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Today's Poll: Should the federal income tax be a flat tax?

By Howard B. Owens
Mark Brudz

I used to be an advocate for abolishing income tax all together and replacing it with a consumption tax *Federal Sales Tax'"

My opinion changed solely because in my opinion, to be fair to the poor, any tax would have to exempt the first $30-$40K dollars of income.

The problem with a connsumption tax is that it would require an expanded IRS or similar managing body rather than reducing it thus defeating the advantage.

Our current tax code allows income tases to be used for social engineering in that tax breaks and benefits enable politicians 1) An opportunity to buy votes by giving advantage to certain groups and (2) A means for politicians to engineer behavior which in essence is an affront on personal liberty.

Some taxation is necessary in any society to maintain a Government, I don't think there are very many that would disagree with that. But our founders in their wisdom recognized that the power in government should be held closer to the people, meaning the states and localities and the Federal government should be the thread that holds the nation together, NOT a basis for guiding our lives.

President Obama once said that our constitution was a limiting document in that it said what the Government should not do rather thatn what it should do. On this he was absolutely correct. He misses the point that, that was by design in defernce to personal liberty and to ensure a stronger local and regional control over matters of government.

In 1913 everything changed, the result was an ever increasing power shift from the States to the Federal level and with it and ever increasing intrusion into our daily lives, EVERYTHING the founders of our nation opposed.

Keeping both spending and taxation below 20% of GDP forces the Federal Government to manage our nation NOT dictate to our popuplation, a key distinction and a distinction that is in the very fiber of our freedoms.

It is not the purpose of federal government to buy firetrucks, hire policemen or pay for our schools, it's intent of purpose was to conduct foreign policy, provide for a common defense and insure trranquility between the States. Each state had an equal iron in the fire. It is the intent of purpose for the States and Localities to determine what the collective needs of those things were based on the wishes of the people as the those particular needs vary from state to state,

Since the inception of our tax code in 1913, that power has shifted from the people to the government in a constantly increasing way by shifting taxation away from state and local governments to the federal government.

It also opened the door to what I see as the greatest threat to our freedom which is class envy as a political tool. Fair is not taxing success nor is it taxing for the purpose of growing government needs, rather Fair is taxing for the purpose maintaining the government we the people need, paying for it collectively and providing for an infrastructure for all to grow and flourish.

Tax all income at 19% or less, provide a lone exemption for the first $30k earned to everyone regardless of income, and let the government work within the limits of those revenues rather than seek revenues to grow government. And we all will be better off.

Sep 3, 2012, 12:17pm Permalink
Ed Gentner

John, the Social Security tax is not a flat tax, it drops off at a certain income making it a decreasing, regressive tax. Flat taxes will never fly with the wealthy who game the system and pay little or nothing in income tax, Social Security Tax, Medicare Tax.

Sep 3, 2012, 2:37pm Permalink
Howard B. Owens

Mark, speaking of 1913, you might enjoy the book Bully Boy by Jim Powell. It's the best recitation I've seen yet how progressives, led by Teddy Roosevelt, perused policies that put this country on the wrong track -- destroying the rail road industry and other industries; heaping new and unnecessary regulatory agencies on the business; government take overs of vast amounts of land that led to over grazing, bigger wild fires, imbalance of species populations; pushing an imperialist foreign policy that led directly to millions of deaths in the 20th Century; and, of course, creating the current federal income tax that by Roosevelt's own admission was meant to soak the rich.

Sep 3, 2012, 2:50pm Permalink
Mark Brudz

Ed the wealthy are supporters of the Flat tax in a big way. It is stabilzing and consistant which is what most business people actually want. A statement like that is exactly an example of how tax code creates an atmosphere of class envy.

You are correct about social security and medicare as it is a decreasing tax in it's sturcture but not a regressive tax however.

Sep 3, 2012, 3:19pm Permalink
John Roach

Ed,
The SS tax is the same for everyone. After a certain income level is reached, there is no tax collected. I don't think there should be a cap, but it is a flat tax.

And since 2% of the people pay most of the federal income tax, while 48% pay none, the wealthy would probably pay less with a flat tax. I think it is the 48% who would be against a flat tax, since many would then have to pay.

