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LJWorld.com weblogs Llama's Pasture.

Math and Corporate Taxes

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I just love hearing people who argue that the corporate tax burden in the United States is too high. GE, as an example didn't pay any corporate taxes in 2010, and was eligible for a refund, but there aren't any flaws in our system. People talk about the crushing 35-45% corporate tax rate, much of which is allegedly collected by the Federal Government, but let's throw out some truth. I did some number crunching, and by no means is this super scientific, but it's based on publicly available information. First, I set out to find out how much the federal government collected in tax revenue from corporate taxes in 2010.

$191.4 billion(1). Wow! That's a lot of money. About $1.7 trillion was paid by individual taxpayers between income and social insurance taxes as well(1), so the $191.4 billion doesn't seem like a lot.

Now, with a 35% tax rate, we can do the algebra: 0.35x = 191.4 billion. x/0.35 = 191.4 / 0.35. x = 546.9 billion. Thus, we would expect that American corporations profited approximately $546.9 billion in 2010.

What actually happened? Well, according to the New York Times, US corporate profits in 2010 were the highest ever at $1.659 trillion(2). To make it simple, I'll convert the billions to trillions. $191.4 billion actually paid= 0.1914 trillion. 0.1914 / 1.659 (actually made) = about 11.5%, which means effectively, the US has one of the LOWEST tax rates in the world for corporate entities(3).

References: 1- http://www.cbo.gov/ftpdocs/120xx/doc12039/HistoricalTables%5B1%5D.pdf 2 - http://www.nytimes.com/2010/11/24/business/economy/24econ.html 3- http://en.wikipedia.org/wiki/Tax_rate...

Comments

notajayhawk 3 years ago

"Nota who is so good and adds a lot of great commentary that is accurate and correct."

Not that it would have mattered in any way. Worth repeating:

"I'm not sure what you mean by this, but I'm prepared to counter." - camper

In other words, you're going to disagree regardless of whether or not you know what I said. Now that's great commentary.

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camper 3 years ago

Oh boy. I especially owe one to Nota who is so good and adds a lot of great commentary that is accurate and correct.

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camper 3 years ago

I am so sorry about the tone of my comments yesterday. I was being a royal jack ___. I meant no disrespect. I was having a bad day.

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jafs 3 years ago

According to a little research I did, the NYT statement was based on a statement from GE that they didn't pay any taxes because they didn't owe any.

Later on, GE changed that to they paid some and will owe some.

The flaw in the Times article was that they didn't specify federal corporate income taxes.

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camper 3 years ago

This comment was removed by the site staff for violation of the usage agreement.

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camper 3 years ago

"Those transportation expenses would have been deductible anyway as costs of doing business"

Not necesarilly because you can deduct state expenses against federal income taxes.Intra state taxes I'm willing to debate you on this because I have first-hand knowledge on how this works, Double dipping is what they call it in our profession.

"We tend to find what we're looking for. It's a heck of a lot easier for the driver of a fire truck to follow the plume of smoke than it is to find the particular address of house that's not burning"

I'm not sure what you mean by this, but I'm prepared to counter.

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camper 3 years ago

At best federal Corporate taxation is very fair. In particular, current net operating losses can be carried back 2 years if you had income in those years. You can waive this and carry these NOL losses forward five years (aginst future net income) if you resume profitabilty. To my knowledge, these rules do not apply to S corporations, partnerships and sole proprietorships. Treatment of investment is also favorable because of bonus depreciation rules for equipment acquisitions, thus allowing corporations to expense large percentages of these investments up front. Federal equipment lives are generally 7-years which is often shorter than the expected useful life most large equipment expenditures. Many corps also incorporate in Delaware, because the legal system (and legal costs I might) are much more favorable in that State. In my mind this is all good for multiple reasons.

On the downside, corporations also take advantage of loopholes by spinning off operations into subsidiaries which are very confusing and essentially just a paper change that allows corporations a loophole to multiply the advantages listed above....several times over. For example corp zzz shipping can deduct transportion charges to it's own company corporate zzz sales...which is essentially the same company, and the exact same corporation filed with the SEC and traded on the stock market. In essence, this is an artificial way to lower tax liability because a company can essentially report an accurate profit to Wall Street, while reporting lower income numbers to the FEDS. I might add this is also good for pricey tax consultants who clear these schemes with auditors. And a personal gripe of mine because it triples the work of staff who often see their work (and headaces) tripled to sort out these expenditures/revenues.

