The Flawed Economics of Class Envy

President Bushs recent comments about corporate compensation were less about economics than political posturing. “Income inequality is real,” seems almost laughable coming from an administration that has taken credit for a rise in average incomes (skewed by upper extremes (e.g. CEO pay)), but ignored the fact that median incomes have been flat or falling. A focus on executive pay is little more than a distraction from the loss of working class jobs and the tax policies that motivate overseas corporate migration.

We need fundamental changes in our tax philosophy. A corporate tax is seldom little more than a cost passed through to consumers. And a personal income tax is behaviorally absurd - What do we want to do; penalize people for making money? “From each according to his ability” was discredited with the fall of communism. We should seek to encourage productivity and earning. What we ought to tax is the discretionary consumption that our society seems addicted to.

A consumption-based tax, like advocated by FairTax.org, would put every American's tax bill under his own control, and American industry could compete on a more level basis worldwide. The subsidized Chinese manufacturer would be taxed at the cash register just the same as the local factory. The American exporter wouldn’t be taxed at home, then again abroad. Our system of capitalism would grow under an infusion of savings and investment, rather than huge amounts of capital stagnating in sub-optimal tax shelters or overseas ventures.

Combined with a focused effort to reduce our huge national debt, trillions of dollars could be returned to productivity for working class Americans. Domestic jobs would be more competitive, paychecks would more closely reflect pay rates, and Americans could achieve financial independence rather than debt and dependence on government programs.

Executive pay is simply a symptom reflecting the lack of opportunity for all but the well-connected. We need the government to return the squandered $9 trillion to the working Americans who need it most, rather than earning interest for the well-heeled investors, many foreign, who underwrite our debt today. Then we need to get the billions held by the richest few Americans into productive use here at home. There's no need for class envy as long as that capitalist upper class is investing in factories and jobs within a thriving economy.

Let's remove the inhibitions to earning money here at home, while creating incentives for frugal living within our means, all through logical tax policy.

Michael Smith, Republican Candidate for President

Posted by Michael Smith at February 23, 2007 6:51 PM
Comments
Comment #209504

The FairTax is not a fair tax system.
It also would require significant unnecessary change, when all that is really needed is simplification of the existing system.

  • the FairTax.org recommends a 23% sales tax rate (23% inclusive, but actually, it is a 30% sales tax on the price of the item purchased). That is, if you buy a $100 item, your tax is $30, which is 30% of $100. It is a bit dishonest to call that a 23% sales tax, when most people understand sales tax to be a percentage of the item purchased. Fairtax.org calls it a 23% tax by calculating $30 on the sum of $130 ($30 / $130 = 23%). Either way, 23% or 30%, it is very high sales tax.
  • Such a high rate (23% inclusive, 30% exclusive) will almost guarantee blackmarkets and tax evasion.
  • There is less transparency of sales taxes collected, versus income tax (especially if you consider the number of sales to the number of people with income). Less transparency will breed more corruption.
  • There is insufficient proof to show that all will be taxed fairly (based on income). Since most people insist that the objective is to tax income proportionally the same (except the poorest below the poverty level), how does the fairtax plan prove that income will be taxed equally ? That is a very interesting point. If the main question about any tax system that is continually asked is “Will everyone (excluding the poor) pay their fair (or equal) percentage of tax related to income?”, then what does that tell you? It seems many people still want the end result of any tax system to be that everyone pays their fair (or equal) percentage of income (excluding those below the poverty level, which would pay zero tax). Therefore, if we are continually tasked with proving that any tax system, in the end, must fairly tax income the same percentage (excluding the poor who pay zero tax), then why not simply retain the income tax (but greatly simplified)?

The FairTax plan is attractive to many.
That is probably because it lends to the belief that you can control your taxes by controlling your consumption.
That’s true to some extent.
However:

  • There are the necessities of life (food, shelter, medical, transporation, etc.).

  • The poor spend all of their income

  • The lower-middle-income groups spend all of their income

  • The middle-income groups spend most of their income

  • The poor and increasing number of middle-income groups can’t afford medical insurance, so a 30% (23% inclusive tax) on medical expenses would exacerbate that disaster.

  • The wealthy don’t spend all of their income; a large part may be re-invested, but large sums of cash and money-market funds would still exsit; interest earned on that cash would not be taxed.

  • The hyper wealthy can’t possibly spend all their income; a large part may be re-invested, but large sums of cash and money-market funds would still exsit; earning tax-free interest. This could also has other economic ramifications to the money-supply.

In my opinion, the FairTax.org plan will let the wealthiest evade more taxes than ever before. If the goal is to tax income fairly (as most people want), then why complicate it by trying to place the tax on sales (on the other end of the spectrum)? Also, we might end up with both a federal sales tax, and federal income taxes.

Here’s the plan I prefer (a 17% flat income tax rate with a low income deduction):

  • It requires the least change.

  • It allows the easiest transition.

  • All that is required is a simplification of the existing system. Make it a flat 17% rate income tax, eliminate all the tax loop holes, and don’t tax anyone until their income exceeds the established poverty level.

  • It eliminates the loop holes.

  • It taxes incomes all the same 17% (over the poverty level).

  • It eliminates the graduated scale. 17% of $100K is double 17% of $50K. That is graduated enough.

  • It still allows for the accounting for Social Security and Medicare.

  • It won’t place high sales taxes on exports.

  • It eliminates corporate taxes.

Here’s a comparison of the flat 17% rate income tax and the progressive tax system.

Posted by: d.a.n at February 24, 2007 12:53 AM
Comment #209505

Many good, but erroneous points. A regressive tax is obviously unfair, but FairTax includes a rebate to cover the basic costs of living. Beyond the sound objections to a regressive tax, why do we accept the premise that a progressive tax is fair? Beyond a certain level of income, capitalism should be allowed to work and individuals with capital should be allowed to decide the use of those funds within a competitive free market. Government should not be the director of those choices.

Take the time to read the info at FairTax.org. They’ve taken the time to cover every angle.

However, if not the FairTax, I could live with a flat tax as well. Anything would be better than the mess we have today.

Posted by: Michael Smith at February 24, 2007 1:11 AM
Comment #209508
Michael Smith wrote: Beyond the sound objections to a regressive tax, why do we accept the premise that a progressive tax is fair?
I never said a progressive tax system was fair (because I don’t think it is), and even posted many problems with the progressive tax system. Here’s my list of the pros and cons) of the flat income income tax percentagge tax system and the progressive tax system. In my opinion, a flat rate income tax percentage with a poverty level exemption is the simplest and fairest system.