Sep 3, 2012, 2:55pm Permalink
Mark Brudz

Thanks Howard, my wife and I are actually at Barnes & Noble this evening on aour way to diiner, I will see if I can grab a copy.

I have read alot about Teddy Roosevelt (Republican) and Woodrow Wilson (Democrat) our two most prominant progressives of the era. Had nothing to do with political parties at the turn of the century, rather the progressive movement was the root of many of our current and most 20th Century woes. Not too mention that both of them were also blatant racist as well.

Sep 3, 2012, 3:01pm Permalink
Mark Brudz

John when Reagan lowered the tax rates in the 80's the wealthy actually paid more in real dollars because many deductions were eliminated.

What that did was stabilize the tax code for a period and although the wealthy paid more cash, the economy grew becuase of that stabilizing effect compensated for it,

A Flat tax would do exactly the same thing, if you add a base deduction for the first $30k earned, 25% would still pay little or nothing. The key there is the first $30K for EVERYONE regardless of income. That takes the class envy completely oput of the equation.

Every serious FLAT tax proposal I have read about includes at leats a $25K- $30K deduction for exactly that reason and it allows the middle and lower income brackets mpore disposable income and money available for savings. Money available for savings has a huge effect on the value of the dollar and monetary policy as well. It is a Win Win for everyone except politicians

Sep 3, 2012, 3:16pm Permalink
John Roach

Mark,
I favor the flat tax, so you were preaching to the choir.

If you can not find Howard's book at B&N, try 'Colonel Roosevelt', by Edmund Morris.

Sep 3, 2012, 3:25pm Permalink
Howard B. Owens

If you're interested in how Roosevelt's blatant racism led to the war in the Pacific in WWII, The Imperial Cruise by James Bradley (Flag of our Fathers).

Sep 3, 2012, 4:24pm Permalink
Ed Gentner

John, your statement that the SS tax is the same for everyone is contradicted by the fact that after a certain income level is reached there is no tax collected. The notion that the wealthiest 2% pay the most in federal income taxes is a simplistic argument that neglects the that the 48% who pay no federal income tax pay into Social Security, Medicare, pay state and local taxes on every dollar they spend which accounts for a much larger percentage of income paid in taxes by that 48%. Those additional taxes paid by the 98% are what pay for highways, police, firemen, schools and other public infrastructure and services provided at the local level in paying what amount to a regressive tax burden. Again, the notion that the wealthy would actually support a tax plan that increases the actual amounts they would have to contribute is laughable.

Sep 3, 2012, 4:27pm Permalink
John Roach

Ed,
Nice try tying local taxes to the federal income tax. But this poll is on the federal income tax.

Try as you might, the fact is that 2% of the people pay most of the FEDERAL income tax, and 48% pay none. So, which group do you think would want a flat tax? Duh, not the 48%. Why would they want to pay?

Again, the SS and medicare tax is a set rate. It does not go up or down until a certain income limit is reached, when it stops. Everyone over the limit then pays zero. That could be changed accept that we make employers pay half of your share. Lifting the limit on what employers would have to pay the tax on will a negative effect on jobs.

There's another question for another time, why should employers be forced to pay 1/2 of your SS tax?

Another example of a flat tax is the State sales tax. Everyone, no matter what your income, pays the same rate

Sep 3, 2012, 5:24pm Permalink
Howard B. Owens

Under Mark's scheme, about 33 percent of the US households would pay no income tax.

Isn't SS tax capped because there's only so much you're going to get back in retirement?

Sep 3, 2012, 6:08pm Permalink
John Woodworth JR

Howard is that 33 percent a reflection of the poor and those who collect welfare? How would you suggest taxing taxes? Heck, do you believe you will see every cent you put in Social Security? The government uses it for more than Social Security payments that is why it is in running out. Yes, our population is growing older and larger. I met a young couple (Low 20s) from Ukraine who collect Social Security for their cost of living. Genesee County is notorious for giving out welfare with the least restrictions. Government will do with taxes as it pleases. Look at I-90 tolls which were collected to pay for the Thruway and repair maintenance. We all know it finances other programs.

