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Archive for the ‘Taxes’ Category

By Stephen Winham

Back when we were first leaked information about Governor Jindal’s tax reform “proposal”, it seemed to actually be a plan, and a relatively simple one, at that – eliminate income taxes and replace them with increased sales taxes. It was hard to see how an increase of only 3 cents in sales tax could replace the lost income tax revenue, but that could be managed by taxing things we don’t currently tax. Even minimizing the effect on the poor seemed possible, if not probable. Many people, including me, did not think it was a good proposal for many reasons, but it was a something that could have been deliberated and given a thumbs up or down by the legislature.

With each subsequent report, the first half of the “plan” (elimination of income taxes) seems to remain firm while the second half (raising sales taxes) becomes less and less settled. Now we hear of a variety of other options to be worked out in meetings with legislators and in consideration of the multitude of studies that have been, and are being done on the subject of tax reform. If the options have become limitless, there is actually no self-reconciling plan and this proposal is essentially the same as the heavily-criticized bills in recent legislative sessions to simply eliminate income taxes with no replacement of the lost revenue.

Governor Jindal has already achieved a major (a cynic might say, the only) goal of this proposal – getting extensive national media coverage for making a bold proposal to fix Louisiana’s budget and economic development problems. The probability that it would do neither, even if it was an actual plan, is irrelevant. The local media have been a little more cautious and balanced in their reporting, but Governor Jindal’s adherents remain steadfast in support of his ideology and can dismiss any negatives as reflective of a liberal bias.
If anything ultimately comes of this, we can only hope the enactments will result in budgetary stability and that the revenue forecasts for the changes will not be overly-optimistic. It is not possible to isolate and evaluate effective, efficient state programs in a constant state of crisis. Nor is it possible for businesses to adequately plan for future growth. Prolonged, avoidable instability is fair to neither our citizens nor our business sector.

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“I don’t think we have politicians with the guts to ask ’em to pay their fair share. I’ve never seen anyone stand up to the oil companies. We don’t have a congressman who’ll do it. Mary Landrieu won’t do it. David Vitter is Joined at the hip with them. He absolutely won’t do it. You haven’t heard Mr. Jindal say one word about Exxon paying its fair share and you won’t because he’s in their back pocket.”

—Louisiana Public Service Commission Chairman Foster Campbell during an interview on Jim Engster’s show on Baton Rouge public radio station WRKF on Tuesday. Campbell called Jindal’s proposed 3 cent state sales tax increase a bad idea that “won’t work,” and instead, called for a 3 percent processing fee on oil and gas, a move he said would generate $3 billion per year for the state.

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Last March, Piyush Jindal’s alter-ego Timmy Teepell (or would it be the other way around?) was a guest on the Jim Engster’s Show on Baton Rouge’s public radio station WRKF and in the course of that interview he denied any knowledge of the American Legislative Exchange Council’s (ALEC) agenda.

Another guest on Engster’s show, Public Service Commission Chairman Foster Campbell, this week took Jindal, the legislature and the entire Louisiana congressional delegation to task for not displaying sufficient backbone to back Jindal down on his proposals to eliminate the personal and corporate income taxes in favor of a 3 cent state sales tax increase.

Campbell instead called for the passage of a 3 percent processing tax on oil and gas which he said would generate $3 billion a year “and let the people who can afford a tax pay it.”

When one reads ALEC’s 5th anniversary edition of Rich States, Poor States http://www.alec.org/publications/rich-states-poor-states/, one has to wonder at the veracity of Teepell’s claim. The annual report devotes 15 of its 125 pages to demonstrating how bad personal income taxes for states’ economies—and that’s before it even gets to the five-page chapter entitled Policy #1: The Personal Income Tax.

Even after that chapter, state personal income taxes are mentioned at least once on 64 of the next 75 pages.

Likewise, corporate income taxes are also discussed on 10 separate pages before Policy #2: The Corporate Income Tax, another five-page chapter. Corporate income taxes are then mentioned on 56 of the remaining 80 pages.

As if that were not enough, Rich States, Poor States also zeroes in on its favorite tax, the sales tax. “We find that sales taxes have a neutral effect on state economies and therefore are a far preferable means for a state to raise needed revenue,” it said in the first paragraph of Policy #3, entitled (you guessed it) The Sales Tax.