I said I prefer a flat rate 17% income tax system with a poverty level exemption where no one pays tax until their income exceeds the poverty level (which eliminates the need for a rebate like that in the fairtax.org plan).

Michael Smith wrote: Many good, but erroneous points.
No. They are not erroneous points.

First of all, I did not say a progressive tax system was fair, as you alleged.
Second, you say a regressive tax is obviously unfair (and I agree).
But, then you also question the fairness of a progressive tax (which I also don’t think is fair)?
Therefore, you are questioning the fairness of both the progressive tax and a the regressive tax?

Third, You nor anyone else has yet proven that the fairtax.org plan is fair, regressive, or progressive.
I personally do not think it is fair (even with the rebates, which is an unnecessary complexity).

Michael Smith wrote: A regressive tax is obviously unfair, but FairTax includes a rebate to cover the basic costs of living.
Fourth, a rebate does not prove the fairtax.org isn’t regressive or progressive.
Michael Smith wrote: Take the time to read the info at FairTax.org. They’ve taken the time to cover every angle.
I have, more than once. I even used to be a donating member of fairtax.org .

I have studied, discussed, and debated the fairtax.org plan for over a year, and that is what changed my mind about the fairtax.org plan.

But not any more, because they could not prove to me that all income above the poverty level would be taxed almost proportionately the same.
That is a requirement for me, and it is also what most other Americans consider fair.

The fairtax.org plan would require many changes, and carries more risks with it.

Michael Smith wrote: However, if not the FairTax, I could live with a flat tax as well. Anything would be better than the mess we have today.
The fairtax.org plan may be better than what we have, but it is difficult (or impossible) to prove at this time.

The flat 17% tax with a low income exemption would be a simplification of the existing system, and most Americans agree that a flat income tax rate (with a poverty level exemption) is the most fair system. Most Americans understand all too well that the myriad of deductions and tax loop holes are abused and allow the wealthy to evade taxation.

A tax system should strive to satisfy the following:

  • (01) all pay the same percentage of income (except the poor, which pay nothing at or below the poverty level).

  • (01) has a sufficient probability of actually taxing income equally;

  • (02) retains Social Security and accounting for it (currently 12.4% on first $90K gross income);

  • (03) retains Medicare and accounting for it (currently 1.9% on gross income;

  • (04) defines the tax collection methods;

  • (05) has a sufficient probability of compliance;

  • (06) does not increase tax evasion;

  • (07) does not increase black markets;

  • (08) does not drive up the cost of all products and exports;

  • (09) does not tax the poor and truly needy;

  • (10) resolves question of whether corporations should be taxed?

  • (11) adequately integrates and/or replaces old systems with new systems;

  • (12) does not double tax: for example, with the fairtax plan, the vastly wealthy get double taxed, since they already paid income tax on much of their money? That will go over like a lead balloon.

Also, what the FairTax fails to point out is that prices (overall) can only fall if employers can cut their employees wages. It has to come from somewhere. Say your salary is $50K a year today, but you take home $40K after income taxes. Under the FairTax system, there would supposedly be a savings of $10K, and must be able to lower its prices accordingly, but ONLY by reducing your salary by $10K to $40K. Theoretically, your take-home pay is the same as before, since you now keep 100% of your income.

One advantage of the FairTax plan is that the wealthy would no longer be protected by the Social Security cap.
But, also, the flat 17% income tax system would have no caps on Social Security and Medicare. It’s a flat 17% on all income above the poverty level.

This is a serious issue, and I don’t accept the FairTax system until it proves that taxation is not heaped upon the middleclass mostly. 30% sales tax on food for a person that makes $40K is a much larger percentage of his income that 30% tax on food for a person whose income is $1 million per year. The common/popular argument that the wealthy will spend sufficiently so that an near equal percentage of their income goes to taxes has not been proven out.

And if that is not the case, it is a system I will never support.

At any rate, this is a serious issue, and it is incumbent upon the FairTax.org to prove that it is a fair system. If the middle income group ends up payin most of the taxes, it is NOT fair. Thus, the FairTax.org plan must prove that it is highly likely that all groups are likely to pay an equal percentage of income to taxes. Those that make less should NOT be burdened with a larger percentage of their income going to taxes.

Posted by: d.a.n at February 24, 2007 2:11 AM
Comment #209511

The Fairtax isn’t going to be fair based on income simply because it is NOT based on income. You are comparing apples to oranges.

Compare any poor or middle income person’s tax situation not to what they would pay under the Fairtax plan and they will come better than they do now. What is wrong with that?

Posted by: tomd at February 24, 2007 4:28 AM
Comment #209512

Should be compare any poor or middle income person’s tax situation now.

Posted by: tomd at February 24, 2007 4:30 AM
Comment #209515

Good post and good debate guys. Under the fair tax system wealth can be transferred without tax? How about under the flat tax system?

At the fair tax website they say they would abolish the 16th amendment. The flat tax method doesnt seem to require this. But both systems seems to favor the corporations as they “just pass the costs along”, why not re-write the 14th to define only a natural person to have the rights of the constitution? It would only seem fair to tax all who enjoy the rights established in the constitution equally, or to give up the rights.

Posted by: j2t2 at February 24, 2007 9:29 AM
Comment #209526

The Fair Tax only becomes fair if ALL consumers, including those of our nation’s natural and human resources, also pay a consumption tax. That would include Oil Companies, Mining Companies, and Air Polluters, Fisheries fishing within Territorial Waters. One other category would need to be included for taxation, those businesses whose byproducts cost the American taxpayers currently. That would be nuclear power companies who should be forced to pay for the disposition and elimination of their own waste products, not the taxpayers, as well as the bond, and stock markets whose behavior requires government oversight and regulation. The Government’s oversight and regulation should be covered by taxes levied on investors.

Only in this manner, can government truly become affordable, accountable, and the costs to the taxpayers made far more transparent. Lastly, this plan makes the flawed Fair Tax plan which allows corporations to increasingly pass the cost of operations on to the taxpayer, truly fair.

But, UNTIL the Fair Tax organization makes the modifications, consumers and workers and taxpayers everywhere should REJECT their Monumentally UNFAIR tax plan.