Sep 3, 2012, 7:26pm Permalink
Dave Olsen

Since you brought up Teddy R. and the Great White Fleet, I'm going to share a story. In 1988 I was on a long commercial air flight to New Zealand and wound up sitting next to a retiring Commander who had just finished a book about the Great White Fleet's voyage and was getting ready to begin teaching Military History a Texas Tech. There is a pretty long and funny drunken sailor story to go along as we had a lay-over in Tahiti and almost got thrown off the plane. They put up with a lot more BS back then. Anyway, he was a very interesting guy and his book is basically an historical account of the voyage.

Neither one of us like any income taxes BTW.

http://www.amazon.com/Teddy-Roosevelts-Great-White-Fleet/dp/087021697X

Sep 3, 2012, 7:52pm Permalink
John Woodworth JR

John R., This has nothing to do with this comment, just did not want to flop back to the page it pertains to. I want to recant my statement about you being a Obama supporter. I confused you with Ed. So, my apology sir.

Sep 3, 2012, 8:51pm Permalink
Mark Brudz

ED "48% who pay no federal income tax pay into Social Security, Medicare, pay state and local taxes on every dollar they spend which accounts for a much larger percentage of income paid in taxes by that 48%"

Here in lies the problem with your argument and generally the liberal argument/

Medicare, SSI, State and local taxes ARE NOT FEDERAL INCOME TAX

Medicare and SSI (Social Security INSURANCE) were designed to be separate of Federal income taxes and supposedly self sufficient programs. They are NOT one in the same and NOT interchangable with FEDERAL Incomne Tax, that is why they are listed separately on your W2

STATE & LOCAL taxes are just that State & Local taxes which are supposed to be used for Schools, local roads and infrastructure, Fire & Police protection etc etc.

Every one of those taxes are DISTINCTLY for the purposes expresses, It always makes me laugh when liberals combine the Entitilment Taxes, State & Local Taxes with Federal taxes because they have absolutely nothing to do with each other.

Here is another tidbit for you ED, everytime we get a 'PAYROL: TAX HOLIDAY, we are actually taking money out of Medicare & SSI, not out of your Federal income tax. It is all a shell game, and a large part of the reason why political expediency is getting more and more indebted to foreign countries.

Sep 3, 2012, 10:46pm Permalink
Mark Brudz

John W.

1) The 33% includes the poor and the working poor, Not anything to do with welfare mudh at all. It would however include JR military grades, young famiies students, much of our retired seniors etc.

2) Howard didn't suggest a tax on tax, TP Hunt did. I don't quite understand that one myself.

3) Mixing SSI and Medicare into the general fund is a product of our current tax code and would effectively change with a FLAT Tax because federal budgeting would have to change accordingly. Also in order for a FLAT tax to work, a measure to require congress to have a super majority (2/3rds of both houses) to raise the FLAT tax percentage would have to be built into the Amendment, and it would necessitate a Constitutional Amendment.

And le us not forget, the $30K deduction would apply to EVERYONE so if you earned $50K, you would be taxed on only $20K. Focussing on the 33% that would pay nothing would be moot.

Sep 3, 2012, 11:04pm Permalink
John Woodworth JR

John R. I am truly sorry. If, you come up to the base I will buy you lunch at the Heritage Center. If, you do not want to travel maybe lunch at Sport of Kings.

Sep 3, 2012, 11:33pm Permalink
John Woodworth JR

Sorry misread, and I agree. It amazes me that Democrats are focusing on minor issues and steering away from the real concerns of the nation as whole.

Sep 3, 2012, 11:35pm Permalink
Mark Brudz

Never a need to be sorry compadre........

All politicians these days seem to focus on minor issues or for that matter unrelated issues.

That is why government should start from the bottom up not the top down.

We, meaning all of us voters are actually the blame because we tend to look at what government should do for us instead of what we should do for ourselves and our neighbors

Sep 3, 2012, 11:46pm Permalink
Peter O'Brien

The Fair Tax is a 23% inclusive federal sales tax. No products would be excluded from the tax. The infrastructure to collect the tax exists in mosts states through their sales tax collection. It would eliminate the IRS, Corporate Sales Tax (which sends jobs overseas) and the income tax. Each month you would receive a prebate check for any taxes up to the poverty line. This would eliminate federal taxes on the impoverished.

All the money that is held in offshore account could come back to the US without being taxed and used as investment capital to help our economy as well.

The FairTax is replacement, not reform. It replaces federal income taxes including personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.