In all, sales taxes are invoked on no fewer than 74 of the 125-page report which boasts that ALEC’s tax and fiscal policy is “to prioritize government spending, to lower the overall tax burden, to enhance transparency of government operations, and to develop sound, free-market tax and fiscal policy.”

And Teepell is unaware of this agenda. Really?

“When policymakers choose the levels and types of taxes for their state, they must confront not only the possible effects on the state economy, but the volatility of tax receipts as well,” the report says. “When tax receipts are volatile, that usually means an abnormally large shortfall of revenues when times are tough and spending needs are the greatest.”

Incredibly, the report claims that revenue generated from sales taxes “is the least affected by the boom and bust cycle—in fact, sales tax revenue changes only half as much as revenue from personal and corporate income taxes do.

“Not only does the sales tax do less to inhibit growth, it is a steady revenue source even during a recession,” says the report.

Then, ripping a page right of the Milton Friedman playbook, the report says, “Progressive corporate and personal income taxes do far more damage to the economy than do other taxes such as sales taxes, property taxes and severance taxes. In addition, they (income taxes) are substantially less reliable than those other taxes. How’s that for sound tax policy?”

Well, certainly inflicting a regressive sales tax on Louisiana’s poor is considerably more reliable than corporate income taxes when one considers all the tax breaks, exemptions and rebates this administration hands out to the tune of about $5 billion a year to corporate contributors.

But to address the sophomoric question, “How’s that for sound tax policy?” we turn to another publication entitled Selling Snake Oil to the States: The American Legislative Exchange Council’s Flawed Prescriptions for Prosperity.

A joint publication of Good Jobs First and The Iowa Policy Project, The November Snake Oil report takes ALEC to task for its Rich States, Poor States publication which, as might be expected, is heavily weighted in favor of its corporate membership.

“We conclude that the evidence cited to support Rich States, Poor States’ policy menu ranges from deeply flawed to non-existent,” Snake Oil says. “Subjected to scrutiny, these policies are revealed to explain nothing about why some states have created more jobs or enjoyed higher income growth than others over the past five years.

“In actuality, Rich States, Poor States provides a recipe for economic inequality, wage suppression and stagnant incomes and for depriving state and local governments of the revenue needed to maintain the public infrastructure and education systems that are true foundations of long term economic growth and shared prosperity,” it said.

The Snake Oil report said that results actually reflect just the opposite of the ALEC claims. “The more a state’s policies mirrored the ALEC low-tax/regressive taxation/limited government agenda, the lower the median family income; this is true for every year from 2007 through 2011.”

Jindal was elected in 2007 and took office in 2008 and his policies, Teepell’s denial notwithstanding, have certainly mirrored the ALEC low-tax/regressive taxation/limited government agenda and the state’s infrastructure and education systems just as certainly have suffered under staggering budgetary cuts.

Louisiana’s average median household income of $42,423 for 2010 was the nation’s 10th lowest and 29 percent of Louisiana’s children live in poverty, second only to Mississippi’s 32 percent.

The state’s working poor already pay little or no income tax, so elimination of the state income tax would have no effect on them. A sales tax increase, however, would hit the poor the hardest because they would be paying the same taxes on diapers, clothing, cars, gasoline, appliances and automobiles as the wealthy. Accordingly, they would be paying a much larger percentage of their income in sales taxes than higher income families.

Campbell, a former state senator and an unsuccessful candidate for governor in 2007, was elected chairman of the Public Service Commission last year.

Accustomed to being a political lightning rod for his candor, Campbell was in rare form on Engster’s show on Tuesday, saying that Jindal typically works for the benefit of big companies and corporations. “He’ll do anything he can to help those at the top end of the income bracket.”

Appearing to consciously avoid referring to Jindal as governor, he said, “Mr. Jindal knows the solution. When I ran for governor, I wanted to get rid of the income tax which I still think we ought to do. Progressive states like Florida and Tennessee don’t have state income taxes and neither does Texas. They seem to be doing better than us. But you have to replace it with something and Mr. Jindal knows what to replace it with but you couldn’t get him close to it.

