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2011 Stimulus Package: American Jobs Act

This article was written by in Economy, Featured. 34 comments.


Update: The Buffett Rule, if implemented, could help pay for the American Jobs Act.

As long as the public holds the general impression that economy isn’t favorable, and that’s certainly the case, for example, when unemployment is high or after a stock market crash, political leaders will propose stimulus plans to help move the country in a more favorable direction. The focus of the 2011 stimulus package is jobs, with unemployment a lagging factor in today’s economy. President Obama has pitched his 2011 stimulus plan with a total cost of $447 billion and is looking for Congress to quickly sign off on the plan to boost the economy.

There are politics at work here, of course, with an election looming next year and one political party eager to blame the other for the inevitable fact that the economy won’t look great by the time citizens in the United States head to the polls.

Dollar - 2011 Stimulus PackageThere is no stimulus check for American citizens this time, but here is what is included in the $447 billion 2011 stimulus package called the “American Jobs Act.”

  • Cut the payroll tax in half. Today, employees pay 4.2% on the first $106,800 of wages, an already-reduced rate from the normal 6.2%. The 2011 stimulus proposal would reduce the payroll tax to 3.1%. The proposal would also reduce the payroll tax rate paid by businesses to 3.1% on the first $5 million paid in wages.
  • Payroll tax exemptions for new hires and raises. Any new hire will be exempt from payroll taxes, both from the employee and the business side. The same is true for any employee who receives a raise; they will be continue to be taxed on their old salary.
  • Tax credit for business that hire the unemployed. If a business hires an individual who has been unemployed for over six months, the business will be able to claim a tax credit of $4,000.
  • Deductions for companies that invest in infrastructure. Companies that spend capital on equipment and plants will be able to deduct certain expenses from their taxes.
  • Creation of an infrastructure bank. After a round of federal funding, a new facility will be able to offer loans to help fund local infrastructure improvement projects. Once the infrastructure bank is operational, it should pay for itself through interest collection on the loans.
  • Transportation improvement projects. In addition to the infrastructure bank, the 2011 stimulus plan includes immediate funding for highways, mass ground transportation, and aviation.
  • Modernize schools. Part of the stimulus package will include spending to repair, rebuild, or outfit 35,000 public schools.
  • Fix vacant property. The federal government will dedicate funds for fixing up properties, residential or businesses, that have been foreclosed or abandoned.
  • Extend unemployment benefits. Although employee benefits have already been extended to 99 weeks, the stimulus proposal would extend benefits even further. For unemployed individuals who choose to build their skills through job training, the plan would extend benefits as well as provide a stipend.
  • Fund teachers and first responders. Obama would send $35 billion in federal money to local communities to help hire and keep public school teachers and emergency personnel.
  • Offer more home refinances. The President has already proposed extending mortgage refinancing at today’s low rates to more homeowners.

How to pay for the 2011 stimulus

The total cost of the tax cuts in the 2011 stimulus package is $254 billion and the total cost of the spending measures is $194 billion. To pay for the tax cuts and spending, Obama’s plan for the most part is to raise taxes on individuals with incomes over $200,000 (or $250,000 for couples filing jointly). These are the adjusted gross income values, which are often much lower than gross revenue from a job or a business. For business owners, adjusted gross income is the resulting number after business expenses are deducted; for all individuals, adjusted gross income is the resulting income after most retirement contributions are removed from the number.

Much of the following is part of the Buffett Rule proposed by President Obama on September 19, 2011.

  • Cap itemized deductions at a rate of 28%, not affecting anyone other than those in the top two income tax brackets. For every $100 in deductions, the most any America would be able to receive back is $28. Those who use major charitable donations to reduce taxable income, for example, could see a significantly higher tax bill.
  • Tax carried interest at ordinary income rates. Hedge fund managers and others in the financial industry have benefited from the long-term capital gains rate of 15%. When a compensation is paid out of investment returns, it can qualify as carried interest. The stimulus plan would combined carried interest with ordinary income and the total would be subject to the tax bracket calculation, with a rate as high as 39.6%.
  • Repeal oil subsidies. The oil industry has benefited from help from the government at a time when the industry seemed to be successful regardless of the subsidies. Paying for the stimulus plan could be assisted by removing these subsidies and allowing the industry to flourish on its own.

Obama’s proposal for the 2011 stimulus package has little chance of being approved by the Congress in its current form. There will likely be competing priorities between Republicans and Democrats to be settled first, and competing bills between the House of Representatives and the Senate in need of a compromise. As the situation changes, this article will contain the latest details.

