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Graph showing distribution of tax hike under proposed chained CPI
This post from Dylan Matthews at Washington Post's WonkBlog makes a good point about the Social Security cut Republicans have been pushing for in the fiscal cliff curb talks. That's the chained CPI, a revised consumer price index that would slow the rate of cost of living increases for Social Security recipients over time. The damage that does to seniors as they get older has been exhaustively covered, and Matthews does a good job at that:
That adds up to a big cut in Social Security benefits. Imagine, for example, a person born in 1935 who retired to full benefits at age 65 in 2000. According to the Social Security Administration, people in that position had an average initial monthly benefit of $1,435, or $17,220 a year. Under the cost-of-living-adjustment formula and 2012 inflation, that benefit be up to $1,986 a month in 2013, or $23,832 a year. But under chained CPI, the sum would be around $1,880 a month, or $22,560 a year. That’s a cut of over 5 percent, and more as you go further and further into the future. [...]
But he also does a good job of explaining the hidden tax hike in the proposal:
The results by using chained CPI for taxes are also striking. The Tax Policy Centercalculated the income tax increases that would be caused by a switch to chained CPI. They’re not big — a little more than $100 a year for most families — but they’re oddly regressive [...]

The group getting the biggest tax hike is families making between $30,000 and $40,000 a year. Their increase is almost six times that faced by millionaires. That’s because millionaires are already in the top bracket, so they’re not being pushed into higher marginal rates because of changing bracket thresholds. While a different inflation measure might mean that the cutoff between the 15 percent and 25 percent goes from $35,000 to $30,000, the threshold for the top 35 percent bracket is already low enough that all millionaires are paying it. Some of their income is taxed at higher rates because of lower thresholds down the line, but as a percentage of income that doesn’t amount to a whole lot.

No one advocating for the chained CPI is going to acknowledge that it's a backdoor, regressive tax hike on the middle class. But it is.

Originally posted to Joan McCarter on Tue Dec 11, 2012 at 05:08 PM PST.

Also republished by Social Security Defenders and Daily Kos.

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Comment Preferences

  •  Very good explaination of CPI: Tipped, and Rec'd! (11+ / 0-)

    “The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane.” — Marcus Aurelius

    by LamontCranston on Tue Dec 11, 2012 at 05:19:15 PM PST

  •  Aaaaaand That's Us. nt (9+ / 0-)

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Tue Dec 11, 2012 at 05:21:51 PM PST

  •  I was hoping I'd never hear of that thing again. (4+ / 0-)
    Recommended by:
    marty marty, Timothy J, Gorette, eps62

    sigh    They're not going to give up on any of their rotten ideas.   Just put them in the dark and bring them out another day.

    Theft from those who haven't as much is what it is.

    Nothing in the world is more dangerous than a sincere ignorance and conscientious stupidity. Martin Luther King, Jr.

    by maybeeso in michigan on Tue Dec 11, 2012 at 08:03:15 PM PST

    •  They live to implement serverly cruel doctrines (2+ / 0-)
      Recommended by:
      eps62, maybeeso in michigan

      that will cause death and suffering so they can keep more of their money and live in a horrible, horrible country. I base this on a person who just told me we need 20% cuts in SS and it doesn't matter a whit to him if old poor people die as a result, admitted he was draconian. I prefer the term serverly cruel bastard.

      "extreme concentration of income is incompatible with real democracy.... the truth is that the whole nature of our society is at stake." Paul Krugman

      by Gorette on Wed Dec 12, 2012 at 07:36:10 AM PST

      [ Parent ]

      •  A 20% cut in Social Security would likely put (1+ / 0-)
        Recommended by:
        Gorette

        me on the street except for help from my kids.  And they're having enough of a struggle already.

        Makes me sick just thinking about the goons who have too much power.

        Nothing in the world is more dangerous than a sincere ignorance and conscientious stupidity. Martin Luther King, Jr.

        by maybeeso in michigan on Wed Dec 12, 2012 at 02:05:07 PM PST

        [ Parent ]

  •  Do remember as well that the CPI, chained or not, (7+ / 0-)

    also pushes SS receiving seniors into brackets where they pay income tax on percentages of their SS benefits, even if the only income they have is SS. The effect of that is to wipe out the benefit of SS CPI above a level determined by pols in 1984, so that seniors either stay below that amount or lose the benefit of CPIs at all because the income tax they have to pay after awhile takes away all that in taxes. And they fall still farther behind.

