Waiting For Congress to Increase Taxes Again

Right From the Start

Time is running out for the so-called congressional super-committee. The hang-up continues to be tax increases – Democrats want them, Republicans don’t. The Democrats, led by Sens. Patti Murray (D-WA) and Charles Schumer (D-NY), have said that they won’t consider cuts to entitlement spending unless Republicans are prepared to accept a $1.3 Trillion tax increase. Republicans have said that it is time to bite the bullet and begin to consider wholesale changes in the entire entitlement process.

Let’s be clear. The Democrats do not want to raise taxes as a means to reduce the deficit; they want to raise taxes so that they can spend more. The proof lies in their own actions.

First, President Barack Obama has proposed a $3 Trillion deficit reduction program. That’s $3 Trillion over ten years – mostly back end loaded. Half of that is a $1.5 Trillion tax increases. $1 Trillion of that comes from eliminating our presence in Iraq and Afghanistan – a number that can only be calculated by assuming that our presence in both countries will continue at current levels (increased by inflation) for the next ten years. The numbers are bogus because Mr. Obama has already announced the complete withdrawal of troops from Iraq by the end of December. He has also announced a substantial draw down of 33,000 troops by next July and a complete withdrawal by 2014. That means that the “savings” are already included in budget projections and that Mr. Obama is “double counting.” The final $500 Billion comes from Medicare cuts – cuts that are in addition to the $500 Billion Mr. Obama has already embedded in his Obamacare program. If Mr. Obama manages to actually effect $1 Trillion in Medicare cuts, the net result will be that the best physicians will simply stop providing services to Medicare patients (in Oregon that number is already near 50%) and senior citizens will be left to the mercies of the barely able.

Oh, then there is that pesky $450 Billion that Mr. Obama wants to spend on “Stimulus II.” Mr. Obama justifies it by saying that it will preserve jobs for teachers and public safety workers. He said the same thing for his first stimulus program but in reality it simply gave raises and increased benefits to existing teachers and public safety workers. Mr. Obama simply imposed a recurring cost increase from a one-time stimulus payment and subjected cash-strapped states to higher costs with declining revenues. That is always the case when funding recurring costs with one-time revenues. And now Mr. Obama wants to make a bad situation even worse by once again increasing recurring costs (salaries and benefits for public employees) with yet another one-time cash infusion.

Mr. Obama and his fellow Democrats know that in doing so, they are then positioned to argue in the next fiscal year that taxes must be raised to “avoid layoffs” when in fact the potential layoffs are solely the result of artificially inflated salaries and benefits. That being the case, Mr. Obama’s $450 Billion “Stimulus II” becomes a recurring cost – one that equals close to $5 Trillion over the next ten years. Sorry, Mr. Obama – there’s no deficit reduction in your program – just an opportunity to increase the size and cost of government. So the net effect of Mr. Obama’s deficit reduction plan is to raise taxes by $1.5 Trillion and raise expenditures by $5 Trillion.

Second, Congressional Democrats have steadfastly refused to accept spending caps in exchange for revenue increases. The net effect of that is that they want to be free to spend the increased revenue on recurring programs instead of deficit reduction. The illusory deficit reduction program that Democrats proposed is only as good as its first year. Thereafter they are free to continue spending increases just as they did when they regained control of Congress in 2007.

All of this is played out against the penchant of Mr. Obama and his fellow Democrats to engage in class warfare. His demand that “millionaires and billionaires should pay a little more” to help the country in a time of need is hypocritical. Wall Street traders and megabank executives who supported Mr. Obama in the last election and are lining up to do it again this election have made more money under Mr. Obama than they ever did under President Bush. It is as hypocritical as Mr. Obama’s recent admonitions to the Europeans over the dangers of deficit spending and increased deficit. Mr. Obama might be mindful of Michael Jackson’s ode that change begins with the man in the mirror.

As a conservative, I am adamantly opposed to giving politicians even more money to waste. But because of the stalemate and hypocritical posturing that is going on in our nation’s capitol, I am prepared to accept a “surtax on the wealthiest Americans” – those making more than $1 Million a year. But it comes with strings.

First, the revenue derived from the “surtax” would be used solely for retiring the principle of the existing deficit – no portion would be available for paying the interest or funding new debt.