What do you think about the 2011 stimulus package in its current form? Will it help to push the economy in the right direction? Is it completely unnecessary?

Updated September 19, 2011 and originally published September 13, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 34 comments… read them below or add one }

avatar Kevin @ Thousandaire.com

I just want to add a disclaimer to your first sentence: “As long as the economy isn’t growing, there will be stimulus plans to help move the country in a better direction.” in a Keynesian economy.

In a truly free market, the government doesn’t social engineer us into spending our money the way they want us to. If we put the right people in office, we can move back to a system of a simplified tax code, or better yet, no income tax at all. Why don’t we let the small business owners decide the best way to spend their money so they create jobs AND profit at the same time?

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avatar Luke Landes ♦127,387 (Platinum)

Well, this country has never been a “truly free market” and never will… for better or worse. As far as why we don’t let business owners decide how to create jobs and profit, the plan doesn’t tell business owners what to do with their money. They have a choice to invest in infrastructure to receive benefits. They have a choice to hire. But business owners in general do not make these expenditures without help when they believe the economy is troubled. The purpose of a business owner is to think about the good of the bottom line (which is an important focus, obviously), and business owners do not balance this with the good of an industry or the good of the economy.

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avatar Kevin @ Thousandaire.com

Making it cheaper to hire workers (through a tax credit for hiring unemployed people and lower payroll tax for newly hire workers) will not only potentially result in companies hiring people they don’t need, it also punishes any company who staffed their company to appropriate levels prior to this bill being passed. Why are we giving benefits to the companies who were understaffed up until this point and paying for it from the taxes of companies who were staffed appropriately?

And think of all the harm this will do in hiring in the short term. Say I’m a small business owner and I know this MIGHT be passed. If I was planning on hiring someone tomorrow, I’m not going to do it anymore. I’m going to stop all hiring and wait to hire people until I can get a special deal from the government. I’m terrified to see what the hiring numbers look like at the end of this month if the bill isn’t passed yet.

Then what if I do hire someone after the law is passed and get my tax credit, and he turns out to be a horrible employee? Can I fire them and keep the tax credit? If so, then I could just hire and fire people and get lots of free money from the government. If not, then I’m being financially punished for getting rid of a bad employee.

I could go on with all kinds of reasons why these types of programs are not only unfair, but also simply bad policy.

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avatar Luke Landes ♦127,387 (Platinum)

Most business owners, even (and especially) small-business owners, have expenses associated with hiring and firing employees. They’re not going to hire willy-nilly just to take advantage of tax incentives, but it will nudge employers who are planning to hire (or give a raise) in the “right” (according to the government) direction.

Yes, like the Cash for Clunkers program, many of the employment moves are simply time-shifted. Perhaps a hire that would happen eventually, or one that would happen before the incentives were in place, would be moved within the threshold of qualification for the incentive, but the economic theory (and as seen in practice with previous stimuli) is that a small but significant portion are truly incentivized.

Is it “fair?” Well, no, but fairness has never really been a necessary component for a booming economy, and for that matter, a lack of fairness is usually inspirational to an economy. Fairness is perspective-based; what’s fair for you isn’t necessarily fair for me. And people only seem to care about perceived fairness when they feel they are part of the group being penalized or discriminated against.

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avatar Kevin @ Thousandaire.com

The “economic theory” has been completely dis-proven with the last stimulus. It didn’t work last time and it won’t work this time. The only true stimulus would be to revamp the tax code, eliminate government discretion and loopholes. Then if you can cut spending and lower taxes to give business owners more money to hire with and individuals more money to spend, you can have a real, stable economy instead of a series of Keynesian bubbles growing and bursting

avatar Luke Landes ♦127,387 (Platinum)

Kevin: Well I suppose an opinion about the relative success or failure of the stimulus plans depends on who you listen to… politicians or most economists. Most economists agree that previous economic stimuli helped to stave off a worse recession, depression, and/or a failure of an entire industry or two. And it depends on your definition of “work.” If you expected the stimuli to save the world from poverty, make all CEOs rich, and revive relatives from death, then I would have to say it didn’t work, too.

I don’t disagree with you about how to have a real, stable economy though… that’s a long-term goal that needs to be balanced with the short-term.

avatar jim

“If we put the right people in office, we can move back to a system of a simplified tax code, or better yet, no income tax at all. ”

Who do you think should be the “right people” in office that might result in “no income tax”? Is that serious?