  •  Playing around with the inflation (0+ / 0-)

    rate since the Carter Era has already pushed down SS payments by 70% compared to if all the accounting tricks in the book hadn't been thrown at this "problem"

    So somehow I suspect that the latest effort to compound this problem will not receive any significant opposition.

  •  OK. I read this post and the linked piece (1+ / 0-)
    Recommended by:
    judy99

    and I still don't understand why there's a tax increase because of chained CPI.

    Can someone explain?

    thanks.

    The GOP: "You can always go to the Emergency Room."

    by Upper West on Wed Dec 12, 2012 at 06:45:50 AM PST

    •  I have the same question (1+ / 0-)
      Recommended by:
      Upper West
    •  The brackets are adjusted for inflation (1+ / 0-)
      Recommended by:
      Upper West

      As the value of the dollar declines, the amount at which the next highest bracket cuts in goes up, so you pay a little less tax because more of it is in the lower bracket, and you're taxed accordingly less.  Supposedly.  Since the CPI is used, and it does a crappy job of reflecting actual inflation (my opinion), then the real effect is that, if your income goes up exactly as much as (real) inflation, some of that will be taxed at a higher rate.

      Wiki has an an item that might help explain it.

      I am become Man, the destroyer of worlds

      by tle on Wed Dec 12, 2012 at 07:12:43 AM PST

      [ Parent ]

      •  I need examples. (0+ / 0-)

        Let's say right now someone's on social security, receiving $25,000 per year.  Would that person get a tax increase if there were chained CPI?  How?

        The GOP: "You can always go to the Emergency Room."

        by Upper West on Wed Dec 12, 2012 at 07:23:47 AM PST

        [ Parent ]

        •  The tax increase is not a function of Social (1+ / 0-)
          Recommended by:
          squarewheel

          Security.  It is related because tax brackets are CPI adjusted in the same way that Social Security benefits are.

          If chained CPI were used to calculate tax brackets, those bracket levels would move up more slowly, just as Social Security benefits would increase more slowly.

          That's OK if the new calculation matches actual inflation, but, if it lags behind you have a problem like this:

          (all made up numbers because I don't want to look up tax brackets)

          Income: 30,000
          taxes based on 15% taxes on first 20,000 and 25% on rest: $5500

          Real inflation = 10%, salary rises to match (we can dream!), but CPI says inflation is only 5%:

          Income: 33,000
          taxes base on 15% on first 21,000 and 25% on rest: $6,150

          Your income has gone up 10%, just like your cost of living, but your taxes have gone up 11.8%.  It could have been more, too, if the changes had caused part of your income to fall in the next higher bracket.

          LG: You know what? You got spunk. MR: Well, Yes... LG: I hate spunk!

          by dinotrac on Wed Dec 12, 2012 at 07:37:48 AM PST

          [ Parent ]

          •  And the tax increase may be reasonable ... (1+ / 0-)
            Recommended by:
            dinotrac
            That's OK if the new calculation matches actual inflation, but, if it lags behind you have a problem like this
            To be fair, the whole argument for the chained CPI is that it more accurately matches actual (i.e., experienced) inflation than does the regular unchained CPI.  So the premise of your example might be rewritten as:
            Unchained CPI-calculated inflation = 10%, salary rises to match (we can dream!), but chained CPI says true inflation is only 5%
            In this case, the 10% salary hike you received really did make you wealthier, and the tax rate hike is arguable justified.
          •  so the proposal is to use the chained CPI (0+ / 0-)

            for both the social security cost of living increase and the increase in the tax brackets?