And second, the deficit would be capped at the current level of $14.3 Trillion and thereafter be reduced by the amount of principle retired by the surtax. This would continue until the deficit was reduced to fifty percent of Gross Domestic Product (GDP) or the budget was balanced for two years in a row. In either of such events, the surtax would sunset. Unless you cap and reduce the debt, Congress would be free to simply replace old debt with new debt – that’s what is happening in Greece even under the Eurozone bailout plan and ensures the eventual downfall of Greece.

While I am quite certain that Mr. Obama and his fellow Democrats would never accept the fiscal discipline required in this proposal, this would be one instance in which a tax increase might produce a salutary long term benefit for a short term inequity.

Unfortunately, the more likely scenario is that a handful of Congressional Republicans will cave in to the Democrats and increase taxes without any concessions as to real long term deficit reductions.

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Posted by at 05:00 | Posted in Economy, Federal Budget, President Obama, Public Employee Unions, Taxes | 39 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Bob Clark

    I suspect the Occupy XXXr movement is really partially funded by Stimulus I funds. Obama created a slush of hundreds of billions of dollars back in ’09 with the intention of using it for his re-election.  Of course, Occupy XXXrs are all about class warfare and envy, and they also give reason for the wealthy to fund some token increase in welfare and other entitlements.  The wealthy feel a larger threat of rebellion; and therefore, they look for perceived populists like “snake oil” Obama who can help quell uprisings, which he ironically also helps stirs.

    Nobody should trust this tax-now-and-cut-spending-later scheme of the Democrats…it’s pure snake oil.  That said, I think there are some gentle ways to chip away at the budget deficit.  A big one is to go to a lower cost of living adjustment mechanism for social security and government employee pensioneers.  I think this might be politically palatable.  A recent weath study finds folks 65 and older have a median level of wealth 49 times greater than those folks 35 and younger – one of the highest ratios in our history.  Moreover, older folks (myself included) should not get as many retiree benefits as these benefits were probably over calculated when we were back in the economic bull market running from year 1983 to year 2000. A slower inflation adjustment to pensions would be a gentle way of adjusting pension and social security benefits downward to actual investment yields.

  • Rupert in Springfield

    With the disparity of wealth between our richest demographic by age, seniors, and the poorest, the 20 somethings, at its highest levels ever, you would think maybe we could consider cutting entitlements. It is insanity that one generation should reap windfall profits at the price of everyone else.

    Of course you would also think that the idea of raising taxes now and promising to cut spending, or growth in spending later on would be utterly laughable. Some will continue to argue this absurd approach is negotiating in good faith. It isn’t and everyone knows it.

    • 3H

      So, cut entitlements at the top end (seniors) — and I’m assuming by means testing?  Cutting Medicare and SS for seniors who have no other retirement or savings would just be cruel.

      Would you suggest increasing entitlements for the younger age groups?  Provide more coverage through Medicaid, WIC, TANF, etc..??

      • Rupert in Springfield

        Good Lord I cannot believe it. Knock me over with a feather, we have some agreement and done so in a non insulting way.

        >So, cut entitlements at the top end (seniors) — and I’m assuming by means testing?

        Yes.

        >Cutting Medicare and SS for seniors who have no other retirement or savings would just be cruel.

        Yes

        >Would you suggest increasing entitlements for the younger age groups?
         Provide more coverage through Medicaid, WIC, TANF, etc..??

        No, what I would support is means testing of current retirees so that current workers do not receive a negative return, as projected, in order to subsidize windfall returns for current retirees.

        • Emm3tt Hall

          I’m not saying I agree.  I just wanted to make sure I understood where you were going with your comments.

        • 3H

          I’m not sure if what current retirees get would be considered a windfall.   Median income is higher for the younger 35 age group compared to the older than 65 group.  What is interesting is that in 1967, approximately 33% of those over 65 lived in poverty – that has dropped to 11% in 2010.  It seems to me that SS and Medicare work as planned.   Younger in 35 as risen from 12% living in poverty up to 22% in 2010.   So there is a shift.  Part of that may be a bump in the last 5 years because of poor employment figures (in 2007, it looks like the percentage was somewhere around 17%).  