Furthermore, corprate executive and board salaries (not to mention stock incentives) make me feel on whole, that the benefits describe in the 1st paragraph are being abused. And as far as skill and talent, I've seen a lot of these big dogs come and go, take there parachute. Funny how when they leave, nothing really changes. Nobody notices (or cares) when they go. Things go on just as before. But when someone who knows how to fix a truck, run a factory line, generate sales, or by god fix the copy machine goes, chaos can ensue.

But believe me this is not always true. There are good and excellent executives.....but they are hard to find.

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George Lippencott 3 years ago

Group,

If corporations pay no taxes, it is because Congress wrote the tax code that way. If the rich pay inadequate taxes, it is because the Congress allowed it. If the tax code requires a small tractor trailer to haul around it is because the Congress wrote it that way.

We elect the Congress. Eight years ago, we gave the Republicans sufficient control to change it - they did not. Two years ago, we gave the Democrats sufficient control to fix it - they did not.

Harping on corporate taxes given the lack of any realistic probability that Congress will change things is stupid.

Recent tax increases have focused on sales (regressive) and property (proportional). There have been only tax cuts for corporations usually presented as job creation actions.

Reality is that we either tax the middle or cut a lot. Middle is getting tired of being taxed - see tea party.

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George Lippencott 3 years ago

LLama 726

"That's the top marginal rate you're talking about. The federal government doesn't collect anything near 35% of individual income in taxes, either. The amount of individual income tax collected is more like 10% of individual income."

Which is relatively insignificant, and proves that taxes aren't making the dramatic impact that some would have you believe. Thank you"

Ah, statistics distort reality again. Well, I suspect that depends if you pay federal income tax at all. About half the popurlation does not - drives down the avaerage quite a bit. Those who pay do so progressively until they make $350K then it is flat. The actual tax (not marginal) on a two wage earner couple making $130K is in excess of 20% depending on deductions. That when combined with property tax, sales tax, state income tax and some cats and dogs can yield a pretty significant contribution. I would consider such a tax rate dramatic given that those people have to pay for eveything else (no government help).

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tbaker 3 years ago

What strikes me JayHawk is the number of people who think our country is in a place where our politicians can talk about what government "should" do and utterly fail to grasp the gravity of the situation. They won't except the idea we no longer have the luxury of talking about what should be done. Our government has no choice but to focus on what "must" be done. I'm stunned by the number of otherwise intelligent people who simply will not accept the fact that time has run out. The government MUST act to drastically cut spending. Arguing about things that "should" happen presupposes that different options are realistically available. They are not. The government has run out of money. No amount of taxation can sustain current spending levels. It must substantially change or a series of very serious consequences awaits. No matter how obvious it is, people still refuse to accept this reality.

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tbaker 3 years ago

Llama726 says "both." Who thinks they are under-taxed? Who thinks the federal government can spend the money they work for and earn far more effectively than they ever could? Llama726 thinks I'm a facist but offers no basis for this judgement. I'm a libertarian, for what thats worth.

Taxes do not "have to" increase. If there is an absolute in this argument it is the need to drastically cut spending. If you had taken the time to study my example, you would see that even increasing taxes to 100% on the top bracket earners doesn't even begin to address the record-setting deficit spending. The only logic to support your argument has to be assuming the people of this country believe the deficit spending is buying us things we should rightfully be paying higher taxes for, instead of borrowing more money. I've yet to see a poll that indicates people believe they are under-taxed. How many people send extra money to the IRS?

We're running a $1.65 trillion deficit this year alone. I've demonstrated that even increasing taxation to the point 100% of wealth generated in the US is confiscated doesn't even begin to raise the money we need to address this level of spending. How you or anyone else can say tax increases are some crucial component to some solution to this problem - it simply defies all logic and is the clearest indication there is the propoent of such thought is either out of touch, or so blinded by liberal ideology they cannot grasp the fact our federal government is far, far too large and must be drastically reduced in size and scope. Reducing the size and scope of government is in direct conflict with core liberal / progressive principals.

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tbaker 3 years ago

Llama726 appears to be one of those folks who believe the evil, filthy, rich people are not paying their fair share of taxes. Well lets just look at the facts:

Less than half of all Americans pay income taxes, and that percentage is shrinking.

Of those who do pay income taxes, the top 50% of that group pays 90% of the income tax collected by the treasury. Sound fair to you? Squeeze harder you say?

In 2008 (latest data the treasury has) the highest marginal tax rate of 35% applied to all AGI above $357,700.00. In that year the total amount of AGI subject to the highest rate was $622.8 Billion. The government collected in taxes $218.0 Billion (35%).