            The GOP: "You can always go to the Emergency Room."

            by Upper West on Wed Dec 12, 2012 at 08:26:34 AM PST

            [ Parent ]

  •  Take no prisoners (2+ / 0-)
    Recommended by:
    BeadLady, eps62

    Republicans across the country are proceeding as if last Monty's election never even happened. The GOP is in a fantasyland of denial and dangerous obstinacy. Real Americans are being abated by a conservative agenda of, by, and for the super rich elites. Working folks are bearing the brunt of the GOP's backwards attempts at governing policy. We need the president to step in and protect folks, not author false compromises and giveaways to the most extreme conservative elements in this country. Elections have consequences. The GOP must be made to understand this point.    -  progressive

  •  This is exactly how this debate should be framed (2+ / 0-)
    Recommended by:
    Upper West, eps62
    The middle-class tax hike Republicans are arguing for
  •  Do you think they understand this? (1+ / 0-)
    Recommended by:
    Upper West

    Are the Republicans ignorant or being cynical on this (I know, dumb Q, but...)?

    If I ran this circus, things would be DIFFERENT!

    by CwV on Wed Dec 12, 2012 at 07:00:50 AM PST

  •  Lesser evil? (0+ / 0-)

    The teabaggers' hostage-taking succeeded in forcing us to give up something.  So what's on the table?  Medicaiid cuts?  That would hurt the poor and elderly very deeply and would undermine Obamacare.  Medicare cuts?  Some are already in the works; there's room to economize in health care, but raising the age is a lose-lose in so many ways that the mind boggles.  Removal of middle-class tax deductions?  That was Romney's plan, a huge transfer of wealth out of blue states and from the merely-affluent (but working) to the very rich (and probably idle).

    Chained CPI is a small cut made over time.  It has no drastic impact on anyone, just a little from a lot of people.  And at a macroeconomic level, a downward tweak in benefits could result in slightly lower prices charged to older people for things like senior housing, simply because the market price reflects available money. So while it's not good, it's not catastrophic.

    Plus, because it's a slow change, there will be time to fix it if we ever get back control of Congress.  The tax impact can be tweaked via bracket adjustments. Slashes such as an age change to Medicare will be harder to fix.

    So while I don't like it (and I'm less than a decade away from being on Social Security myself), I see chained CPI as the least evil concession that we can make in exchange for higher taxes on the wealthy.

    I also hope that the low rates for dividends are allowed to expire -- talk about a gift to the rich!  Before Bush, those were regular income.  Now they're not even in the brackets, so a coupon-clipping billionaire pays just 15%.

    •  I actually think the least evil "solution" (0+ / 0-)

      is with means testing--and as I've learned to specify--a sliding scale means test that gently reduces benefits in higher income brackets but doesn't eliminate the benefit.  

      First, since the payment formula for SS is already a sliding scale formula, this can be adjusted.  

      Second, eliminating the cap won't happen by itself (why should I have to pay more but get nothing more is the constant reply), but if the cap is eliminated and the top payment rate increased, but means tested--sliding scale--according to overall income, then conservatives have less of an issue regarding payment relative to benefit.    

      •  But everyone hates Welfare (0+ / 0-)

        Means testing converts them from prepaid benefit programs, which everyone pays into when they're working, to a form of Welfare.  That changes them from a political third rail (don't touch them) to a political whipping boy.  Welfare benefits get "reformed", and cut, routinely.  It completely changes the program's political dynamics.  So we can't go there.  Better that a few rich folks collect a little that they don't need than the rest of us be tarred as welfare recipients.

        •  I've heard this but I don't buy it. (0+ / 0-)

          Convince me.

          As I see it, if benefits still occur for all, it is not welfare.  If one guy gets 100% of potential benefits but another guy making $1M per gets only 50%, he has no welfare argument and the difference of another $1250 or so per month is not going to effect this person and the public will agree.      

          Something will change in social security. That is a fact. I don't like raising the age.  I don't like trimming benefits to the most needy.  This, a sliding scale means test, from my perspective, is the least harmful.  

  •  I did not realize, (0+ / 0-)

    that in the tax structure, the taxable income range, relative to each percentage bracket, changes according to inflation.  

    I guess the discussion is to change everything, all matters, in which inflation is determined, to this new formula, including the annual inflation rate.  

    This article is valuable as it looks at the change in a broader sense.

    I'm all for an accurate measure, but should someone retired, in which food and housing typically are a greater proportion of income (if not all), have the same measure as someone with more disposable income which branches into other expenditures?      

    •  If it's an accurate measure, that's fair. (0+ / 0-)

      If it's not an accurate measure, then it's not.