          Part of the wealth disparity is no doubt due to the debt incurred as student loans.   I wonder how those numbers play out if that was factored out. 

          • 3H

            Forgot to include my source:  https://www.pewsocialtrends.org/2011/11/07/the-rising-age-gap-in-economic-well-being/3/#chapter-2-income-poverty-employment?src=prc-section

          • Rupert in Springfield

            >I’m not saying I agree.  I just wanted to make sure I understood where you were going with your comments.

            Ok, well, thats better than nothing.

            > I’m not sure if what current retirees get would be considered a windfall.

            By any comparison it would. For current retirees they get back what they put into SS in just a few years, after that its pure profit.

            Where does that profit come from?

            Well, current workers, who are projected to see a negative return on SS, in other words they will get back less than they put in.

            Getting back what you paid in and then earning a profit on the backs of those who never will would be considered a windfall in comparative terms

            This is doubly cruel because SS and Medicare taxes on current workers are far more that anything current retirees ever paid.

            That’s just simply wrong and there is no way to defend it.

            Means test these programs now. It is obscene to be paying out huge returns to current retirees and raiding the retirement of current workers to do so.

            >Median income is higher for the younger 35 age group compared to the older than 65 group.

            A household of older Americans is now are worth a staggering 47 times the net worth of a 35 year old one. This is the highest in history. Older Americans are the richest demographic by age. Current retirees see a net profit on SS, current workers will see a net loss.

            I’m sorry, there is simply no way you will ever be able to make the case that this is just.

            >It seems to me that SS and Medicare work as planned.

            You could make the case that it has. I sure would for current retirees. Medicare and SS have enabled one generation to live remarkably well.

            However that livng well has been at the expense of everyone else. Taken as a totality, as in considering future retirees not just current ones, the programs would be considered an incredible failure. Take SS first.

            SS guarantees a loss of return to current workers. In other words a substantial portion of their paychecks, that could have paid for a comfortable retirement if invested otherwise, is put into a system that guarantees a net loss. That is failure by any measure.

            Medicare isn’t much better. By 1990 the system costs ten times what it was projected to. That’s an incredible number. Due to that it is currently the front runner in terms of entitlements that are bankrupting the country. It has been a success for the beneficiaries perspective, but in terms of the nations health its been a complete failure.

            The amount this country spend on older Americans is huge. Other than education spending, SS and Medicare dwarf everything else.

            It is time to means test these programs now. To not do so, simply so one generation can live at another expense is completely indefensible.

          • 3H

            Actually, as it turn outs, there is no windfall for Social Security – 

            “A male earning the average wage throughout his working life who retires in 2010 paid $55,000 into the Medicare trust fund, but is likely to receive $161,000 worth of Medicare benefits, the Urban Institute found. In contrast, he pays $290,000 in Social Security taxes throughout his career and collects $256,000 in retirement payments.”

            https://money.usnews.com/money/blogs/planning-to-retire/2011/01/06/will-you-get-back-your-social-security-taxes-in-retirement

            The numbers vary for women and couples…   but..  where the elderly get the most bang for their buck (windfall if you will), is in Medicare.   There they pull out much more than they put it.  Which is not altogether surprising — people need more medical care as they get older.   

            Capping health care for the elderly to the amount they paid in seems like the ultimate death panel.  And, fortunately for everyone, we can just shrug our shoulders and say “Gee.. sorry gramps, it’s not my choice, just the way the system works.  

            To recap – unlikely there is a SS windfall.  There is a Medicare windfall.  Just like an other insurance you buy but don’t use.  All those people who get payouts from your insurance company, are getting it on your dime.

        • 3H

          Here is an interesting quote from the report.  It’s not entitlements that have caused the gap in wealth, but home equity:

          The importance of home equity in pushing up the net worth of older American households can be demonstrated by analyzing trends for net worth other than home equity. If it had not been for home equity, the median net worth of older American households in 2009 would have been 33% lower than that of older households in 1984, instead of 42% higher. 

          https://www.pewsocialtrends.org/2011/11/07/the-rising-age-gap-in-economic-well-being/1/

    • 3H

      One other point worth making.. as you attack the older entitlement crowd, be warned, they are more likely to vote Republican than the young.   Get serious about cutting SS and Medicare — and see how fast you can lose them.  😉

      https://www.people-press.org/2011/11/03/the-generation-gap-and-the-2012-election-3/?src=prc-headline

      • Rupert in Springfield

        The idea that touching entitlements is political suicide is not exactly a revelation, nor a point much worth making. Everyone knows cutting these entitlements is politically unpopular.