Sep 4, 2012, 11:14am Permalink
Peter O'Brien

How does the prebate work?

All valid Social Security cardholders who are U.S. residents receive a monthly prebate equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures. The prebate is paid in advance, in equal installments each month. The size of the prebate is determined by the Department of Health & Human Services’ poverty level guideline multiplied by the tax rate. This is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc. See chart in Figure 1 below.

http://www.fairtax.org/site/PageServer?pagename=about_faq_answers

Sep 4, 2012, 11:12am Permalink
Mark Brudz

Peter, like I stated earlier, I was for a long time an advocate of the FAIR TAX Proposal, here is the rub

Here are the disdavantges

1) Penalizing the Lower and Middle Classes. Individuals and families that are above poverty level and considered middle-class will bear the brunt of the tax burden for the country. This is a progressive tax, which means that the wealthy pay more and the poor and middle class pay less as a percentage of their income. This expectation will only come true, however, if individuals spend 100% of their incomes on taxable expenditures. Taxpayers – especially wealthier citizens – are not likely to choose to live paycheck-to-paycheck. The wealthy won’t likely trade investing for spending anytime soon, so this plan would indeed be regressive – meaning those with less money will end up paying a higher percentage of their income in taxes.

2) Increasing Potential for Tax Evasion. Such a high sales tax rate would undoubtedly lead many to evade the tax, possibly through trade and purchasing goods in other countries.

3) Decreasing Overall Spending. Under this proposal, the best way to lower your tax burden will be to spend less. Too little spending is not good for any capitalist economy. In fact, while many current tax incentives are specifically created to drive consumer spending, the large sales tax could discourage consumers from spending freely, thus hurting the economy.

4) Making State Income a Bigger Burden. Though federal income tax would go away, state income tax would remain, and of course it would no longer be deductible against federal taxes. The effect would be a great burden on residents of high income tax states like California. Moreover, unless you live in a sales tax free state, like Oregon or New Hampshire, you could pay your state’s sales tax on top of the Fair Tax and on top of your state’s income tax. For a family living in Los Angeles making $100,000, this would be well over 40%!

5) Depending Too Much on Spending. Paradoxically, this tax is dependent on spending, but at the same time discourages it. Plus, since many wealthy individuals already invest on their own and in other businesses, they may be further motivated to do so. Those moves could benefit the economy overall, but since these activities would be non-taxable, the national burden shifts to the lower economic classes.

6) Increasing Costs for Immigrants. The prebate check system will not include non-citizens, significantly raising the cost of living, especially for lower-income immigrants, permanent residence (“green”) cardholders, and visa holders. It could also deter highly educated foreign workers with great careers, such as doctors, engineers, and technology sector workers, from immigrating.

Sep 4, 2012, 11:39am Permalink
Howard B. Owens

I think such a tax would have a high likelihood of decreasing spending, causing more deferred expenditures by individuals and businesses, keeping money out of circulation and slowing economic growth.

Sep 4, 2012, 11:51am Permalink
Peter O'Brien

1. The rich don't buy luxury items? I think they do. And they are far less likely to buy second hand items than the poor or middle class. Currently the rich are already unburdening their money by paying capital gains tax (10%) versus income so I don't see how your argument hurt the Fair Tax over the current structure.

2. Tax evasion today is the worst it has ever been. IT would be greatly reduced with the Fair Tax as the money can now be kept in the US without it being taxed.

3. The Fair Tax would be invisible after the market adjusts. Corporations have to deal with competition and therefore when the cost of creating goods goes down, so do prices. It is estimated that prices may only increase by 1% overall. Spending would remain about the same.

4. See number 3 and the price adjustments.

5. When has saving ever been a bad idea for people?
"Is consumption a reliable source of revenue?

Yes, in fact, consumption is a more stable source of revenue than income, as shown in Figure 3. The chart compares the yearly changes in the tax bases for the income tax (adjusted gross income -- AGI) and the FairTax (personal consumption expenditures -- PCE) for years 1974 to 2004. PCE has always grown from year to year, whereas AGI dropped from 2000 to 2001 and from 2001 to 2002 -- two years in a row. The higher growth rates of AGI in boom years result in overspending and then when the economy slows down either budget cuts are needed or, what is more often the case, taxes are raised or the budget deficit increases.