      LG: You know what? You got spunk. MR: Well, Yes... LG: I hate spunk!

      by dinotrac on Wed Dec 12, 2012 at 07:39:03 AM PST

      [ Parent ]

      •  My point was that what might be an accurate (2+ / 0-)
        Recommended by:
        dinotrac, eps62

        measure for someone retired, might not be the same  measure as for the general population, for taxation, or any other general determination.  

        Chained dollar determination seems to be a general direction and one preferred by many economists and politicians .  If we go to very valuable BEA site, we see they use this factor.  It seems inevitable that chained CPI will win out.  

        My point is that a different inflation measure should be used for SS beneficiaries due to their different expenditure patterns.    

        •  I made a similar point elsewhere in this thread, (0+ / 0-)

          specifically with reference to income levels and the ability to make some trade-offs through the ability to invest up-front money.

          You're absolutely correct to be concerned.  Retired people do not tend to buy the same mix of goods and services that young people do.  

          LG: You know what? You got spunk. MR: Well, Yes... LG: I hate spunk!

          by dinotrac on Wed Dec 12, 2012 at 08:52:17 AM PST

          [ Parent ]

  •  An even larger cut is desired (1+ / 0-)
    Recommended by:
    eps62

    among conservatives as I learned recently from an economist acquaintance who said "We need a 20% cut in SS" soon, before we end up like Greece. No kidding. And when asked about the affect of this on poor old people who might die as a result he shrugged and said, "I'm draconian," like sue me. That would be fine be fine with me. Anyhow,  "poor people" in America are not really poor compared to the poor he saw in other countries.

    This repellant view made me realize that there are Paul Ryans and Romney's all over the place and they pose as mild-mannered, nice normal guys. But underneath, they are severely cruel bastards.

    You cannot give money to poor people because "they just piss it away," was another comment.

    I am poor and old so I am still beside myself from having this dogma, but heartfelt beliefs, spouted in my face with NO SHAME! No empathy. Merry Christmas to you too fella, and don't let me trip you on your way out.

    ___________

    "extreme concentration of income is incompatible with real democracy.... the truth is that the whole nature of our society is at stake." Paul Krugman

    by Gorette on Wed Dec 12, 2012 at 07:33:03 AM PST

  •  Fair enough (0+ / 0-)

    but I think it's reasonable to consider that the CPI is not an accurate measure of inflation for seniors.  It is after all not meant to be a continuous increase in benefits but an adjustment for cost of living.  There are some who think it's higher for seniors when you consider health care, but as an optimist I think that Obamacare is going to have an effect on that as we proceed.  I think a good parry to this argument is to offer to develop a more accurate measure of inflation for seniors than the CPI and then be willing to use it.

  •  A fallacy to use a single CPI index, anyway (0+ / 0-)

    Cost of living changes do not rise and fall uniformly up and down the income ladder.

    Things like more efficient water heaters, appliances, cars, etc tend to cost more money up-front, but pay for themselves on the back-end.  People who cannot pay the up-front or get the credit to do so will have a higher cost of living than those who can.

    Lots of things are like that -- buy a little extra quality up front, and save money over the lifetime of the item, buy the right car and make out when you sell it.

    LG: You know what? You got spunk. MR: Well, Yes... LG: I hate spunk!

    by dinotrac on Wed Dec 12, 2012 at 07:42:20 AM PST

  •  The problem I have with chained CPI debates here (3+ / 0-)
    Recommended by:
    Seeds, squarewheel, eps62

    ... is that they inevitably compound two distinct and independent issues:

    1. What should the levels of SS payments to seniors be to ensure an adequate standard of living?

    2. How should those levels change over time to reflect inflationary changes in the cost of that standard of living?

    The appropriate question with regard to the chained CPI is whether or not it is correct (in the sense of better capturing changes in the "true" cost of living), not how it impacts levels of payment.  If levels of payments need to be higher, that's an issue that should be addressed directly on its own merits and not tackled via miscalculated inflation adjustments.

    It's regrettable that so many supporters of the chained CPI are people who would like to reduce SS payment levels, but that doesn't necessarily make them wrong with respect to the accuracy or inaccuracy of the chained CPI.

    •  I'm seeing a fair amount of agreement on (0+ / 0-)

      this point.  Wonder why it isn't being discussed?