        My point was not about what is the right thing to do politically.

        My point was about what is the right thing to do.

        Obviously you and I come at it from two different perspective in that regard.

        I would say with your view, doing what is politically popular, you will largely win. I doubt very seriously there will be any substantive change in these programs any time soon.

        In the long run though I would imagine the young children of today will largely revile the current generation and its political leaders. A baby born today faces a lifetime of servitude due to these decisions. Its future ruined by massive tax rates to pay the debt of our current folly.

        You will get the votes of today, but I think it very likely what is clever today politically will be seen as probably the most evil political decision made in our countries history.

        • 3H

          My point was not about what is the right thing to do politically.

          My point was about what is the right thing to do.

          LOL.. so you do understand OWS!

        • valley person

          Nonsense Rupert. Most young working people today don’t begrudge supporting their elders. I suspect they just want a bit in return, like their elders (especially the ones with more money) chipping in more for education so the youngers don’t have such high debt service, which their elders did not have because THEIR elders actually funded education.

    • Ardbeg

      Careful, sounds like class warfare.  Take from the old and give to the young.

      • Rupert in Springfield

        You have a complete reverse understanding of how SS and Medicare are paid for.

        Current workers now, the young, pay for current retirees, the old. SS and Medicare have always been pay as you go.

        Money is taken from the young to give to the old in the current system.

        In other words – If you come up to me on the street and ask for $10, and I refuse to give it to you. That doesn’t mean I have taken $10 from you.

  • Richard Leonetti

    Everyone should remember that all income taxes automatically go up on Jan. 1, 2012 when the tax cuts expire. This certainly cannot be forgotten.

    Also, buried in the Health Care bill is a new 3.8% social security tax on investment income for some taxpayers. This is no small increase for high earners.

    So a deal now that killed these changes and replaced them with a tax increase by way of fewer loopholes and lower rates, and reduced entitlements in the ratio of $4 in cuts to $1 in new taxes might not be so bad. Right now government employees pretty much across the board receive very large pension and health care amounts that are not available in the private sector and are tax free. Plugging loopholes like this, with a corresponding lowering of rates, would broaden the tax base and make it more fair.

  • valley person

    The Democrats have an offer on the table, which is roughly 1$ in cuts for $1 in raised taxes. If my math is correct, that equates to $2 in deficit cutting. In other words, they have not proposed new spending.

    If Republicans really want to cut the deficit, take the offer or make a serious counter offer. 

    • Ardbeg

      “If Republicans really want to cut the deficit”  Really? When was the last time a republican didn’t run a deficit? Or was even worried about it?  I can’t think of one.  I’ve said it before and I’ll say it again: GOP=cut taxes, borrow and spend!  Even RR understood the need for higher taxes on the rich to cure deficits.  Most of the current republicans forget this. The Republican Party has totally abdicated its job to act as the guardian of fiscal discipline and
      responsibility.  They are more concerned about restricting marriage and abortion than doing anything useful. Once again we have no viable choices for president, Perry tonight couldn’t even remember 3 talking points during the debate.  Maybe he should have pulled a “Palin” and written them on his hand. Pathetic!

      • Cassandra R.F.

        The “cure” for deficits in not higher taxes and it doesn’t matter what political party advocates it.  The “cure” is to stop spending and to live within our means, just like all the rest of us have to do every day in our personal lives.  And we can’t just stop spending, we have to cut back spending so that our debts can be paid.  Do you really believe that bringing in more tax dollars motivates big government advocates to do anything but spend every dime of it?  And how does raising taxes change the Washington D.C. culture that believes that borrowing from the Chinese and printing money means they never have to say “no” to anyone with their hands out asking for more?  Spending money we don’t have is the root cause of the deficit and so now you think putting more money in the piggy bank is going to bring about fiscal responsibility?   You are dreaming, my friend.   The voters and responsible legislators need to cut these big spenders off and who cares what political party they belong to!  We need to get back to the basics of what the government provides to its citizens and figure out an equitable way to pay for it.  I am sick of the class warfare and hearing about how the rich are getting richer, blah, blah.  People are getting richer because they get up earlier in the morning and go to bed later at night than the rest of us.  So what!  It is not taking anything away from me.  The only people taking something from me are all the lazy butts who don’t think they need to get an education and work hard to make it in this world, but who now expect me to pay to feed them and their kids, give them free medical care and houses they cannot afford to pay for and a completely free ride when it comes to paying taxes to support the services they use far more than I do.  And people like you sit around and acted insulted because some candidate wrote something on the back of their hand years ago.  You are one who is pathetic!