Simplified tax code would be nice and I doubt anyone will argue about that. But getting it passed through congress would probably be about as easy as getting healthcare reform was.

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avatar Kevin @ Thousandaire.com

The right politician would be Ron Paul, and I was completely serious about no income tax. Do you realize that we had no income tax in America (with a few small exceptions) until the 16th Amendment was passed in 1913? We did pretty darn well without it for well over a century; there’s no reason we can’t go back to that system.

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avatar Special Ed

It is excruciation to watch Obama keep banging on higher taxes for those making over $200,000 and corporations. Where does he think private sector jobs come from. Private jobs will go a lot further in this economy that government jobs ever will.

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avatar jim

The majority (~50%) of private jobs are from large employers (500+ people) and the vast majority of jobs (>80%) are from companies and incorporated businesses with over 20 employees. Also the larger businesses pay more of the wages than the smaller businesses as a whole. The marginal tax rate on individual business owners making over $200,000 a year has very little to do with employment in this nation.

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avatar tbork84 ♦1,867 (Half-Dollar)

I applaud you for referring to it as a stimulus package, labeled a jobs bill by the administration. Thanks for being honest with your readers Flexo.

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avatar Investor Junkie

What do I think of it? It Sucks! Estimated cost $250k+ per job created (saved). Epic fail!

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avatar wylerassociate ♦907 (Dime)

depending on your point of view, I don’t see this stimulus passing because the republicans will not prevent it from passing and will waste people’s time holding hearings about it.

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avatar Smithee ♦1,358 (Quarter)

“As long as the economy isn’t growing…”

How do you define a growing economy? Certainly it’s not growing as fast as people would like, but looking at the GDP, it’s been getting steadily better since the summer of 2009.

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avatar Luke Landes ♦127,387 (Platinum)

True, the GDP is showing growth, but public sentiment about the economy isn’t correlated to GDP… it’s primarily about jobs, secondarily about the stock market. I’ll revise the first few words of the article and fix a few other random typos.

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avatar Ceecee ♦796 (Dime)

I think anyone that claims to have the “real” solution for the present economy needs their marbles checked. The Bush people and their ideas got us here, the Obama people’s ideas don’t seem to be any easy way out. If tax cuts really worked, (which we had under Bush) then we would have never landed in this pickle. If the Obama stimulus worked, we’d be on our way out. We Americans always want things fixed yesterday. This is more complicated than that.

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avatar Kevin @ Thousandaire.com

I do want to chime in here again. It’s important to understand that the George W. Bush presidency was not much different economically from what we have today. George W’s is much much closer to pure Keynesian economics than a pure free market system. We certainly haven’t seen a true free market system since before FDR.

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avatar chris

Eventually, free market forces might end the Great Recession. But, as Keynes pointed out, “The long run is a misleading guide to current affairs. In the long run we are all dead.”

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avatar Briana @ Prairie EcoThrifter

I’m excited about how this could re-stimulate our economy. Modernizing schools? Fixing infrastructures? An incentive to hire people who’ve been unemployed for more than 6 months? I’m all for it!

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avatar Tom Dziubek

This is completely worthless endeavor. The first, much larger stimulus, made no significant improvement in the unemployment rate so what’s to think a much smaller one will? The Obama administration knows this won’t pass the GOP-controlled house (especially with the tax hikes) so their main goal here is to try to improve their political footing for next year by trying to convince the public that the Republicans are responsible for a do-nothing Congress. And if this by some slim chance DOES pass the House and fails like the first stimulus, they can try to finger the GOP by saying that “it was a plan they voted” for.

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avatar Luke Landes ♦127,387 (Platinum)

There is enough economic evidence that says the earlier stimulus was somewhat successful. Most economists agree that the unemployment rate and other economic factors would have been *worse* without the stimulus. Now, a larger, earlier stimulus could have done more, but it’s unlikely there would have been enough political desire to pass such a bill.

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avatar Investor Junkie

@flexo: Saying it was somewhat successful is very debatable. Most of it wasn’t for jobs. Overall it was estimated to cost $285k per job created (or saved). Is that really the best economic plan we could do?? Hell, the government would have been more efficient if it just gave each person $2,500 directly. At least in the wisdom of crowds each person would spend/save/pay debt how they saw fit.

I believe the FED’s monetary policy is what “saved” us. While the stimulus may have done something, at what cost for our future? See broken window fallacy.