    •  bravo (0+ / 0-)

      I have several questions that I don't see being addressed by opponents of chained CPI. Not sure if I support this change yet, but my questions still stand.

      1. Is chanied CPI really more accurate? I've haven't heard anybody really argue that its a false measure of inflation. if there is such analysis out there, lets see an in-depth diary on it from one of the front page resident experts.

      2. Is slowing the rate of Soc Sec payment increases the same as a cut? Obviously, this is only true in relative terms. People would receive more under the old calculation, but they are still receiving increases. If those increase are accurately indexed to inflation, its not much of a cut, is it? Which leads me to my next question

      3.  What is the cost/benefit/loss analysis of this change? It seems to me that what critics of chained CPI are proposing is tax increases now to pay for steady state increases later. For example, a lot of people advocate increasing the wage limit on Soc Sec so these changes are not necessary.

      In practice, this would take tax dollars out of the economy now, to sustain higher benefit payments later. In my case (i am 47, with enough income to go slightly beyond the current limit), i would literally be paying more out of pocket now to secure an improved benefit i won't see for 20 years. that may make sense in the narrow view of Soc Sec financing, and it might make me economically more active when I am 67, but at the cost of reducing my current spending. are alternative financing remedies for Soc Sec the best option for both goals?

      Again, not sure that I agree with this change until I know more about it. But, from what I have read, even in the article this diary sites, there are some elements that warrant closer inspection.  

      •  I can't answer your questions but this seems (0+ / 0-)

        like as good a place as any to include this useful definition:

        Investopedia explains 'Chain Weighted CPI'

        The chain weighted CPI incorporates changes in both the quantities and prices of products. For example, let's examine clothing purchases between two years. Last year you bought a sweater for $40 and two t-shirts at $35 each. This year, two sweaters were purchased at $35 each and one t-shirt for $45.

        Standard CPI calculations would produce an inflation level of 13.64%
        ((1 x 35 + 2 x 45)/ (1 x 40 + 2 x 35)) =1.1364

        The chain weighted approach estimates inflation to be 4.55%
        ((2 x 35 + 1 x 45)/ (1 x 40 + 2 x 35)) =1.0455.

        Using the chain weighted approach reveals the impact of a customer purchasing more sweaters than t-shirts.

        ***

        I had to read this a few times but I get it.  Hard to explain though.

         

        •  Thanks, I get the concept (0+ / 0-)

          easy example i saw recently would be substituting chicken for beef when beef prices rise. the point being that people who are senstive to rising beef prices will adjust their consuming habbits toward a less costly alternative if they can. for some items that will work, for others it won't.

          for this discussion, we need to understand if chained-CPI does this more accurately. the last time this came up i recall credible sources respected on DKOS arguing its not necessarily a bad thing. in my example above, having chicken be a more economic choice than beef is not necessarily a bad thing.

  •  It's simply beyond surreal (1+ / 0-)
    Recommended by:
    gorgonza

    that people who are unimaginably rich and powerful are actively and passionately fighting to prevent that wealth from being reduced by an absolutely insignificant amount by skimming it off of old and poor people who are already receiving less money than they need to live on decently.

    This is the result of either extreme and sociopathic selfishness, or the fear that if they yield even a bit on taxes now, it will set a dangerous (to them) precedent for much bigger tax increases on them in the future. Which, I hope, is a legitimate fear, because restoring the Clinton era top tax rates isn't enough. We need to either raise those rates even more, or create new, even higher tax rates.

    And they expect to be able to prevent that by turning the nation's old, poor and struggling workers against them? If anything, this strategy will only end up sealing their fate. By refusing to yield a relative pittance now, they're only making it much, much harder for themselves down the line.

    Like what they're doing to unions in Wisconsin and Michigan right now, they're achieving relatively minor short-term gains, but at the expense of waking up a sleeping giant that will destroy them in the end, and deservedly so.

