a few weeks.

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Obama's Tax Plan Gets Problems Right, Solution Wrong
Posted By:  - 02/23/12

President Obama’s recently released “framework” for corporate tax reform is a hard document to pin down. On the one hand, it does an excellent job at describing the problems with the current system and laying out the case for broad-based reform. On the other, the solutions it offers would oftentimes only exacerbate the underlying problems. It’s as if President Obama and his team are excellent diagnosticians, but terrible surgeons. Their plan for tax reform is akin to properly diagnosing appendicitis and then deciding to remove your liver.

One of the primary problems, among the several we listed yesterday, is the creation of a minimum foreign tax on multinational companies. Rather than bring businesses, and therefore revenue, to our shores, this policy would only make us less competitive in the global economy.

Obama begins by saying the right things.

“The United States now essentially trades off greater tax expenditures, loopholes, and tax planning for a higher statutory corporate tax rate relative to other countries. This is a poor trade that produces a tax system that is uncompetitive relative to other countries, distorts business decision making, and slow economic growth.

In recent years, our major trading partners have overhauled their tax codes, lowered their statutory corporate tax rates, and in some cases broadened their tax bases. The United States has not enacted similar reforms, leaving the United States with the second highest statutory tax rate among advanced countries. In April 2012, after the scheduled reductions in Japanese tax rates go into effect, the United States will have the highest statutory corporate income tax rate in the Organization for Economic Cooperation and Economic Development (OECD).”

A nearly perfect diagnosis for the tax sickness that ails America. Moreover, it practically telegraphs what the administration should do to ameliorate those problems: close loopholes and follow the OECD trend towards lower rates and territoriality.

And then they begin the surgery…

On the issue of closing loopholes the framework does more harm than good. According to research conducted by the Tax Foundation the proposal would close six loopholes, out of around 250, while adding 11 – for a net loophole gain of 6. Not exactly progress on the road to simplifying the Tax Code.

The plan does succeed at lowering the corporate rate from 35 to 28 percent. Certainly progress, but not exactly a cure given the diagnosis of “a tax system that is uncompetitive relative to other countries,” especially since other nations continue to make progress in lowering their tax burdens. Even with the 7 percent rate cut that Obama envisions, the U.S. combined rate (federal and state taxation included) would still be 32.6 percent. That would move us from the having the highest corporate tax rate to the fourth highest among the OECD.

Perhaps worst of all, especially for international competitiveness, is the idea to create a “minimum foreign tax” that would raise the tax penalty on overseas profits.

Our current tax system is certainly broken. The high corporate rate coupled with a worldwide system penalizes American companies with burdensome rates. To ameliorate this problem our Tax Code allows firms to defer paying taxes on foreign profits until those profits are “repatriated” to our shores. Since our taxes are so high businesses are incentivized to park their cash elsewhere, leading to less investment and fewer jobs in the United States.

Rather than opt for the carrot of introducing truly competitive rates, Obama’s plan would use the stick of a new minimum foreign tax on business earnings abroad. But the result, especially when judged on the “fairness” rubric, isn’t the cure America needs. Essentially, this would mean that U.S.-based companies doing business abroad would face a tax hike, while foreign-based companies doing business in the U.S would see their tax rate cut. Rather than attract new companies and investment to our shore this would only incentivize them to set up shop in a more tax friendly locale.

So over all a good diagnosis of the problem. But let’s make sure to get a second opinion before anyone breaks out a scalpel.


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Warren Buffet Can Pay More Taxes Already!
Posted By: Douglas Kellogg - 02/22/12

From the State of the Union Address to this Piers Morgan interview with New Jersey Governor Chris Christie, Warren Buffett's plea for higher taxes on the so-called "rich" continues to come up. Governor Christie took the opportunity to remind Mr. Buffett he can submit additional payment to the U.S. government without throwing job creators under the bus. He can simply visit the Treasury website and the address and instructions for submitting payment are right there.

The Buffett situation is clearly a rare example. If it were such a widespread problem, there would have been an army of secretaries at the State of the Union, or perhaps a White House photo op. But of course, most secretaries do not make in the neighborhood of $200,000 per year or more, as Forbes estimates Buffet's employee does. In reality, this is like saying a "waiter" pays more income taxes than a "media personality", without pointing out one works at a high end restaurant in Manhattan and the other is a radio weather guy in small town Idaho.

This situation may be largely irrelevant for meaningful policy changes, however, the President seems to be using it for cover as he looks to implement major hikes in investment oriented taxes. As the Wall Street Journal reports, one of Obama's plans would jack the tax rate on dividends to 44%! While a few "Buffetts" may be hit by this, many investors and retirees who are definitely nont 'super rich' could be crushed by the President's budget plans. 

Taxpayers are always the group that sees the bottom line of the political battles in the media. Hopefully tragedy can be averted before a bunch of real secretaries who are investing for retirement are hit with this "Buffett-Obama tax hike."



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