“Mr. Jindal wouldn’t touch the oil companies and that’s where to get the money. We just need some politicians with some plain old-fashioned guts to ask ‘em to pay their fair share. I’ve never seen anyone stand up to the oil companies. We don’t have a congressman who’ll do it. Mary Landrieu won’t do it. David Vitter is joined at the hip with them and he absolutely won’t do it.

“Mr. Jindal would run out of the Capitol screaming if you asked him to touch Exxon with a tax,” Campbell said.

Campbell, a Democrat, then heaped praise on Louisiana’s first Republican governor since Reconstruction.

“The most honest governor by far, who tried to do the right thing, was Dave Treen. When he ran against Louis Lambert (in 1979), business and industry supported him but when he went after the oil companies, they all turned on him and put Edwards back in,” he said.

“He was absolutely right when he had the Coastal Wetlands Environmental Levy (CWEL) and he wanted some kind of fee from the oil companies for tearing up our coast.

“I like oil companies for furnishing jobs,” he said. “That’s great. But we have let the oil companies absolutely take over our state, damage our coastline and never asked them to pay for it.

The BP spill, bad as it was, was miniscule compared to the damage oil companies have done to our coastline and all our congressional delegation wants to do is go ask Obama to pay for the coastal restoration and Mr. Vitter (U.S. Sen. David Vitter is the leading cheerleader for that. The government didn’t drill the wells and Mr. Vitter knows that but he doesn’t want to ask the people he’s close to to pay for the damage. And neither does Ms. Landrieu. You see the ads on TV praising Ms. Landrieu. Do you know who’s paying for those ads? The oil companies.”

“We need to ask the oil companies who are making billions to pay something rather than asking the people of Louisiana which has (one of the) poorest populations in the nation. Rather than asking people at the bottom to pay the big end of the tax, why doesn’t Mr. Jindal ask companies like Exxon, Chevron, and Shell to pay their fair share? Fifty percent of the coastal erosion in this state is caused by offshore activity.

“In 1926, when we put it into the constitution, we could tax only domestic oil. That was fine back then when 95 percent of our oil was domestic. Today, it’s 96 percent foreign and 4 percent domestic.

“We have to tax oil and gas coming into the state of Louisiana,” he said. “I agree with Mr. Jindal that we need to eliminate the severance tax because it has been dwindling anyway since the ‘80s. Instead of the severance tax, charge a simple 3 percent processing tax which would raise $3 billion a year.

Campbell said former Gov. Buddy Roemer wants to tax oil that’s still in the ground. “That won’t generate the money. I asked Roemer, Edwards and (Mike) Foster (about the 3 percent processing fee) but they wouldn’t help.

“I guarantee you it would pass by 80 percent. Mr. Kennedy (State Treasurer John Kennedy) knows that, Mr. Roemer, Mr. Jindal and especially Mr. (Dan) Juneau, the head of LABI (Louisiana Association of Business and Industry), know it. Mr. Juneau cannot stand a processing tax because the people who pay his bills don’t want it.”

Campbell said, “It’s the LABIs of the world who represent the big companies doing business up and down the Mississippi. LABI is not worried about the Mindens, the Homers, the Farmervilles, the Ringgolds, the Mansfields or the Rustons of Louisiana. They’re worried about the Chevrons, the Dows, the Exxons. Those are the people who put up the big money.

“Legislators who consistently vote with LABI are not representing their districts because LABI could care less about them.

“That’s who Mr. Jindal is dancing to. That’s why he wants to raise the sales tax on the people. Don’t put it on the oil companies that make billions,” he said in mocking the administration line. “They can’t afford it. They might leave the state.

“How are they going leave the state when they have 50,000 miles of pipeline that deliver oil and gas all across America? And they have the Mississippi River! They can’t leave the state. We need politicians with backbone who’ll say, ‘Now listen, you’ve had a great day in Louisiana, but it’s over. We have crumbling roads, poor education, pollution, a torn-up coast and now you’re gonna pay your fair share. Now get out there and start crying that you’re gonna leave the state and we’ll see what the people believe.’”

At that point, Engster finally got to ask, “Are you a member of LABI?”