Figure 3: Stability of the tax base
1974 to 2004"
http://www.fairtax.org/site/PageServer?pagename=about_faq_answers

6. It has potential to increase jobs in America all by it self. Corporations will be encouraged to invest in America where they won't be taxed. This in turn will lead to a need for labor. Anyone who belongs here (i.e. green card holders) has a social security number. Therefore they will get a prebate.

"Social Security numbers are issued only to United States citizens, legally admitted resident aliens (green card holders), and to those required to have a number by federal law. Immigrating aliens generally secure a number after admission to the United States. "
http://hamilton.usconsulate.gov/social_security.html

Sep 4, 2012, 12:05pm Permalink
Howard B. Owens

Peter, you obviously know more about this than I do, but address this.

I own a factory. I'm an S corp. If I earn $100,000, I pay a corporate tax rate on it if I don't re-invest the revenue in my business.

If I do re-invest that $100,000 on a new piece of equipment, I pay no federal tax on that income and in fact might have some write-offs and tax credits coming my way.

With a consumption tax and no write offs, that same $100K goes into my pocket tax free. If I buy that piece of equipment, that will help create jobs, I will pay $23,000 in taxes on the purchase.

Why should I buy that $100K piece of equipment rather just pocket the $100K in profit tax free?

Sep 4, 2012, 12:13pm Permalink
John Roach

Peter,
What would the impact be on jobs? I can see an even greater demand for less expensive/cheaper goods because of the sales tax, forcing more jobs overseas.

I think it will also kill off the electric car, like the Chevy Volt. It's too expensive now for most people and needs tax rebates to get anyone to buy them. The rebates would end and people will stay with the less expensive gas powered cars.

Sep 4, 2012, 12:18pm Permalink
Peter O'Brien

John, the prices you currently pay already are inflated by almost 23% because of corporate taxes. The estimate is a less than 1% increase in the price of current goods.

Also any second hand goods including used cars are not taxed.

Jobs should increase since capital investment is no longer taxed. Business pay no taxes. Only retail items are taxed.

As for the Volt, if a product cannot be commercially viable on its own, it should not be made. The market should decide such things on its own. The government should not choose winners and losers based on he tax system

Sep 4, 2012, 12:25pm Permalink
Peter O'Brien

Howard, since that equipment is not a retail item you would not pay tax on it.

"Since business purchases are not taxable, how does the FairTax keep individuals from pretending to have a business so they can buy things tax free?

The FairTax has several features that make it difficult and very risky for persons to have a scam business in order to purchase items tax free. First, in order for any person to purchase items tax free for business purposes, the business has to be a registered seller and possess a registered seller certificate issued by the state sales tax authority. Registered sellers are expected to file monthly or quarterly sales tax returns with the state (depending on sales volume). The certificate enables the business to purchase tax free from wholesale vendors, but the vendor must retain a copy of the registration certificate to justify not having collected tax on the sale. When a business purchases items for business use from a retail vendor, they have to pay the tax on the purchase and take a credit against the tax due on their monthly sales tax return. They must keep invoices/receipts to document what they purchased and the amount of the purchase. They might also make note of the purpose of the purchase on the invoice.

Also, as registered sellers, they are subject to the possibility of being audited by the state. During such an audit, they will have to produce the invoices for all the “business purchases” that they did not pay sales tax on and will have to be able to show that they were bona fide business expenses. If they cannot prove this, then they will have to pay the taxes that should have been paid when the items were purchased, plus interest and penalties. The probability of being audited will be much greater than it is under the current system with its over 140 million tax filers. Under the FairTax, there will be less than 20 million businesses that will be filing sales tax returns and thus subject to the possibility of being audited. Thus, the probability of tax cheats getting caught will be much greater than it is today, making tax evasion riskier than it is today. Additionally, while the FairTax has much stronger taxpayer rights than does the current tax system, the FairTax legislation provides for a number of fines and penalties for noncompliance. It also authorizes a mechanism for reporting tax cheats and obtaining a reward. An example would be 1-800-TAX-CHET.