Posted by: David R. Remer at February 24, 2007 10:36 AM
Comment #209530
j2t2 wrote: But both systems seems to favor the corporations as they “just pass the costs along”, why not re-write the 14th to define only a natural person to have the rights of the constitution?
Yes.

That is one thing Michael Smith is right about. Taxing corporations is merely a tax passed onto to people, which actually increases the taxes of the people and exports. It makes no sense and complicates things. Income tax on corporations creates many bad disincentives. It encourages corporations to not retain any taxable earnings that could be used to reinvest in the corporation. Thus, many corporations pay virtually NO taxes at all. Also, some get refunds on previous years of tax paid when losses are experienced later. It’s a severely abused, overly complicated, perverted mess.

Some will say that people will live off of perks and unreported income from corporations.
That is a separate issue of law enforcement.
That is already a problem that already exists with the current tax system.
It would still be a problem with the sales tax system, because some people will try to receive perks and income that is not a result of any reported sale.
Law enforcement issues that are an issue with all tax systems are not a valid PRO or CON.

tomd wrote: The Fairtax isn’t going to be fair based on income simply because it is NOT based on income. You are comparing apples to oranges.
Yes, I realize that.

That is because most Americans (including me) believe the most fair tax system is one that taxes income an equal percentage.
The fairtax.org system taxes sales (and has a rebate for those under the poverty level).
The flat income tax rate percentage system taxes income an equal percentage (but only income above the poverty level).
What we have now taxes income, but it doesn’t do it equally.
What we have now isn’t fair because it really is more regressive than first appears due to a severely complex system of deductions, tax loop holes, and ways to evade taxation.
Tax tables will deceptively attempt to show otherwise, because they only show incomes after vast deductions are applied.
Tax tables will deceptively attempt to show the wealthy paying more (which is true, but not the issue), but it is a fraud, because it does not include income before massive deductions.
If those tax tables showed overall income tax percentages based on gross income, it will most likely show that the wealthy are not paying their fair percentage based on a percentage of gross income.

Congress likes the current tax system just the way they have severely perverted it.
There’s a reason they don’t want tax reform.
There’s a reason the bought-and-paid-for politicians’ big-money campaign donors don’t want it changed.
As with many things, given time, Congress will pervert it beyond all recognition of its original purpose.

In my opinion, any tax system that can not prove that it taxes income equally based on a percentage of income (above the poverty level) can not prove to be a fair tax system.

A tax system that can not prove to be fair in that sense is a major problem, because most Americans believe income should be taxed the same percentage.

Most Americans believe a flat income tax is most fair, and the poverty level exemption is simply required to not hammer the poor and those that can’t pay anyway.

Whether it is “apples to oranges” does not matter since the goal of the systems varies greatly (i.e. tax sales versus tax income).

Whether it is “apples to oranges” does not relieve the fairtax.org plan of proving it’s fairness.

If the question is “what is fair”, then let’s address that:
Which do you think is more fair?

  • A sales tax with a rebate (in advance) for those below the poverty level?

  • A progressive tax system that taxes higher incomes at higher percentages ?

  • A flat rate income tax percentage where no one pays tax until the poverty level is exceeded, and then only on income above the poverty level?

  • The system we have now, which is ridiculously complex (for nefarious reasons), supposedly progressive, but in fact is not due to a myriad of clever tax loop-holes that allow the wealthy to evade taxation?

tomd,
Perhaps what we obviously differ on is what is fair.
Some people think a progressive tax system is fair (which taxes higher incomes at hihger percentage rates).
I don’t.

In fact, the progressive tax system (taxing higher income at higher percentages) which is widely used and accepted worldwide by governments, despite the fact that most American voters don’t believe it is fair, is one that (more than any other) strikes me as envy and jealousy disguised at demands for equality.

Some people think the fairtax.org plan is fair.
Again, that has not been proven.
In fact, the fairtax.org proponents make no bones about it, and simply say that taxing consumption is nothing like taxing income. I have a big problem with that. Consumption is based on income, but a person can only consume so much, and I believe that the lower income groups will bear the biggest tax burden, making it regressive, which is unfair.
Especially if the goal is to tax income an equal percentage, since most Americans believe a flat rate income tax system is the most fair tax system (yet one more thing politicians ignore; the voters are being ignored on so many issues, along with numerous pressing problems growing in number and severity).

I have studied the fairtax.org plan and it appears to me (even with the unnecessarily complex rebate system) that it will hammer the lower income groups harder, and let the higher income groups off easy. For one thing, it has not been proven that the wealthy will spend sufficiently to result in a fair burden of the overall tax burden. People say the wealthy spend more, but that does not mean that they will spend it. They could merely amass more and more wealth without paying any tax.

The higher income groups are already getting off too easy due to a ridiculously complex system of tax loop holes.
A simple 17% flat rate income tax system would remedy many of those obvious abuses. Yes, the higher income groups won’t like it, which ought to be telling you something, but paying an equal percentage based on income is more fair than both the progressive tax system and the fairtax.org plan.
But, it is not hard at all to see why some in Congress and higher income tax groups find the fairtax.org plan attractive. The fact is, they like the tax system we have now, because it is so ridiculously complex and perverted, tax evasion is easy.

Posted by: d.a.n at February 24, 2007 11:04 AM
Comment #209531

For a long time the federal government was financed by tariffs. Placeing a tariff of 10$ or so on forign oil imports would help solve two problems. Its is esentially a consumption tax. It would help offset other taxes.It would help domestic oil exploration without subsides,it would make it easier to attract capitalization for alternate fuel developement. By lessening our dependance on forign oil we could lessen the need for the defense dept. to protect supply lines and pursue negative forign entanglement . It would lessen our support for despotic regimes and our financing of our enemies.It would also more closely reflect the cost of oil reliance on our country and world.
An adjustable tariff that changes automatically to keep oil at a pegged price would help build the stability into the market that alternate developement needs to prosper. Hard to build a manufacturing base when the end price of your produt is unknown. It would also help eliminate the speculator market,another kind of tax we all pay for no value.
Think out side the box for tax policy. That is where the answers are.

Posted by: BillS at February 24, 2007 11:05 AM
Comment #209532

d.a.n. - As I slept on our discussion, it occurs to me that we may have to fundamental different approaches to “income.”

d.a.n. wrote: …they could not prove to me that all income above the poverty level would be taxed almost proportionately the same. That is a requirement for me, and it is also what most other Americans consider fair.