        And, yes, I do know that the banks got bailouts, but guess what, they paid the money back – so let’s all be offended about that, shall we!

        • valley person

          ” People are getting richer because they get up earlier in the morning and go to bed later at night than the rest of us. ”

          You really think Paris Hilton puts in a longer day than the average fire fighter or cabinet maker?

          • 3H

            Or packages risky mortgages that they lie about.  Or make money shifting money around without creating anything of note in the process.  Or, as you alluded to, inherit their wealth. Or keep their employees at the lowest possible wages and minimal, if any benefits.  Or, ships their jobs overseas to factories that employ sweatshops. Or…..

          • Cassandra R.F.

            Well, let’s see.  Why do you suppose these smart business people were giving “risky” mortgages to borrowers?  Hmm.  “Risky” to me strongly suggests that the chances are the mortgage is not going to be repaid.  So why would anyone be giving mortgages to borrowers who probably were not going to repay them?  Would you do that?  I wouldn’t.  So, since you are such a smart fellow, why don’t you find out the answer to that question and then maybe we can have an intelligent discussion about this.

          • 3H

            Except for the part where they lied about it.

          • 3H

            They were giving them to borrowers so they could bundle them up with all the other mortgages and make money.  Frequently hiding the fact that there was rot in the bundles.  Here’s a fact for ya: wealth (or the lack of it) is not necessarily an indicator of being smart.

            I wasn’t aware, from your postings, that you were interested in an intelligent conversation.  

          • valley person

            The answer to that question is well established. Lenders made high risk loans to anyone who could fog a mirror because they were all betting on ever increasing house prices. They then chopped and bundled these risky loans into opaque securities, paid the bond raters to give them triple A, and sold them to less sophisticated investors through various channels. Oh, and many of these crap packages were “insured” by companies that also were neck deep in bad loans. So when interest rates started to rise and zero down loans had to be paid, the house of cards fell over, and we all get to pay to clean up their mess. 

          • Cassandra R.F.

            And your point is what?  That someone who sits in the firehouse all day waiting for a fire to break out deserves to make as much money as a brain surgeon?  That the Hilltons did not work hard and risk their own money to build their hotel empire (and give alot of the rest of us jobs in the process)?  Or is it that those who make money are bad people because they give it to their children instead to the government to squander?  Don’t be stupid!

          • 3H

            How about a guy that rushes into my burning house, saves my family, deserves to earn more than a guy that makes tennis shoes.  Or a guy that does tummy tucks for hollywood actors.  Maybe a fireman deserves to earn more than someone who sells securities or runs a hedge fund account?  

            LOL.. “who sits in the firehouse all day.”   Tell me, how many hedge fund managers rushed INTO the twin towers instead of out?  

          • valley person

            No, my point is that most working people, including fire fighters, may not make a lot of money but that isn’t because they don’t put in the hours. Its because some work, even though quite important to society, isn’t all that well compensated.

            As far as comparing firefighters and brain surgeons, it takes different skill sets to be one or the other. The former risks their lives to save lives, and the latter is entrusted with the lives or health of others. Should brain surgeons make 10 times what fire fighters make? I don’t know. 

            As for the Hiltons, I don’t know their family history. I mention Paris as an example of a very wealthy person who is not rich because she gets up earlier in the morning. Quite the contrary by all accounts.

            If the Hiltons had given more money to the government to buy better fire equipment, wouldn’t that be better than having given it to Paris? 

        • 3H

          The only people taking something from me are all the lazy butts who don’t think they need to get an education and work hard to make it in this world, but who now expect me to pay to feed them and their kids, give them free medical care and houses they cannot afford to pay for and a completely free ride when it comes to paying taxes to support the services they use far more than I do.

