Trends

DRUG POLICY CHANGES?

In recent months, the Federal Government has been doing flip-flops with regard to possible drug law changes, raising various trial balloons regarding relaxation of the "new prohibition" of the 1970's. In November then-Attorney General William Saxbe said at a news conference that he would "welcome a change in the marijuana laws, but not for hard drugs. If the state legislatures and Congress see fit, I'm not going to fight it." However, in December, addressing a California Conference on Criminal Justice, Saxbe appeared to have changed his mind, saying that "legalizing marijuana would pose not only a law enforcement problem but a public health problem as well, and the nation already has too many public health problems from other substances."

Meanwhile, Dr. Robert L. DuPont, director of the Special Action Office for Drug Abuse, told the convention of the National Organization for Reform of Marijuana Laws (NORML) that "people shouldn't be put through the criminal process for possession" of small quantities of marijuana. Citing new research data on possible health risks, DuPont urged the retention of public programs to discourage marijuana use, but without resorting to criminal penalties. A test of this approach was then announced for the District of Columbia by U.S. Attorney Earl J. Silbert, who told the D.C. Police Department that his office would no longer prosecute persons arrested for possession of less than five joints or one gram of marijuana in any other form. D.C. Police indicated they would no longer make first-offense arrests in such cases. But on the evening before the plan was to go into effect (Dec. 1) Silbert cancelled the order, reportedly under pressure from Saxbe and Police officials. Whether Saxbe's recent departure from office will permit the plan to be reinstated remains to be seen.

No such trial balloons are being issued yet with respect to such drugs as heroin, but the Federal Government is becoming increasingly aware that its costly war on drugs is not being won. "A year ago we had talked about turning the corner," DuPont noted in December, "but now…I don't think realistically we can talk about ending the problem." His office has computed the "social cost" of drug use and heroin addiction at some $10.3 billion—all but $1.7 billion of which is directly the result of government laws and programs: $6.9 billion in property crime (due to high government-caused black market prices for drugs), $1.1 billion for government antidrug programs, and $620 million for criminal justice personnel to process drug cases. (The other [nongovernment] costs include $1.5 billion in lost productivity and $200 million in health care costs.)

A radical, but sensible, answer to these costs was recently endorsed by the City Council of San Anselmo, Calif. By a 3 to 1 vote the Council asked the legislature to drop all criminal penalties for drug use, noting that "We have had drug use for as many centuries as you care to go back, but we never had a drug problem until many drugs became illegal in the 1900's."

SOURCES:
• "U.S. Shift on 'Pot' Policy Seen," AP (Washington), Nov. 15, 1974.
• "Saxbe on Marijuana Legalization," Review of the News, Dec. 18, 1974, p. 13.
• "Marijuana Arrests Curbed in U.S. Capital," AP (Washington), Nov. 17, 1974.
• "Relaxed Drug Rules Canceled in Capital," AP (Washington), Dec. 1, 1974.
• "Heroin Use in U.S. on Increase Again," Philip Hager, Los Angeles Times, Dec. 13, 1974.
• News item, Los Angeles Times, Nov. 28, 1974, p. 2.

INDEXING TAXES

There has been much controversy about the concept of "indexing," whereby prices, wages, and other dollar-denominated items would be periodically adjusted for inflation. Critics maintain that such a plan would tend to institutionalize inflation, rather than simply countering its effect. There is one area, however, where the concept has great merit: taxes. At present, the Federal Government profits handsomely from inflation because, with progressive tax rates, taxpayers tend to be continually pushed into higher tax brackets. Thus, the real rate of taxation increases as inflation proceeds.

To remove this incentive to Government irresponsibility, Sen. James Buckley has introduced legislation to link Federal tax brackets, personal exemptions, asset depreciation and capital gains, and new issues of Treasury securities to the Consumer Price Index. By automatically adjusting all these items to compensate the victims for inflation, the Government would be denied its inflation dividend. Buckley's bill has drawn support from Senators William Proxmire and George McGovern.

A similar plan was put into effect in Canada in 1972. The program links tax rates and exemptions to the Canadian price index for the taxable year. The system has not halted Canada's inflation, but it has benefitted taxpayers, and may well have held down the growth of government spending. Finance Minister John Turner points out that tax increases in the future will have to be openly legislated because government will no longer have the "hidden and automatic" increased revenues which results from inflation under a conventional progressive tax system such as that of the U.S. If inflation is the "cruelest tax," this plan provides a first step towards its repeal.

SOURCES:
•"De-Indexing the Government," Wall Street Journal, May 6, 1974, p. 16.
• "Canada Soothes the Pain of Taxpayers Stung by Inflation," Don Shannon, Los Angeles Times, June 30, 1974.