To compare a consumption tax’s impact on income is a bit of a wild goose chase (as tomd points out), but let me try it from a different angle. First, let’s distinguish between income and wealth. There’s no way that a “wealthy” household is going to pay the same percentage of annual tax that a middle class household is. They don’t now, and yes - in the future they would not consume the same percentage annually as a middle class household. A wealthy household has its assets tied up in property, stocks, factories, etc. That’s what capitalism is all about. People with capital put it to work.

But let’s look at “income.” Yes, the richest folks don’t “consume” as high a proportion of their income as middle class people. They do consume more; they buy fancier cars, nicer clothes, expensive furniture, etc. They also take much of their income and do what capitalists do; they invest it in the economy to make more money. Generally the wealthy might have two income streams. All but the uber-wealthy probably have some sort of paycheck, then they have capital gains and investments.

If you insist on comparing FairTax rates as a percentage of all revenue, you’ll be able to throw rocks at the wealthy all day long. (thus the title of my post re. class envy) But if we set aside capital gains and investment income as the desirable work of capitalism, the stuff that makes our economy run, and we just look at what people spend of their paycheck - rich people spend a pretty big portion of their paycheck. They have boats, and jewelry, and grand pianos whether they can play or not.

Ultimately, if you’re defining “fair” as “from each according to his ability” and you desire a redistribution of wealth, you should probably look to the column on the left of this website. I share your envy of the wealthy, but I want to see their wealth moving productively through the economy - that way I figure I have a chance to grab a little as it comes by.

The democracy will cease to exist when you take away from those who are willing to work and give to those who would not. - Thomas Jefferson


David R. - The individual is the only real consumer - all the rest are performing some sort of transformation. To tax every step of the supply chain may ease your conscience regarding the environment, but it’s the consumer that will always pay the price.

Posted by: Michael Smith at February 24, 2007 11:16 AM
Comment #209540
David R. Remer wrote: The Fair Tax only becomes fair if ALL consumers, including those of our nation’s natural and human resources, also pay a consumption tax. That would include Oil Companies, Mining Companies, and Air Polluters, Fisheries fishing within Territorial Waters.
Business should bear those costs. No doubt about it. The question is, should it be accomplished via a tax system? Can a tax system adequately determine those costs. Perhaps it would be better to determine the true costs and levy penalties and fees for those corporations? That is, using the tax system to make corporations clean up after themselves may lead to more over-complications, abuses, and inequities of the tax system.
David R. Remer wrote: One other category would need to be included for taxation, those businesses whose byproducts cost the American taxpayers currently. That would be nuclear power companies who should be forced to pay for the disposition and elimination of their own waste products, not the taxpayers, as well as the bond, and stock markets whose behavior requires government oversight and regulation. The Government’s oversight and regulation should be covered by taxes levied on investors.
Tax payers should not be bearing these costs. The corporations and their customers of those companies services should bear those costs. Polluters should be heavily fined.
David R. Remer wrote: Only in this manner, can government truly become affordable, accountable, and the costs to the taxpayers made far more transparent. Lastly, this plan makes the flawed Fair Tax plan which allows corporations to increasingly pass the cost of operations on to the taxpayer, truly fair.
Yes, in my opinion, the fairtax.org plan is flawed.

As for corporations evading the costs of polluting, and other costs, that is a separate issue of law enforcement.
It’s a serious problem.
Government is always allowing corporations to pass costs along to tax payers.
Like the Savings and Loan Bail-out of the late 1980s and early 1990s.
Like the cost of nuclear waste disposal and other pollution by corporations.
Like the mismanagement of pension systems, burdening the tax payers with the Pension and Benefit Guaranty Corporation’s massive $450 billion debt.
Corpocrisy and corporatism is rampant.
Politicians are FOR-SALE.

David R. Remer wrote: But, UNTIL the Fair Tax organization makes the modifications, consumers and workers and taxpayers everywhere should REJECT their Monumentally UNFAIR tax plan.
Yes.

Until the fairtax.org can prove it is fair, it should be assumed that it is unfair.
I initially thought the fairtax.org sales tax system was a good idea.
Further research and analysis now makes be very suspicious of the fairtax.org plan.
Especially since I (as most Americans) believe that a flat rate income tax percentage (above the poverty level) is the most fair tax system.
Why is Congress so against the flat rate income tax percentage? ! ?
That too ought to be telling voters something, eh ?

What is scary about the fairtax.org system is the nefarious reasons it is so popular among many politicians.
They’re not complete idiots.
They can easily see how they will pay much less tax under the fairtax.org plan.
The average voter hasn’t a clue about the fairtax.org system and that is why it is so dangerous.
Slumbering tax payers are always getting such systems foisted upon them before they realize what the real ramifications are.

Here is something interesting that the fairtax.org doesn’t like to talk about:
What the FairTax fails to point out is that prices (overall) can only fall if employers can cut their employees wages.
It has to come from somewhere.
Currently, under the current tax system, if your salary is $50K a year today, you take home $40K after income taxes.
Under the FairTax system, there would supposedly be a savings of $10K, and the employer must be able to lower its prices accordingly, but ONLY by reducing your salary by $10K to $40K.
Theoretically, your take-home pay is the same as before, since you now keep 100% of your income.
If voters understand that, the fairtax.org plan is likely to go over like a lead balloon.
If it occurs before voters realize it, they will once again be forced to learn the hard way.

  • ______________
  • Micael Smith wrote: d.a.n. - As I slept on our discussion, it occurs to me that we may have to fundamental different approaches to “income.”
    Yes.

    The main issue is fairness.
    That fallout from that is unavoidable.

    Micael Smith wrote:
    d.a.n. wrote: … they could not prove to me that all income above the poverty level would be taxed almost proportionately the same. That is a requirement for me, and it is also what most other Americans consider fair.
    To compare a consumption tax’s impact on income is a bit of a wild goose chase (as tomd points out)
    That’s not my intention.

    My main point it fairness.
    That is all.
    Each time this comes up, the issue becomes obscured and clouded with the issue of comparing “apples to oranges”.
    That is not the issue at all.
    The main issue is merely one of fairness.
    That is all.
    Which system is more fair?