          You say you’re sick of the class warfare, and then you jump right into it.  Either you are sick of the class warfare, and you’re not going to be a part of it, or, you continue to post, “The only people taking something from me…”

          But you don’t get it both ways.  It’s exactly the same thing as when people say “I don’t mean to be rude, but…”  Because they know they are being rude, and they do intend to.

          • Cassandra R.F.

            Since when are “lazy butts” a social class?  You apparently don’t know any hardworking poor people.  Well, I do and I saw hooray for them because the ones I know would cut off their right arm before they would ask for a handout.  And guess what else, they also know that their hard work is going to pay off and give their children a better life.  Wow, what a concept.  I said I am sick of people being villified simply because they are rich.  I am not into villifying people because they are poor either. The people who earn my disgust are the ones who refuse to help themselves and expect all the rest of us to take care of them and their problems.  We are Greece in the making if we don’t wise up.  And, if that is rude, then I do mean it!

          • 3H

            Now you’re just tap dancing.  And not very well either.  Oh, I know some hardworking people, and some of them happen to be working class.  Your whole contention was that rich people work harder.  Or at least that was your implication.   I don’t blame you for backing way from it – it was just silly.

            And I’m sick of people being vilified for being poor or needing help. Your complete and total lack of compassion or understanding says it all.  You have myopic tiny little view of the world.  

            How many people, in your estimation, refuse to help themselves?   I don’t believe a word of what you said, by the way, you’re changing your tune because you got called out on it.  

          • Cassandra R.F.

            Well here is the difference between you and me.  You hate rich people based upon the mere fact that they are rich.  You don’t care what they had to do to earn it; you don’t care whether they are good people, generous people or caring people.  You don’t care what they might have contributed to society, the economy, the common good.  You just want to toss all the rich people overboard, just because they are rich. And the worse part of all is that you have convinced yourself that the reason you need to hate them is that they have taken something away from you because they are rich and you are not.  Never mind, that you cannot say what it is that they have that ought to belong to you.  Now what sort of narrow-minded thinking is that?  To me that is no different than hating someone because of the color of their skin, because of their religion or becaue of their nationalist.  It is all bigoted hatred.  I have no similar feelings about people who are poor.  I have been poor as a church mouse myself at times.  You need to start judging people by who they are, not by how much money they have in their bank account.  

            There are certainly people on Wall Street and in government who helped cause the collapse and they deserve to be tarred and feathered.  And every person who walked into a bank believing they were entitled to get a new house for free or who kept refinancing their homes and siphoning out the equity to spend ought to go to jail with the rest of them.  From top to bottom in this mess, everyone believed what they wanted to believe about what they were doing.  Shame on the whole lot of them and shame on us for letting them do it.

          • 3H

            You see, I don’t hate rich people.  I think that’s where you get mixed up.  I think it’s a broken system that doesn’t reward labor more.  Those people that do the day to day drudge — the real heroes, in my book, of the capitalist system.  Without them, the rich wouldn’t be rich.

          • 3H

            So why do you think there are so many poor in this country?  Why do you think there are the poor at all?

          • 3H

            LOL.. why do you think Firemen are lazy?  Don’t you think that said something about your characterization?  You didn’t mention the benefits they provide to all of us, to you, evidently, they just sit around the firehouse doing nothing.

        • Ardbeg

          Cassabdra-wow! Not sure where to start.  You rambled a little there. I’ll try to be more concise. 1-I don’t think it makes me pathetic to be disappointed that presidential candidates can’t debate intelligently. 2-I STRONGLY agree with you that there is a serious spending problem but to think you can only make cuts to fix it is naive. 3-my biggest point of disagreement is “people who get up early and work hard….. “.  That approach worked fine in my generation.  This is the first time in my life time I believe there are barriers to success for the high school and college kids today. 
            Democrats have always been tax and spend.  My point was the GOP has become just like the Dems.  They talk a good game about “spending” but for the last 30 to 40 years are just as bad as their counterparts across the isle.

          • Cassandra R.F.

            Well you have it right when you say the political class is all the same, be they Dems or Reps.  Too bad we can scrap both parties and start over.  They are worthless.

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