    "Liberty without virtue would be no blessing to us" - Benjamin Rush, 1777

    by kovie on Wed Dec 12, 2012 at 08:08:57 AM PST

  •  remember the republicans are not worried (0+ / 0-)

    about raising taxes on people that work for a living.

    they're out to protect the people who sit on piles of cash and golden parachutes and live off of capital gains.

    they'd trade tax cuts for millionairs against tax cuts for working people any day of the week.

    big badda boom : GRB 090423

    by squarewheel on Wed Dec 12, 2012 at 08:53:02 AM PST

  •  I don't get this, at all. How does chained CPI, (0+ / 0-)

    which, for the record, I oppose, dictate higher taxes?  I don't see the linkage.  Unless a tax policy item is embedded in the CPI proposal?

    Acceleration is a thrill, but velocity gets you there

    by CarolinNJ on Wed Dec 12, 2012 at 09:45:06 AM PST

    •  It doesn't "dictate higher taxes" ... (0+ / 0-)

      It simply adjusts tax brackets upward more slowly than the unchained CPI would, so that increases in income  translate over time into very slightly higher tax increases than they would if bracket adjustments were made using the unchained CPI.

      See example posted by dinotrac (and my correction thereto) in the comments above.

      •  So tax "brackets" are linked to CPI? (0+ / 0-)

        Acceleration is a thrill, but velocity gets you there

        by CarolinNJ on Wed Dec 12, 2012 at 11:10:42 AM PST

        [ Parent ]

        •  Yes, exactly. (0+ / 0-)

          According to the Washington Post blog quoted in this diary:

          The tax code, for instance, uses CPI-U (Consumer Price Index – Urban), which measures prices for consumers in urban areas, to adjust the income cutoffs for different tax brackets.
          Social Security benefits are adjusted using a slightly different CPI number, CPI-W, but the two tend to be very close.
          •  Given how the CPI has been jiggered over the years (0+ / 0-)

            what's been taken out of and put in the "basket," it's a poor measure.  And in any case, wages have gone the opposite direction:  inversely proportional, as it were(we're not adhering to strict rules of the mathematical road here, I assume).

            Acceleration is a thrill, but velocity gets you there

            by CarolinNJ on Wed Dec 12, 2012 at 03:06:04 PM PST

            [ Parent ]

  •  CPI-E (1+ / 0-)
    Recommended by:
    eps62

    Social Security COLAs should be pegged to the CPI-E that tracks the actual expenditures by the disabled/elderly make with their Social Security check each month.

    The current CPI-U/W COLA doesn't even cover the annual premium hike for Parts A/B/D that recipients pay out of their Social Security benefit. And premium hikes, co-pay hikes & deductible hikes occur every year whether there's a COLA benefit hike or not.

    The Chained CPI must be stopped.

    •  CPI-E < CPI-W Today (0+ / 0-)

      From BLS:

      Although the CPI-E generally outpaced the official measures of inflation over the 1983–2011 timeframe, recent trends show different results. From 2006 to 2011, both the all-items CPI-E and the CPI-U rose at an average annual rate of 2.3 percent, while the CPI-W increased 2.4 percent. This turnaround was caused primarily by changes in the relative inflation rates of medical care and shelter, compared with the overall inflation rate. Specifically, the gap between medical care inflation and overall inflation has generally fallen since 2005, and shelter inflation has been rising slightly more slowly than overall inflation over the 2006–2011 period.
  •  Not a cut in SS benefits ... (0+ / 0-)
    According to the Social Security Administration, people in that position had an average initial monthly benefit of $1,435, or $17,220 a year. Under the cost-of-living-adjustment formula and 2012 inflation, that benefit be up to $1,986 a month in 2013, or $23,832 a year. But under chained CPI, the sum would be around $1,880 a month, or $22,560 a year. That’s a cut of over 5 percent
    No, it is not.  The change from $1,435 in 2000 to $1,880 in 2013 is an increase, not a cut, in SS benefits.  It is a smaller increase than would have been the case had annual adjustments been made based on CPI-W, but it is certainly not a cut.
  •  Well, true but ... (0+ / 0-)
    The group getting the biggest tax hike is families making between $30,000 and $40,000 a year. Their increase is almost six times that faced by millionaires.
    Yes, a chained CPI-based tax increase would indeed be regressive, with disproportionate impact on poorer Americans.  But just to clear, the author here is talking about tax hikes in % terms, not $ terms.  The $96 tax increase faced by the $30-40,000 family is certainly a larger % of both income and taxes paid than the $1,300 tax increase faced by the millionaire, but the $ changes is obviously much smaller.

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