    Micael Smith wrote: First, let’s distinguish between income and wealth. There’s no way that a “wealthy” household is going to pay the same percentage of annual tax that a middle class household is.
    Wealth versus income is another issue that obscures and clouds the issue. Property tax attempts to tax wealth and I despise that tax because it is unfair, and regressive. It also taxes people on what they already own year after year after year. It’s like a nightmare. Again, the issue is simply which tax system is most fair.
    Micael Smith wrote: … and yes - in the future they would not consume the same percentage annually as a middle class household … Yes, the richest folks don’t “consume” as high a proportion of their income as middle class people.
    Now we’re getting somewhere. That is the major flaw of the fairtax.org plan. The lower income groups are going to end up carrying the majority of the tax burden. To date, no one can prove otherwise. Some, in fact, don’t dispute it, which does not diminish the unfairness of it whatsoever.
    Micael Smith wrote: People with capital put it to work.
    So? With a 30% (23% inclusive) sales tax, that could change drastically.

    Think about it.
    Which is more fair?
    Taxing consumption?
    Or, taxing income?
    Wealthy people do not consume but small fraction of their income.
    The lower and middle income groups spend all (or most) of their incomes.
    Based on that alone, it ain’t hard to see who will end up carrying the majority of the tax burden.
    Based on that alone, the wealthy will essentially be paying a much lower percentage of their income to taxes.
    And you think that is fair?
    I don’t, and neither do most Americans.
    I’d venture to say most people world-wide would either.

    Micael Smith wrote: They [wealthy] also take much of their income and do what capitalists do; they invest it in the economy to make more money.
    With a hefty 30% (23% inclusive) sales tax, that could change. That percentage is too high. A 17% flat rate income tax percentage is more reasonable, and would raise the sufficient revenues with only minor cuts in current spending. Also, it wouldn’t need to be 17% even, if it were not for the entitlements iceberg we are sailing directly toward. If it weren’t for decades of mismanagement and plundering of those systems, the 17% could probably be as small as only a 10% income tax rate.
    Micael Smith wrote: If you insist on comparing FairTax rates as a percentage of all revenue, you’ll be able to throw rocks at the wealthy all day long.
    There are two things wrong with that statement. (1) I’m not disputing the differences of how each system works. I am disputing the fairness. You and others choose to obscure and cloud the issue by labeling it as “apples to oranges”. All that is important is which is most fair. (2) I don’t envy the wealthy. To call it “throwing rocks at the wealthy all day long” is assuming a envy or jealousy of the wealthy that does not exist. You’re statement is not only false, but insulting, by implying envy and jealousy that does not exist. What I consider envy and jealousy as disguised as demands for equality is a progressive tax system that taxes higher incomes at higher percentages. That, in my opinion is unfair. If I was truly, as you insultingly allege, only interested in “throwing rocks at the wealthy all day long” I’d prefer the progressive tax system. All I am after is what is fair. Just because I don’t agree with your assertions that the fairtax.org system is fair does not justify your conclusion that I am only interested in “throwing rocks at the wealthy all day long”.
    Micael Smith wrote: (thus the title of my post re. class envy)
    Again, you are way off. Your accusation of class envy is insulting and repugnant. All I am after is what is fair. You already said above you would settle for a flat income tax rate percentage. Yet, you resort to implying I have class envy by saying I am:
    Micael Smith wrote: “throwing rocks at the wealthy all day long”.

    What that sort of thing reveals is usually frustration with a weak argument.

    Micael Smith wrote: But if we set aside capital gains and investment income as the desirable work of capitalism, the stuff that makes our economy run, and we just look at what people spend of their paycheck - rich people spend a pretty big portion of their paycheck. They have boats, and jewelry, and grand pianos whether they can play or not.
    That still does not prove that the fairtax.org is fair, because it does not prove that the majority of the tax burden will not fall mostly on the lower income groups. Or are you saying that is OK with you?
    Micael Smith wrote: Ultimately, if you’re defining “fair” as “from each according to his ability” and you desire a redistribution of wealth, you should probably look to the column on the left of this website.
    False.

    That’s false, repugnant, and insulting.
    I do not desire redistribution of wealth.
    Your conclusions are completely unsubstatiated by facts.

    Micael Smith wrote: I share your envy of the wealthy,
    No you don’t, because I have no envy or jealousy of the wealthy as you admit to having.
    Micael Smith wrote: … but I want to see their wealth moving productively through the economy - that way I figure I have a chance to grab a little as it comes by.
    The best way to do that is to do what is fair. The fairtax.org plan fails to prove it is fair. It fails to prove that a majority of the tax burden will fall on the lower income groups.
    Micael Smith wrote: The democracy will cease to exist when you take away from those who are willing to work and give to those who would not. - Thomas Jefferson
    Then why do you say:
    Micael Smith wrote: I share your envy of the wealthy,

    I don’t envy the wealthy. You do. You admit it.

    Micael Smith wrote: David R. - The individual is the only real consumer - all the rest are performing some sort of transformation. To tax every step of the supply chain may ease your conscience regarding the environment, but it’s the consumer that will always pay the price.
    “ease your conscience” ?

    You are drawing a lot of insulting conclusions about other people, yet you admit to being envious of the wealthy.
    Go figure.

    You admit you’d prefer the flat income tax rate percentage that I proposed, yet accuse me of “envy of the wealthy”, “desire a redistribution of wealth”, and tell me to look at the left side of this website.

    I think you are resulting to personal attacks out on me and David R. Remer out of frustration of the weakness of your argument for the fairtax.org plan, because you are unable to prove it is fair. Or, is fairness not a valid issue?

    Posted by: d.a.n at February 24, 2007 12:29 PM
    Comment #209566

    Michael
    Investment capital can and does also come from the the middle class,working people,through retirement annuities etc. This capital pool would grow if we had a more equitable wealth ditribution. Your Jefferson quote may mean something different to you than I. To me it is a warning against a parasitic wealthy class. Although I am sure the likes of Paris Hilton actually think they work hard, that is nonsense. Most rich people would rather chew off their own foot than put in an honest days work. No,Jack,sitting around thinking and schemeing does not count as work.

    Posted by: BillS at February 24, 2007 2:34 PM
    Comment #209586

    d.a.n. Sure, fairness is an issue. So here’s another angle - how much more does a rich man get from government than a poor man? Twice as much, three times, let’s just suppose ten times as much. How much more fire protection, or interstate highways, or national security do they use? There comes a point where it’s just not fair to tax people beyond the benefits they receive from government.

    I can anticipate an argument that their success is do to a prosperous economy, or government provided security, or stable banking system - but isn’t that relationship symbiotic? Don’t they create jobs and goods in exchange for a fertile environment?