“Absolutely not. They don’t represent small business. They say they do but they represent the big boys. Never forget that. Mr. Juneau takes his orders from the boys that put up the most money. They don’t worry about the hardware store in Mansfield. They say they do, but they’re fooling those people. They represent the biggest of the big, nothing more, nothing less.

“That’s who Mr. Jindal represents. Look what he’s doing: raising the sales tax on the poorest people living in America—and make sure, by the way, to get rid of corporate taxes.

“You haven’t heard Mr. Jindal say one word about Exxon paying its fair share and you won’t because he’s in their back pocket.

“Mr. Vitter won’t say anything about fixing our coast because he’s in their back pocket.

“Ms. Landrieu won’t say that because she’s in their back pocket.”

LouisianaVoice did a quick check of campaign contributions and found that Campbell may have been onto something when he talked about a lack of courage by the legislature and the congressional delegation and Jindal’s being beholden to the oil and gas industry.

Oil and gas interests contributed more than $1.5 million to 143 state candidates, including legislators and statewide elected officials since 2003, including Jindal, Kennedy, Lt. Gov. Jay Dardenne, former Lt. Gov. and current New Orleans Mayor Mitch Landrieu, Commissioner of Agriculture Mike Strain and former Secretary of Natural Resources and current Public Service Commissioner Scott Angelle.

Moreover, oil and gas contributed more than $1.75 million to six of Louisiana’s seven congressmen since 2002 and $1.99 million to the state’s two U.S. senators since 1996.

The breakdown for the congressional delegation, with the dates each was first elected in parentheses is as follows:

Senate:

• Mary Landrieu (1996)—$940,174;

• David Vitter (2004)—$1.05 million’

House:

• Steve Scalise (2008)—$257,785;

• Charles Boustany (2004)—$641,605;

• John Fleming (2008)—$405,450;

• Rodney Alexander (2002)—$254,559;

• Bill Cassidy (2008)—$194,300;

• Cedric Richmond (2010)—$0

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The Public Affairs Research Council (PAR) and a member of the Louisiana Revenue Estimating Conference (REC), in separate news releases, have raised questions that cast serious doubts on the wisdom of Gov. Piyush Jindal’s proposed state tax reforms.

PAR released its Tax Advisory Group’s Tax Policy Guidance that cautioned that the impact of Jindal’s proposed tax changes should be “accurately estimated and firmly understood with fact-based evidence and confidence.” It also said taxes should be broad-based with “low rates and few exemptions.”

It also said the proposed elimination of the state income tax could “destabilize” the state’s revenue base and even set the stage for increased taxes in the future.

Almost simultaneously, LSU E.J. Ourso School of Business economist Jim Richardson, in an interview with Baton Rouge public radio station WRKF, warned that if the state income tax is replaced by a state sales tax increase, exemptions for items like food and prescription drugs would also have to be eliminated to offset the income tax revenue loss.

Richardson is a member of the state Revenue Estimating Conference which meets at least four times per year to adjust revenue forecasts for the state. The legislature is mandated to rely on REC projections in formulating the state general fund budget each year.

In addition to being a member of REC, Richardson was also a member of the PAR Advisory Group which drafted the organization’s Tax Policy Guidance.

Richardson said eliminating personal and corporate income taxes would create a gap of nearly $3.5 billion in state revenue. “If you make it up with purely sales taxes, you’re talking about doubling the rate.

Richardson—and PAR—calls the sales tax proposal a “regressive tax,” meaning a tax in which the burden falls more heavily on low income taxpayers. “That means a larger part of their income will be subject to tax,” he said. He said because a sales tax is flat, meaning everyone pays the same amount, no matter what their income, those with low incomes will end up paying a higher proportion of their income for taxes.

He said that while other states, such as Texas, do not have personal income taxes, Texas homeowners, for example, pay much higher property taxes. He said there is no valid model for eliminating the corporate income tax because “other state governments work differently.”

He also said that while shoppers may not notice an increase sales tax on low price items such as toiletries, an increased sales tax may well place luxury items out of reach for some. “Go buy a new car, a new refrigerator. Go buy something that has relatively high prices attached to it,” he said. Then you’ll notice it”

He said there aren’t many alternatives to a state income tax for raising revenue. “If there were, we would have already done it,” he said.