The 2011 annual budget deficit will be nearly $1.665 trillion and in 2012 it will be $1.1 trillion. Now if the wealth envy crowd of liberals / socialists who believe we should turn America into a giant assisted living facility were to succeed in raising the highest marginal tax rate, how much more would the looters in Washington D.C. receive? Lets assume there is no change in government behavior and the population will make the same kind of money they earned in 2008, and has a general eagerness to pay more in taxes.

Raise the highest rate of 35% by a factor of 20% to 42%, then the additional tax revenue would be $43.5 Billion, which doesn't begin to close the deficit of $1.665 trillion. So, let's raise the rate by a factor of 50% to 52.5%; the additional revenue would be $108.9 Billion. Still nowhere near enough, so let's just tax the evil rich at a rate of 100% and confiscate everything they make! This brings in an additional $404.8 Billion. This still leaves the country $1.26 trillion in the hole for the 2011 year and adds to the national debt.

Face it: Our federal government has a very serious spending problem. It is much too large and involved in far too many things. It needs to shrink or there will be very serious problems in the very near future.

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notajayhawk 3 years ago

You know, I just love the people talking about 'taking advantage' of the 'loopholes' in the tax code. Is a homeowner 'taking advantage' of the 'loophole' for mortgage interest? Is a college student 'taking advantage' of the 'loophole' for education related expenses? Is a sick person 'taking advantage' of the 'loophole' for medical expenses? There is nothing illegal or inappropriate about minimizing your tax liability, whether you're an individual or a megacorporation. That's what the credits and exemptions are there for. How many of YOU tell your tax preparer you don't want a credit that's available to YOU?

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notajayhawk 3 years ago

llama726 (anonymous) replies…

"All of those things belong to all of us. I know you aren't going to advocate for them to be able to use all of that for no cost."

Um, sorry, but the rails don't belong to all of us, they're owned by private companies, not the government. Same with the electric grid. Pretty sure the government doesn't own the internet, either. Just as I'm pretty sure that a railroad won't transport their goods, the electric company won't keep their lights on, and their ISP won't continue providing access unless they pay their bills.

It's not unusual for facilities of large companies to have security and firefighting forces of their own, and to build their own access roads. But even if they don't, most of the things on your list are paid for through property taxes. (How much property tax do you think a megacorporation pays on an office tower in lower Manhattan?) Oh, and user fees - or did you think that when a megacorporation sues another megacorporation for billions of dollars in damages for a patent infringement, one side or the other or both are not assessed court costs? And they pay for roads and the rest of the transportation infrastructure the same way you do - through motor fuel and other fees for their own vehicles, and through the portion of the price of the products and services they purchase which is attributable to the cost of transporting those goods and services to them.

For the most part, regulatory bodies are funded by federal taxes, yes. But that's not always to a company's benefit, is it? Compliance with regulations and legislation can costs these corporations millions or billions of dollars. Not to mention that legislation and regulations often include provisions for the companies themselves to pay for enforcement of those provisions (e.g., in principle if not scale, charging a restaurant a fee for their health inspection).

Direct government contracts? Yes, the taxpayers pay for those. The taxpayers also receive something of value for their money, the same as you receive something of value for your dollars spent when you purchase a product at the store. And doesn't it seem just a little bit silly to say the company should pay more in taxes to cover the cost of purchasing the products it's selling? Imagine you're a supplier, maybe selling office goods or cleaning services to City Hall, and the city says 'We're going to raise your taxes - to pay for our office supplies or cleaning bills'!

Yes, they get tax breaks. So do you, but the reasoning behind most business tax breaks is that the business has a net positive financial impact on the area covered by the taxing authority, which for the most part can not be said about tax breaks, exemptions, deductions, credits, and loopholes for individuals.

So, um - who's using those things at "no cost"?

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notajayhawk 3 years ago

llama726 (anonymous) replies… "CEOs are often not in the office."

[sigh]

Jury duty. National Guard callups. Doctors' appointments. Traffic court appearances. Flu season. Maternity leave. Off-site trainings. Not to mention the rather mundane things like vacations, or hospitalizations. I didn't say "often". Do you really think that the vast majority of businesses don't have 0.3% of its employees absent - every - single - day?