What we need is long lasting effects not some “jolt”. We need economic plans that will spur private growth, not do the reverse.

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avatar Investor Junkie

Let me add.. “priming the pump” didn’t work. If $800B didn’t work, $447B will?

The whole thing reeks politics, and Obama trying to save his butt. The only job Obama cares about is his own.

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avatar Luke Landes ♦127,387 (Platinum)

That may be true. But it’s true for all politicians, regardless of party, regardless of position. Note how a politician’s tenor often changes once they retire — particularly ex-Presidents. Active politicians all want to keep their jobs or move up, and they’ll say whatever they believe it will take to do that. I’ve never seen a politician, R or D, who cared for anything except his next job and who’s paying his expenses.

avatar Tom Dziubek

But that’s really just a “heads-I-win, tails-you-lose” argument. Simply put, the stimulus failed to do what it’s protagonists proposed. Economists stating that “things could have been a lot worse without it” are really just trying to sugarcoat the failure. Throwing more money at a problem isn’t necessarily going to fix it.

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avatar Luke Landes ♦127,387 (Platinum)

The protagonists of the stimulus never said it would save the economy. They said it would be likely to prevent another Great Depression, which so far, it has. They said boosting specific industries would likely prevent those industries from collapsing, which it has. No one looked at the stimulus plans to make the world beautiful again, just to prevent the worst from happening to the economy.

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avatar jim

“Economists stating that “things could have been a lot worse without it” are really just trying to sugarcoat the failure.”

Things WOULD have been a worse without the stimulus. Thats not sugarcoating or a lie or propaganda its simple fact. You don’t throw $787B into the economy and have it not help.

How much it helped is a matter of debate. The CBO estimated it saved 1.2 to 3.3 million jobs and raised real GDP 1.1 to 3.1%.

The problem is nobody can prove as a fact what would have happened without the stimulus cause we didn’t take that path. As analogy nobody can prove invading Iraq and Afghanistan actually helped cause I could throw out a claim / theory that it actually worsened the terror threat and did absolutely zero to help protect America. But we all seem to assume that waging 2 wars is a good idea.

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avatar Tom Dziubek

When the Democrats pushed the ARRA stimulus bill they showed graphs stating that without ARRA unemployment would go to 9% but with ARRA it would never go above 8%. After it was enacted not only did unemployment hit 8%, but it went above 9%. This is failure.

Let me offer an analogy. Say I have a leaky roof and I decide to pay $120,000 to get a new roof installed (about $100,000 more than a normal roof replacement would cost). This company comes in, installs supposed state-of-the-art shingles, maybe even with little umbrellas installed over them for good measure. However, the next time it rains, I still get water in the house. Maybe I only need one bucket instead of four, but I still need a bucket. When I go to complain to the company, their response is “well, your house would have been much worse if we HADN’T installed the new roof”. Would you find that acceptable? Well how about if they followed that up with “you know, for another $40,000 we can install giant heat coils on the roof to evaporate the rain as it falls…we think that should fix the problem”. Would you trust this company or would you go somewhere else for a solution?

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avatar qixx ♦1,826 (Half-Dollar)

We only have one government. Where do we go in this analogy? The new politicians will be the same as the old ones. Just like the old ones are mostly the same as the ones before them.

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avatar Jim

As an individual consumer I am holding onto my money and looking for ways to save. I see no reason to purchase anything I do not need. My Income is under the magic numbers mentioned in this article.

As a Small Business owner, I am holding my own for my market segment, which has taken a great hit in this economy. I am doing more with what I have. I have no incentive to hire anyone nor buy any extra equipment/buildings or anything of a capital expense.

To pick up the slack I am personally working more hours and getting the most that I can out of each employee. I am using whatever I have to be more efficient with my investment in existing land, buildings and equipment.

To add 1 employee I would have to add $90,000 – $120,000 in Gross Sales for each new employee. That is for a $12-16/hr plus benefits position. I do not see that happening.

I did enter the market with my company in the early 80′s during that recession and learned a lot of tricks in marketing, branding, managing and more.

Will this “Stimulus” change anything for me? Maybe, maybe not. But it could get me thinking and considering spending some of my money. But without some Incentive I am staying put.