The PAR report took the potential of increased sales taxes a bit further by pointing out that with higher sales tax rates, Louisiana businesses would be at a competitive disadvantage to sellers in other states and, to an even greater extent, to untaxed online sales—especially for high-cost items.

“After having obtained the highest sales tax rate in the country,” the PAR report said, “Louisiana would be in unchartered territory as far as estimating how much revenue would be produced.”

The report pointed out that Louisiana already is a relatively low-tax state for individuals and cited the Tax Foundation which says that only three other states impose a lower overall tax burden on their citizens.

Louisiana’s property taxes, which provide a key source of revenue for local governments, are among the lowest in the nation, it says. By contrast, the state’s combined state-local sales tax rate is the third highest in the nation.

Corporate taxes, it said, are subject to many exemptions. “Based on profits, and therefore vulnerable to recessions, the corporate income tax provides a widely fluctuating source of state revenue that is hard to predict from year to year.”

The PAR report said that the corporate franchise tax should be eliminated and ways found to replace the annual revenue loss of about $74 million. “The franchise tax is a complicated administrative burden on business and is often difficult to calculate, which leads to time-consuming regulatory problems and litigation. The current tax is a deterrent to capital investments and a disincentive to companies considering a headquarters operation in Louisiana,” it said. “To offset the revenue loss partially, the state could consider a standard capped annual tax for corporations and/or other registered business entities.”
The report, in responding to Jindal’s proposals, said, “The individual income tax tends to grow with the economy and therefore is an important component of Louisiana’s overall balanced and stable tax structure and revenue base.

“A repeal of the individual income tax could create a more attractive perception of the state’s tax climate but such a move runs the risk of destabilizing the state’s revenue base and would likely set the state for increased taxes in the future.”

The report said that eliminating the individual income tax would result in an annual revenue loss of $2.6 billion based on current-year collections. “It should be noted that in future years the state’s annual individual income tax revenue is expected to grow at a higher rate than that of its sales tax revenues,” it said. “Estimates of the amount of money needed to offset an elimination of the income taxes should not be based solely on the revenue experience of past years.

“If higher sales taxes are implemented, the pressure for new exemptions for sales taxes will be intense,” the report said. “Each new or revived exemption will erode the sales tax base upon which the state would have become more independent. The reform policy should therefore include tougher standards for the adoption of sales tax exemptions.”

Echoing Richardson, the PAR report said low-income individuals and families pay little or no state income tax and therefore will be adversely affected with an overall tax increase if higher sales taxes replace the personal income tax. “The state should find ways to lessen the negative impact on people in these categories if the proposal is adopted,” it said.

“There are some categories of people who have an exemption from (state) income taxes and could also be paying higher taxes overall under the proposal,” the PAR report said. “These include public employee retirees, military retirees and those on disability. Also, Social Security retirement benefits are exempt from Louisiana income tax.”

While saying that such exemptions may be debatable as good policy, the report said, the impact on those people nevertheless “should be noted.”

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When Louisiana Congressman John Fleming said he is not in favor of increasing the tax rate for those making $1 million and more per year, you need to probe a little deeper to understand that his real motive in opposing higher taxes might be just a tad self-serving.

Interviewed right after House Speaker John Boehner, R-Ohio, withdrew his “Plan B” fiscal cliff bill which would have extended the Bush-era tax cuts to all households making less than $1 million per year, Fleming made his position crystal clear.

“Raising taxes on any American to me is not the right message, he told CBS reporter Nancy Cordes. “The right message is cutting spending.”

But to fully understand what Fleming, a Minden Republican, is really saying, we have to go back more than a year to Sept. 19, 2011, and review his MSNBC interview with Chris Jansing, giving particular attention to the numbers being bandied around in that interview.

Jansing reminded Fleming that his businesses (Subway sandwich and UPS franchises) earned $6.3 million in 2010.

Fleming said that while his businesses made $6.3 million, “Income flows to my personal tax return. My net income is a mere fraction of $6 million since my net income is more like $600,000. By the time I feed my family, I have maybe $400,000 left over.”

That’s right, folks, Congressman John Fleming, that man of the people whose only concern is the welfare of good, hard-working Americans, can barely make ends meet on $600,000 per year. And that doesn’t even include his $174,000 per year congressional salary, free mail (franking) privileges, district office, furniture and staff.