    So just how much more should they pay to meet your idea of fair? Government needs certain funding. But if you and I each pay $1,000, should Bill Gates need to pay $1,000,000? Why? Is it fair just because he has it? Has Bill Gates used 1000 times more government output than you or me?

    Capital should be left in the hands of the individual as much as possible, where it can find its most efficient applications within a free market. No matter what the public might perceive as “fair - class envy is crummy economics.

    If you don’t like the arguments posed by FairTax.org, I suggest Milton Friedman’s book “Free to Choose.”

    Posted by: Michael Smith at February 24, 2007 4:00 PM
    Comment #209587

    Damn, I hate this interface and the way it flakes out on every copied apostrophe.

    Posted by: Michael Smith at February 24, 2007 4:01 PM
    Comment #209596


    Capitalism is slowly but surely being destroyed by capitalists. Envy is only playing a very minor role in the tragedy.

    Posted by: jlw at February 24, 2007 4:54 PM
    Comment #209602

    Michael
    According to Teddy Roosevelt the rich should indeed pay more because they get more from society.”If it were not for the constant minstrations of the constabulary the rich would not be able to sleep in their own beds.”
    The progressive income tax was a necessity when it was inacted. It has been corrupted since. As one of the great New Deal milestones it needs reformation to eliminate the loopholes for the rich. The AMT was a lazy attempt to restore some fair taxation. The best way to do that is to eliminate the loopholes as we eliminate the AMT.

    The answer to your question as to whether that famous software imitater from Seattle should pay more in taxes is yes.

    Posted by: BillS at February 24, 2007 5:24 PM
    Comment #209609

    One question:
    If by fairness we mean equality of rate, the average person is getting an unfair deal. They make less than others. We don’t build our economy on that kind of fairness. Rate of pay is not fair, in the sense of differing rates, so the notion that taxes should be fair, as in equal, as one’s income grows is similarly invalid.

    If we see fairness in terms of the capability to handle a certain amount of taxation and still maintain a good living at one’s income, then the progressive tax makes more sense. What’s more, as your income goes up, you aren’t taxed for anything in the lower part of your income that others aren’t. Your first fifty thousand and theirs are taxed the same. It’s only what you make over a certain amount that gets taxed more, and you can better afford it when you get up income.

    When you build a foundation, you rest the heaviest burdens on the strongest supports, the one that can take the burden and then some. Liberals like myself have no interest in taxing people to income equality. Our interest is in not having the tax policy get in the way of lower and middle class growth. We should note that we only really began to have serious fiscal problems as a country when we started getting the idea that we could have government and not pay for it, when we started getting phobic about even moderate rises in taxation. Some market taxation as the evil our forefathers fought against, but they forget that the phrase was “no taxation without representation. The notion was that we would not allow ourselves to be taxed by a government we had not participation in, not that taxation itself was evil.

    There are some civic duties whose refusal can bring harm to community. If we don’t like the taxes we’re getting, we should take it up with the people we put in stewardship of our government, and we should make our wishes about spending and taxation clear. Unfortunately, what we’ve made clear is that they could play deceptive fiscal games with tax policy and sink us into debt. The speak in the tradition of the movie The American President , this is advance citizenship, and it’s going to put up a fight.

    It’s going to say, you want lower taxes without going into deficit? Then make the choice: act like you can spend whatever you want, or make the sacrifice of taxes or spending. There’s too many voters shrinking back from that reality.

    We should not shrink back from the notion we we either give up government services, or we make the sacrifice of paying more taxes. If we try and avoid making the choice, the deficits are going to make things worse for us than if we had made one choice or the other. We cannot be phobic about taxes, nor can we phobic about sacrificing programs when we don’t want to pay for them right now with money from our pockets. We have to be more responsible than we have been, regardless of what kind of tax system we choose. We must also be responsible in how we change the system, looking at the world around to make sure that our tax policy isn’t going awry. We cannot simply ignore the economic side effects, because they could ruin us.

    Posted by: Stephen Daugherty at February 24, 2007 6:20 PM
    Comment #209610

    “I have studied the fairtax.org plan and it appears to me (even with the unnecessarily complex rebate system) that it will hammer the lower income groups harder”

    It’s simple enough to look at examples. So far I have ran several examples of poor and middle income people’s taxes and on every occasion using the Fairtax plan they come out ahead. Tell me what’s wrong with that.

    Posted by: tomd at February 24, 2007 6:24 PM
    Comment #209611

    Michael, Corporations having the same rights as people should have the same responsibilities as people. It seems you would want to favor the corporations at tax time to the detriment of natural borm people. As far as the Bill Gates question, I dont think he should have to pay 1 thousand times as much as you or me unless of course he earned 1 thousand times as much as you or me, but certainly there could be some middle ground?

    Posted by: j2t2 at February 24, 2007 6:30 PM
    Comment #209613
    Michael Smith wrote: d.a.n. Sure, fairness is an issue. So here’s another angle - how much more does a rich man get from government than a poor man? Twice as much, three times, let’s just suppose ten times as much. How much more fire protection, or interstate highways, or national security do they use? There comes a point where it’s just not fair to tax people beyond the benefits they receive from government.
    Good point.

    ANSWER:

    • (1) Those that make more also enjoy more of what the nation offers. Especially in terms of national defense, courts, airports, etc. National Defense is one of those things, since the wealthy have far more to protect and to lose. We also know that many receive better services in some instances, such as better schools, better fire departments, better hospitals, better of many things, including special attention by government officials. Just like the Mayor of Dallas got her street fixed first, even though others on the list were in more dire need of repairs ).

    • (2) Just based on national security and the masive cost of our military complex alone, starting unnecessary wars, waging those wars indefinitely, etc. Besides, isn’t Iraq making us safer here in the U.S.? If so, the wealthy are benefiting more, since they have a lot more to lose?

    • (3) Besides, we all know the wealthy don’t pay that much more, based on percentage of gross income, than the majority of voters due to a myriad of tax loop holes. The current system is somewhat flat already.

    • (4) Also, 83% of all federal campaign donations (of $200 or more) come from a mere 0.15% of all 200 million eligible voters. If the wealthy that abuse their wealth to control government aren’t happy about it, then perhaps their bought-and-paid-for politicians aren’t doing their job, eh? The wealthy that abuse their wealth to control government should pay for that privilege. Just based on that, I’d say the wealthy have something that most Americans don’t. That’s not envy. Government is not supposed to be FOR-SALE !