And yes, CEO's are often out of the office. Not that it matters one wit, and that has nothing to do with board members, who, you don't seem to realize, don't work regular 40 hour weeks - the board meets irregularly, that's why they HAVE a CEO to make the day-to-day decisions. And guess what - that CEO can review reports and other documents that are faxed to him, or downloaded to his laptop or smart phone. He can interact with his subordinates, with his customers, with his suppliers, with local through federal regulators not only by telephone or e-mail, but by videoconferencing. In short, the CEO can do his job while home in bed with the flu, from the corporate jet while en route to one of their other facilities overseas, from his hotel room, and yes, even from the golf course or the beach in Maui. Can a factory worker operate his machine from home? Can a server wait tables from the doctor's office? Can a nurse take a patient's temperature from the beach? Other than certain technology heavy fields where telecommuting is feasible, can you think of ANY jobs that can be done by the 'average employee' when they're not at work?

"Some would consider a 1000-5000 employee firm a large corporation, and a 100k plus corporation essentially a megacorporation."

Regardless of whether or not that's true, it simply doesn't apply. It's not the companies with 500-1000 employees or 100K in earnings that are making 100-500 times what their employees make, it's only the GE's and GM's and other multi-billion dollar concerns in the S&P and Fortune 500's.

And again, seriously, llama - the level of responsibility is not even in the same solar system, even if we're talking about the concerted efforts of a single block of 500 workers. The impact of, say, a wildcat strike by all 500 employees at one of a megacorporation's subdivisions simply can not be compared to the potential consequences of a CEO's decisions (the elimination of that entire subdivision and those 500 jobs being just one of the day-in-and-day-out decisions he or she might make), who literally can affect the economy of the entire planet. Both the power and responsibility of the CEO is separated from that of the average employee by orders of magnitude.

You seem like a fairly intelligent and sensible person. I really can not understand why you're being so intransigent against accepting what should be as glaringly obvious as that the distance to the moon is greater than the distance from Lawrence to Topeka.

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camper 3 years ago

I know a friend who has a friend who knows a friend who has a brother in law who works for a large corporation. They have a nice way of getting out of taxes. Simply take your corporation and split it up into multiple "tax entities". This way you get all the deductions many times over and technically you still report to the SEC as one corporation. Nice. This is another reason why people don't like tax experts, because tho they think of all kinds of loopholes and schemes to dodge taxes, they make work harder and even more complicated for people in other departments because of all these multiple tax entities.

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notajayhawk 3 years ago

"What actually happened? Well, according to the New York Times, US corporate profits in 2010 were the highest ever at $1.659 trillion(2). To make it simple, I'll convert the billions to trillions. $191.4 billion actually paid= 0.1914 trillion. 0.1914 / 1.659 (actually made) = about 11.5%, which means effectively, the US has one of the LOWEST tax rates in the world for corporate entities(3)."

Don't know how I let THAT one get by before.

Um, Dave? That would be based on the rather mistaken assumption that other countries collect taxes at their full listed rate.

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independant1 3 years ago

we've come a long way baby!

the 1872 Congress abolished the federal income tax because it was no longer needed

Read more at Suite101: A Brief History of Federal Income Tax: From the First Tax Act to Taxation Today http://www.suite101.com/content/a-brief-history-of-federal-income-tax-a189425#ixzz1IM9kW7V9

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Tom Shewmon 3 years ago

GE: One of The One's BIGGEST donors. GE, who dodged millions in taxes from overseas hidey-holes and endless tax loopholes--what the looney left claims to deplore.

The left in effect support this with their support of The One.

May A God Suited To Your Very Own Twisted World Bless and......

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b22 3 years ago

If you want to have these companies pay more tax, then you can kiss any job growth goodbye. Without companies we don't have to worry about personal income tax. Why? because there are no jobs.....good riddance all you liberals

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LoganJohn 3 years ago

This is for the sports section. KC Chief RB Jamaal Charles is a candidate in a bracket at espn.com/maddenvote to be on the cover of Madden 12. He needs all the fan support that he can get to vote for him at that site. He already beat Tim Tebow in the first round. If you put this in the paper, then more fans would be aware this is happening.

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commuter 3 years ago

Don't forget multinational corporations have income paid at different tax rates in different companies. You may see 10 billion in net income and very little in income tax expense, the income may be taxed in a low rate country.

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overthemoon 3 years ago

Lets not forget corporations benefit and profit from those shared resources we all pay for--education, infrastructure, national defense etc etc. Why do they not help to pay for them? It is in their best interest to have excellent schools, affordable healthcare, trustworthy roads, sewers, and the protection of their shipments whether on land, sea or air.

They have recently gotten voting status thanks to Citizens United. While they aren't paying taxes, they are pouring billions into the purchase of our political system. And handing the working class an even larger share of the burden to turn the economy around.