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avatar shellye ♦107 (Cent)

I think this is the crux of the problem with our failing economy; there is a lack of demand for our collective products and services. Like Jim says, to add a single employee he would have to increase gross sales by 90-120k. Where does that increase come from? It comes from an increased demand in whatever he sells, or makes, (or, to quote Lloyd Dobler, whatever he buys, sells, processes, etc. LOL)

Seriously, though, unless the demand for Jim’s product increases, there will be no increased gross sales enough to hire another employee. Multiply that x millions of business owners in the same position and there lies the basic problem with our economy.

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avatar Josh

There are a lot of comments and responses here. The bottom line is that anyone, including an economist, who says the economy would have been worse without the stimulus doesn’t know because we don’t live in that reality. The President’s advisers estimated the number of jobs created or saved based on a Keynesian model. Other Keynesian economists have done the same with their own model. The problem with these models is that they have failed to reflect reality. They failed miserably in the 1970′s and are doing so again today. The government spending multiplier has been found to be much lower than what this President’s advisers originally assumed. The Romers proposed that the tax cut multiplier could be as high as 4, but the Keynesians typically assume it to be 1. No one factors in the prevalent economics of people like Milton Friedman or Robert Barro, who studied things like crowding out, life cycle income, and Ricardian Equivalence. If you’re not a Keynesian, you are demagogued.

Economists Timothy Conley and Bill Dupor released a report in May of this year which gives the real jobs impact of the first stimulus based on what actually happened, not a model. They found that the stimulus saved or created 550,000 jobs in the public sector while destroying 1,000,000 jobs in the private sector, for a net loss of 450,000 jobs. How’s that for saving and creating?

Another good economist to follow is John Taylor, who derived the Taylor Rule. He writes a lot about Federal Reserve policy, the budget, stimulus, etc. One of his more prevalent works as of late is a policy paper in which he explains how various recent government interventions into the economy have harmed the economy. If you only pay attention to economists on one side of the aisle, what’s the point? Reading Paul Krugman, and only Paul Krugman, gets you nowhere. Actually, it gets you less than nowhere plus a $1.5T budget deficit.

Consider this final fact. Since the Nobel Prize in Economics was created, 6 right-leaning economists have won the prize for work that is very much contradictory to Keynesian economics. No one has won the prize for anything related to Keynesian economics. Paul Krugman won his for trade theory, which is completely unrelated to fiscal stimulus.

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avatar Investor Junkie

Josh,

Hence the post on my web site “Why I Never Trust Economists or Weathermen” :-)

http://investorjunkie.com/7723/trust-economists-weathermen/

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avatar D. Brinson

I really dislike this plan for two reasons. First – I don’t believe it will work. Second, I don’t think we can afford it.

Given the mess that Social Security is in – how can we think of cutting the payroll tax? I am talking about both the payroll tax cut and the exemptions for new hires/raises. Yes, getting extra money in people’s pay checks is nice, but they are just as likely to use that that money paying off existing debt as spurrng the economy with increased spending. And no one is going to hire because they don’t have to pay 6.2% payroll tax. And this whole idea of not paying social security taxes on your raise or only paying employer social security taxes after $5,000,000.00 in salary expenses – does anyone know of a payroll system that can actually accomodate this with having to fly through flaming cheerios? The system that I work with is one of the big ones (number one or two, depending upon which market you are talking about) and I can’t think of a good way of setting this up. My first thought is that company won’t give people raises because they will be afraid that they will get the taxes wrong – which means big penalities. So much for encouraging companies to hire or give employee raises.

Tax credit for the unemployed – will, if a company was going to hire anyway they will certainly move the resumes of long-term unemployed to the top of the pile. That might be a good thing, but I doubt that anyone will hire if they weren’t going to anyway.

Deductions for companies that invest in equipment or plants – this might stimulate a bit of spending.

Infrastructure bank – I don’t know if this will work or not. But it is a new idea and is worth a shot.

Transportation projects/modernize schools/fix vacant properties – can anyone say “shovel ready” project? This didn’t work before, there is no reason to think it will this time.

Extend unemployment – No. I’m sorry, but you do not get unemployment for more than 2 YEARS! The whole purpose is to provide short-term help while someone is between jobs. The important word in that sentence is “short”. I know we can’t just kick millions of people out in the street and that is not what I am advocating. But we have to stop pretending that this is a short term problem. Some of these jobs are never coming back, and we tax payers can’t keep paying people to do nothing forever. We have to come up with better answers.

Teachers/First Responders – can you say union pay off?

Home refinancing? Some how the government should refinance loans that banks refuse to? Sounds like a great idea. If you like to lose money, that is.

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