Another potential scam would be to have a “fake” family business in order to buy things for family members tax free. The FairTax has a specific provision to prevent this. Although it does not prohibit businesses from providing taxable property or services as gifts, prizes, rewards, or as remuneration for employment, the gift, reward, etc. is considered to be the conversion of property or services from business use to personal use and is therefore taxable. Likewise, there is a similar provision to prevent abuse of employee discounts. Under the FairTax, employer-provided employee discounts over 20 percent are taxable. The term “employee discount” means an employer’s offer of taxable property or services for sale to its employees or their families for less than the offer of such taxable property or services to the general public. If the employee discount amount exceeds 20 percent of the price to the general public, then the sale of such taxable property or services by the employer to the employee is considered the conversion of property or services to personal use and is subject to tax. The taxable amount is the amount by which the discount exceeds 20 percent of the price to the general public. "

http://www.fairtax.org/site/PageServer?pagename=about_faq_answers

Sep 4, 2012, 12:28pm Permalink
Mark Brudz

Peter, in a nut shell

The "prebate" that spares the lowest-income households on the first $15,000 of their income according to the plan. That means that those making $15001.00 to $200,000.00 would bare the brunt of the tax burden.

That would infact depress spending and would force more middle class households to live check to check.

Steve Forbes proposed replacing our tax code with a Flat Tax. Under his plan, a family would pay no taxes on their first $36,000. After that, they would pay 17 percent of every dollar they earn. That's it. No tax on Social Security, or savings, or capital gains taxes. This would in theory lower taxes for the vast majority of households.

A refinement of the Forbes plan which I originally posted raises the tax rate from 17-19% and puts an emphasis of keeping government spending below the 20% of GDP margin.

The Fair tax places no restrictions on Government Spending in relation to GDP thus could be a 30%-35% or even 40% ticking time bomb

Sep 4, 2012, 12:33pm Permalink
Howard B. Owens

Peter, since I don't sell items that are subject to sales tax, I wouldn't be a registered seller, nor would I want to be (why invite the government to stick it's nose under your tent if you don't have to -- any Randian would agree with that).

So I would pay taxes on all of my business purchases? Hardly seems fair.

Also, what you describe sounds like a huge bureaucratic mess that would be expensive and drought with government waste. It's a recipe for bigger government, not less.

A flat tax with no exemptions greatly reduces the avenues of corruption and government expense and waste.

Sep 4, 2012, 12:40pm Permalink
Mark Brudz

Howard, a FLAT TAX without an exemption on the first $30-40K of income would infact have the same result on depress spending as the fair tax would.

Let me clarify, the single deduction is for HOUSEHOLDS not corporate or business entities

A family of four earning $50K would have substantially less spending power without the single base deduction

Sep 4, 2012, 12:51pm Permalink
Howard B. Owens

Mark, I wasn't referring to the exemption on the first $30k.

I mean no write offs for mortgage interest, charitable giving -- all the the things that make the current system so complex and therefore easier to game.

Sep 4, 2012, 12:54pm Permalink
Peter O'Brien

Howard, you could still register as a seller because you sell advertising. If I understand it correctly, that is a service and it is taxed at the same rate as retail goods. But since you sell that to businesses you would charge them no tax, or collect the tax and turn it in quarterly and your customer would be responsible for getting that money back.

Yes I can see it has potential for fraud and abuse but I still believe it is far better than our current system.

Sep 4, 2012, 1:32pm Permalink
Peter O'Brien

Mark,

I think spending would increase. People's gross income would be much closer to their net income when no taxes are taken. This would increase the amount of cash in their pocket. Prices are not going to rise very much. Therefore they have more buying power.

I don't understand why you think the rich don't spend money.

The Fair Tax is revenue neutral. It is a new tax system, not a a government spending system. It's goal is to replace the federal tax system as it stands with a much more fair system that is completely voluntary.

Sep 4, 2012, 1:35pm Permalink
Mark Brudz

Peter, Like I said, used to be a STRONG advocate of the FAIR TAX, until I examined them both side by side. We agree the current tax code must be replaced, this I realize, but side by side the FLAT TAX benefits far out way the Fair Tax benefits and the flat tax dramatically reduces the abilty to game the system far more than does the Fair Tax.

While a handful of economist favor the Fair Tax, Few favor the current code, most see the FLAT TAX as the best solution.

Sep 4, 2012, 1:43pm Permalink

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