One way of looking at it is a sizable portion of our taxes provide for the profits of corporations and their shareholders. And then we turn around and pay again when buying their goods or services and then we pay them AGAIN when they take control of our political system as our tax dollars pay the salaries of the politicians they purchased with billions of campaign dollars. I don't know what the math is, but I'm guessing we pay a higher rate to corporations than we ever do to the government.

And all the squawking is about 'Big' government. At least we have, or used to have, some say in the workings of government at the voting booth. That power of the American people is disappearing and not a much of a squeak from those who happily let this happen under the guise of conservatism.

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Liberty_One 3 years ago

Why should we tax corporations at all anyway? What will they do with the money? Many will re-invest it in the business, buying/building new factories, machines, offices, tools, trucks, ships, etc. What will the government do with the money? Use it to buy more missiles to blow up some country.

I think I'll take the extra commerce over extra war.

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autie 3 years ago

I could most likely understand that algebra up top but I'm in the 5/4's of all Americans that have trouble with fractions.

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jafs 3 years ago

According to something I heard on the radio the other day, about 2/3 of corporations pay no federal income tax at all.

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notajayhawk 3 years ago

Let's start with your terminology: "People talk about the crushing 35-45% corporate tax rate, much of which is allegedly collected by the Federal Government, but let's throw out some truth."

I think you'd be hard pressed to find anyone - anywhere - ever - that suggested the federal government "collected" anything approaching 35-45% of corporate income in taxes. That's the top marginal rate you're talking about. The federal government doesn't collect anything near 35% of individual income in taxes, either. The amount of individual income tax collected is more like 10% of individual income.

Next, it's ridiculous to lump in payroll taxes with the individual income taxes. Social Security and Medicare are counted as taxes, and the Supreme Court has ruled that they are taxes with no ownership rights to the money on the part of the tax payers, but in reality that money gets paid back out. It makes no more sense to count those in a discussion of income taxes than it does to count your Christmas Club deduction as a tax. Not to mention, corporations don't get to 'retire'. I.e., the government doesn't start sending them a monthly check when they reach a certain age until the business 'dies'. Omitting the payroll taxes, the number for individual federal taxes paid is less than $900 billion, on almost $9 trillion dollars of income. (And incidentally, that's adjusted gross income, which means income less the personal exemptions, less business losses reported on Schedule's C, E, and F, etc.)

Then we get to the fact that there are 300 million individuals in this country, and somewhat over 5-1/2 million corporations. And much similar to the situation with individual taxpayers, the bulk of the income, and the bulk of the taxes paid, apply to the less than 2% of those corporations that have revenues (yes, revenues, not profits) in excess of $50 million. And yes, that's right, only about 2% or less of corporations are even on the same planet, let alone the same income level, as GE. Roughly 55% of U.S. corporations have less than $250 thousand dollars in revenues.

There's more, but it gets pretty pointless. In short, you're complaining that since you don't get as much juice from a handful of apples as you do from a truckload of oranges, we're not squeezing the apples hard enough.

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Lee Eldridge 3 years ago

Hello Llama726. I'm curious if you separated out the different types of businesses and how their taxes are paid? For instance, an S-corp and a C-corp pay their taxes differently. With an S-corp, all "profits" are counted on the owner's tax returns, not the corporations tax returns. The S-corp doesn't pay income taxes. Same with an LLC, partnership and sole proprietorship. All taxes are paid through the individual's tax returns, not the company's returns (if the company files separately).

In order to have accurate information, you must ONLY compare profits vs taxes paid from C-corps to find the accurate corporate tax rate that is paid.

S-corps, LLCs, etc., pay taxes at the individual's tax rates.

The bigger problem with our corporate taxes (paid by C-corps) is that the gov't doesn't tax consistently. Some industries get tax breaks. Some industries get punished with extra taxes and fees (which are taxes). The gov't picks winners and losers through the tax code.

Personally I would do away with corporate taxes. But that's a discussion for another day.

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unwantedspork 3 years ago

I'd be interested in seeing a refutation for this. Probably that lower tax rates for corporations are more conducive to domestic job growth, but then we're told that labor laws and unions work against that.

The truth is, no tax rate is going to be low enough until we've buried ourselves into a corporate utopia where the only thing that can save a person will be some extra-strong bootstraps. National cultural consciousness dictates that lower tax rates gives incentive for talent, but with the current way our economy is structured, all you need is a large beginning of wealth to buy into an existing company. So we don't reward people for hard work as much as we reward them for head starts.

We worry about the inefficacy of government and put our faith in corporations, but we're digging a hole that no amount of 'immutable' economic laws will allow us to rise from.

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