    • (5) Some politicians and wealthy like the current, severely complex and perverted tax system just they way it is. The only thing better would be the fairtax.org plan that you are promoting, because it will allow the wealthy to pay less tax than now. The lower income groups would pay the majority of the tax burden.

    Michael Smith wrote: I can anticipate an argument that their success is do to a prosperous economy, or government provided security, or stable banking system - but isn’t that relationship symbiotic? Don’t they create jobs and goods in exchange for a fertile environment?
    Sounds like another trickle-down lecture? There is nothing wrong with being wealthy, but it doesn’t mean a free ride either.

    Not always, as evidenced by the growing gap (never worse since the Great Depression) of the 1% that had 20% of all wealth in the U.S., but now have 40% of all wealth in the U.S.

    What is best for the nation is what is fair.
    An equal percentage is fair.
    Most people on the planet would consider it fair.
    I consider it fair.

    Michael Smith wrote: So just how much more should they pay to meet your idea of fair?
    An equal 17% percentage of income above the poverty level. It’s that simple. QUESTION: What is unfair about that?

    The current tax system has a tax bracket that is as high as 35%.
    I’m recommending a tax bracket of 17% for everyone.
    That is more fair that a progressive tax system.
    I’m not envious of the wealthy.
    Not like those that support a progressive tax system that would have one person paying 15% income tax, and another paying 35% income tax.
    To me, asking for a larger percentage is truly envy and jealousy disguised as demands for equality.
    Many things in business and partnerships are based on equal percentages.
    An equal percentage is as progressive enough.
    It should be progressive enough that 17% of $100K is twice as much as 17% of $50K.

    Michael Smith wrote: Government needs certain funding. But if you and I each pay $1,000, should Bill Gates need to pay $1,000,000? Why? Is it fair just because he has it? Has Bill Gates used 1000 times more government output than you or me?
    Yes. National Defense is very expensive. Besides, a flat rate percentage is fair. Just think how much he has used courts. Tax payers pay for the courts. He obviously uses them a lot more.

    Michael,
    Did you know many of the wealthy would prefer a flat income tax percentage over what we have now?
    You, yourself, even said it would be better than what we have now.

    But, based on your logic (that a flat income tax rate is unfair), then we should all pay a perfectly equal amount of tax, eh?
    That simply is not practical.

    Sure, it would be nice if we all only had to pay an equal amount of tax.
    However, to raise sufficient necessary, many can’t afford that.
    The middle income class would pay the majority of the burden, and the wealthy would get off very, very easy.
    It simply would not raise enough tax revenues.
    Especailly, not when a mere 1% of the U.S. population has 40% of all wealth, and much of their wealth comes from interest and capital gains on that wealth.
    The fairtax would not either, unless it is a very high rate.
    And that is exactly the problem.
    The fairtax.org is suggesting a 30% (23% inclusive) sales tax.
    That will almost certainly create black markets.

    Michael Smith wrote: Capital should be left in the hands of the individual as much as possible, where it can find its most efficient applications within a free market. No matter what the public might perceive as “fair - class envy is crummy economics”.
    There you go again.

    Trying to characterize a flat income rate rate percentage as “class envy” and not “fair”.
    A flat rate income tax percentage is not class envy.
    It is not unfair.
    Most people believe that is the most fair system.
    Therefore, you are saying most people have “class envy” and are “unfair”.
    Even some wealthy will agree that a flat 17% income tax rate percentage is fair.
    You are not only a minority on this, but can not prove that a consumption tax is fair.

    Michael Smith wrote: If you don’t like the arguments posed by FairTax.org, I suggest Milton Friedman’s book “Free to Choose”.
    I don’t like the FairTax.org plan and I don’t like Milton Friedman’s inflationist, socialist viewpoints either. One of Friedman’s most sinister deeds was his role (which he proudly played) in the Treasury Department, in creating the system of withholding income tax from payroll. Before that, people paid their annual income tax in a lump sum on March 15th. Well, that made the total tax bill very visible to tax-payers. So, to get around that, a little smoke-and-mirrors was required. Milton Friedmen suggested the payroll tax, so that MORE tax could be extracted; a little bit at a time, with each pay check, making the total tax larger, but less noticeable to the tax payer. So, the Friedman “payroll tax” has given the government the power to use every employer as an unpaid tax collector, extracting the tax quietly and less noticably from each payroll. So, Milton Friedman, thank you very much for that monster, paving the way to a government that continues to grow and grow to nightmare proportions. Milton Friedman also advocated manipulative inflationist monetary and fiscal policies, with an increase of money-supply by the Federal Reserve at a rate of 3%-to-4% annually, even though he later learned that those manipulations had inevitable time lags, and are therefore could exacerbate, rather than help things. Friedman’s fatal flaw in his promotion of a fiat-funny-money system is that it turns all monetary power over to the government, and fails miserably to understand that this scheme is inherently inflationary because of those that get and spend the money early in the cycle, get an unfair advantage, and government tries to use it to shrink debt via massive, irresponsible borrowing and money printing. The irony of Friedman’s philosophy is that it will eventually destroy itself, becasuse each government, providing its own fiat-funny-money, mostly independent of all other nations’ fiat-funny-money, causes confusion, inequities, fluctuating exchange rates, chaos, and a lot of room for abuse. Some people make money by playing with the money (i.e. exchange rates), which provides no net benefit to society. Late in Friedman’s career, he began to suspect this, and started to write about the many problems of money that is NOT linked to anything of real value.

    People will flourish when the the anvil around their neck (bloated government), as they try to swim upstream, isn’t so large. Unfortunately, in a voting nation, that requires education, and that can’t happen (not quickly anyway) as long as slumbering voters keep rewarding irresponsible politicians by repeatedly re-electing them.

    Posted by: d.a.n at February 24, 2007 6:40 PM
    Comment #209616

    d.a.n. Thanks for the discussion. Neither of us seems likely to sway the other, but I’d gladly take a flat tax over the current mess.

    Unfortunately, our public servants don’t seem likely to address either of these proposals any time soon.

    j2t2 - Yes, I would “favor” corporations because I don’t believe you can really tax a corporation - they simply pass it along to either consumers or shareholders. We profess “no taxation without representation,” yet we tax corporations. In principle I’m OK with taxing shareholders’ dividends because at least they have representation. I’d like to see corporate taxes eliminated, then I’d like to see corporations barred from political activity - but it’s unjust to bar them as long as we tax them.