The average household income in the U.S. in 2010 was just under $50,000, down 2.3 percent from 2009.

“Class warfare has never created a job,” he said in that interview. “Most people feel owning a business is a virtue, not a vice.”

That, folks, is called spin.

That $6.3 million is “before you pay 500 employees, you pay rent, you pay (for) equipment and food,” he protested, almost to the point of whining.

But his numbers just don’t add up so let’s break them down and then you can decide for yourself just who is promoting class warfare.

Let’s begin with that $6.3 million. By his own admission, he receives $600,000 of that, which leaves a trifling $5.7 million with which he claims he pays 500 employees, pays rent, purchases or leases equipment and buys food for his Subway restaurants.

For the time being, let’s discard all the expenses for rent, equipment and food and say, for the sake of argument, that the entire $5.7 million goes for salaries of those 500 employees.

That works out to $11,400 per employee—UPS drivers, sandwich makers, and supervisory personnel.

The poverty level for a one-person household in America in 2010 was $11,344.

Assuming that his UPS drivers and management personnel were making substantially more than that $11,400 average, reason dictates that the remainder of his workers were among America’s working poor.

Fleming told Jansing President Obama’s deficit reduction plan was a terrible idea which kills jobs provided by wealthy “job creators.”

Whether or not one agrees with Obama, Fleming’s position is a little difficult to square up against the numbers he threw out to Jansing.

Of course Fleming was either grossly exaggerating the number of employees or grossly understating the income from his business enterprises which also include numerous other investments.

Or his employee turnover rate is such that he really did go through 500 workers during 2010 as personnel came and went after unusually brief tenures which would translate into far fewer people on the payroll at any given time.

Not that Fleming is a poor businessman. He already had the good sense to set his businesses up in such a way as to minimize his corporate taxes.

Under the federal tax system, the income of corporations is taxed twice—once at the corporate level through the payment of the corporate income tax and again at the individual rate when corporate profits are distributed. Sole proprietorships, partnerships, S corporations and limited liability companies (LLC) are taxed only at the individual owner level.

According to his congressional financial statement, his companies are all set up as LLCs and partnerships which would explain his statement that the $6.3 million flowed through his personal income taxes.

Congressional financial statements are vague at best, thanks to the requirement that income and liabilities are generally listed within a spacious range between the low and high ends.
For example, here are Fleming’s 2011 income ranges from the following sources:

• Park City Health Services (Fleming also is a physician)—$1 million to $5 million;

• JCF Properties Limited Partnership—$100,000 to $1 million;

• Fleming Franchise Development—$100,000 to $1 million;

• Fleming Subway Restaurants—Over $5 million;

It’s not that we mean to come down too hard on the good congressmen. After all, he went through some tough financial times from 2007, the year before he was first elected, to 2010, the latest year for which figures are available from OpenSecrets.org, as reported by the Washington Post.

His net worth plummeted from $24 million in 2007 to a paltry $6.5 million in 2008 before eventually climbing back to $10.2 million in 2010.

That included $3.8 million in real estate, $3.6 million from his private companies and $3.2 million from unspecified sources.

He did pretty well, too, in attracting big ticket campaign contributions in 2011-2012.

Of the $1,229,259 in total campaign contributions, $1,202,416 (77 percent) was classified as large individual contributions while a mere $26,843 (2 percent) came from small individual contributors.

Another $321,363 (21 percent) came from political action committees, including, among others, Northrop Grumman’s PAC ($15,000), The American Academy of Orthopaedic Surgeons and Every Republican is Crucial PACs ($10,000 each), National Association of Realtors (8,010), the Shaw Group ($8,000) and the National Beer Wholesalers Association ($7,500).

Other contributors included:

• Atco Investments: $29,000;

• Gamble Guest Care: $15,100;

• Kinsey Interests: $12,300;

• Builders Supply Co.: $12,100;

• Willis Knighten Hospital: $7,200;

• Louisiana State University: $11,850.

We can only hope things pick up for Congressman Fleming in 2013 so that he can feed his family a little better and bring the pay scale of his employees up to the national poverty level and perhaps even endure a tax increase for him and his poor millionaire friends.

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