    Posted by: Michael Smith at February 24, 2007 7:22 PM
    Comment #209642

    Corporations are not suffering from taxation without representation Michael, In fact they are choking our democracy to death. I would prefer to see corporations barred from all political activity including financing. Then we could talk about tax relief for those corporations (as if they were humans) suffering the injustice of taxation without representation.

    Posted by: j2t2 at February 24, 2007 11:10 PM
    Comment #209644

    Michael Smith,

    Thank you for the lively discussion.
    We simply have a different opinion, and that’s OK.

    Yes, I agree about corporations.
    Corporations simply pass costs along, making things more complicated. However, what David R. Remer wrote is valid. Tax payers should not be burdened with the costs of cleaning up after the corporations, their pollution, etc. Corporations should not be able to shift those costs onto tax payers. The costs must fall on the corporations, and their customers.

    That’s also a good point about barring corporations from political activity when they are still being taxed.

    Yes, our public servants are ignoring many pressing problems.

    But the slumbering voters keep rewarding them for it by repeatedly re-electing them.

    Regarding the fairtax.org plan … I would love it for selfish reasons, because my house is paid for, my cars are paid for, I have no debt, and I don’t live beyond my means. I don’t spend a lot of money. So, I’d benefit a lot from a sales tax. However, I believe it will be a very hard sale. It has already been voted down once (or more). It would require many changes.

    Yes, a flat 17% income tax percentage, with an elimination of all tax loop holes and deductions, and a poverty level exemption, is merely a simplification of the existing system, and would be better than the current extremely complicated, perverted, abused, and costly tax system.

    Posted by: d.a.n at February 24, 2007 11:27 PM
    Comment #209648

    It is not entirely true that corporations taxes are just passed on to the consumer. Whatever their end product is still has to be sold on a competitive market(ideally anyway). An increased tax on profits can often mean somewhat diminished returns on investment. There are several ways to make up the difference. Lower labor cost,lower materials cost,increased sales etc. or just accepting a lower profit.
    It should also be noted that taxpayers pay huge amounts in service to corporations. We spend billions protecting the sea lanes for example ,especially for oil. It would be fair for them to pick up more of the tab.

    Posted by: BillS at February 25, 2007 12:53 AM
    Comment #209654

    “Regarding the fairtax.org plan … I would love it for selfish reasons, because my house is paid for, my cars are paid for, I have no debt, and I don’t live beyond my means. I don’t spend a lot of money. So, I’d benefit a lot from a sales tax. However, I believe it will be a very hard sale. It has already been voted down once (or more). It would require many changes.”

    You would benefit, I would benefit, every group that I’ve run the numbers on would benefit. I don’t see a problem with that.

    As far as it being a hard sell, I think it would be much easier and has a lot more support than your campaign to vote out incompetant incumbants which I agree we should do.

    Posted by: tomd at February 25, 2007 5:52 AM
    Comment #209671

    tomd,
    Yes, we would benefit in lower taxes.
    But would it raise sufficient revenues?
    Will it be enough to continue Social Security and Medicare?
    That’s why I say it is a hard sell.
    I’d love a sales tax for personal reasons, but still think it would result in the lower-to-middle income groups carrying the majority of the tax burden.
    Would you prefer a flat 17% income tax rate to the tax system we have now?

    One other thing.
    Many people (wealthy or not) have savings.
    They have already paid income tax on it.
    If the fairtax.org plan is passed, they will get taxed again 30% (23% inclusive) when they spend it. That’s double taxation. That will be a hard sell too.

    Regarding voting out irresponsible incumbents, the slumbering voters will most likely wake up someday and do that very thing.

    Why?

    Because they will be motivated by the pain and misery of their own making.
    Pain trumps lazy.
    The consequences of years of complencency, apathy, and rewarding bad politicians by repeatedly re-electing them will eventually come to bear on the majority of voters. Then, we may see massive turn-over in Congress like there was during the Great Depression.

    The goal of VOID, One-Simple-Idea.com, and the ARTICLE V Convention is to raise voter awareness, increase voter education, and bring about badly needed reforms that government is ignoring.
    And the sooner the better.
    The longer slumbering voters wait, the more painful it will be later for the majority of voters.

    I personally believe we will probably have to learn the hard way anyway (agian), but not trying won’t accomplish anything, so the only logical thing to do is to try. Education, as with so many things, is the key. Every once in a great while, humans make a step forward. But progress is slow, and history repeats itself (often). It is 2.000 steps forward, and 1.999 steps backward.

    Posted by: d.a.n at February 25, 2007 12:19 PM
    Comment #209675

    “Yes, we would benefit in lower taxes.
    But would it raise sufficient revenues?
    Will it be enough to continue Social Security and Medicare?
    That’s why I say it is a hard sell.”

    The Fairtax is revenue nuetral. It will bring in the same amount of income that we have with the current system.

    “I’d love a sales tax for personal reasons, but still think it would result in the lower-to-middle income groups carrying the majority of the tax burden.” Let’s take the millstone from their necks and at least lighten the load. Every example I’ve seen shows the low and middle people paying less taxes under the Fairtax plan.

    “Would you prefer a flat 17% income tax rate to the tax system we have now?” Absolutely, but I like the Fairtax better. The primary thing I like about the Fairtax is seperating the federal government from income. This act would eliminate the job of the K street gang and take a lot of temptation away from our elected officials. Plus it would be dependent on repealing the 16th amendment and we would be rid of the IRS.

    Posted by: tomd at February 25, 2007 1:40 PM
    Comment #209676

    I think the K street gang and the IRS would both find ways to be involved in the fair tax thing. Maybe not with the same names.

    Want to bet?

    Posted by: womanmarine at February 25, 2007 1:50 PM
    Comment #209680

    “I think the K street gang and the IRS would both find ways to be involved in the fair tax thing. Maybe not with the same names.

    Want to bet?

    Posted by: womanmarine at February 25, 2007 01:50 PM “

    I’m sure there would have to be a small branch of a revenue department, but without tax forms to audit it would be a lot different than it is now. Without the ability to give tax breaks, our representatives won’t be a magnet for lobbiests. The K street gang will dry up like an ice cube on a hot sidewalk.

    Posted by: tomd at February 25, 2007 4:17 PM
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