CHALLENGING SOCIAL SECURITY

The last few months have seen an increasing number of articles in newspapers and magazines pointing out what many libertarians have noted for years: the Social Security system is headed for disaster, brought on by unsound actuarial practices, changing demographics, and growing resentment of its onerous tax burden. In 1950 there were 12 working taxpayers for every retired recipient; by 1960 there were only 4 workers per retiree, and the figure is now down to 2.5 per retiree and headed much lower, due to increasing lifespans and declining birthrates.

Far-sighted individuals are seeking a way out of the system. One approach is to claim religious exemption as a minister, member of a religious order, or Christian Science practitioner, using IRS Form 4361. However, this form permits exemption from S.S. taxes only for those earnings connected with performance of religious duties. A broader approach is to request exemption, also on religious grounds, using IRS Form 4029. To use this form you must be a member of a "recognized religious sect" with "established tenets or teachings" that make its members "conscientiously opposed to the acceptance of the benefits of any private or public insurance payments"—including those of Social Security. The IRS further requires that HEW establish that (1) the sect has such teachings, (2) the sect or its members have an established practice of taking care of their dependent members, and (3) the sect has been in existence continuously since Dec. 31, 1950. Thus, Form 4029 is intended to be limited to a few, established sects, and applies only to self-employed members of such sects.

A variety of innovative legal challenges to this limited set of grounds for exemption is under way. These cases include the following individuals:

• Dr. Robert S. Jaggard of Oelwein, Iowa, a self-employed physician, has filed Form 4029, claiming his sect to be "Christianity" and that it meets all the requirements set forth by the IRS. Jaggard plans to fight the IRS when they attempt to deny him the exemption. He has already renounced all Social Security benefits and claims he will cease making quarterly payments when his next one falls due on April 15.

• Self-employed accountant Lloyd Taylor of San Francisco has founded the Libertarian Religious Order and filed Form 4361 to exempt his income from S.S. taxes. On April 8, 1974 the form was approved by the IRS. Taylor also suggests filing Form 4029 and challenging the current restrictions as discriminatory against recently-founded religious groups.

• Self-employed tax consultant James Davidson has filed Form 4029 on grounds of nonreligious conscientious exemption, citing cases exempting men from the draft on nonreligious, moral grounds. After seizing funds from Davidson's bank account the first year, the IRS relented after he threatened court action on the case, rather than run the risk of a precedent-setting court decision.

• Patrick Heller of Pontiac, Michigan has recently notified the IRS and Social Security Administration that he is seeking exemption from Social Security on nonreligious grounds, as an employee. Heller argues that there is no basis for the present discrimination between employees and self-employed persons in seeking exemption. So far Heller's status is unclear, as the government has not yet responded.

These four cases hold the prospect of a way out for millions of people who would rather provide for their own retirement than be forced to participate in the government's increasingly shaky chain letter.

SOURCES:
• "Social Security's Solid Base Is Slipping Away," Jack Anderson syndicated column, Nov. 10, 1974.
• "Oelwein Physician Will Stop Paying Tax," Dale Kueter, Cedar Rapids Gazette, Nov. 10, 1974.
• "Anti-Social Security," Shirley Scheibla, Barron's, Jan. 21, 1974.
• Press release, Lloyd Taylor, CPA, November 1974.
• Press release, Patrick A. Heller, Dec. 20, 1974.

NATIONAL HEALTH INSURANCE: NEW QUESTIONS

A new and prestigious voice has been added to those questioning the wisdom of a National Health Insurance (NHI) program. The Institute of Medicine (IOM) of the National Academy of Sciences has raised important questions about the likely side effects of such a program. IOM's principal concern is that NHI "would induce more and more people to opt for highly expensive and elaborate forms of treatment such as extra tests, unnecessary surgery, and elaborate terminal care." Over the long term, the effect would be an over-investment in technology-intensive procedures, draining away funds and personnel from lower-cost care. IOM economist Herman Somers therefore recommends that expensive, high-technology procedures such as kidney dialysis should be included under NHI coverage.

A stronger point of view has been put forth by economist Martin Feldstein of Harvard. Feldstein predicts that any NHI plan in which patients make no or very low out-of-pocket payments will have the same long-term effect of encouraging expensive types of care. Feldstein points out that today's private insurance plans, which generally require an out-of-pocket expenditure of 20 cents for each dollar of care received, make doctors and patients very sensitive to ability to pay, in terms of selecting treatment alternatives. "Once you take the price [to the patient] down to zero, the top just blows off," he maintains.

Somers points to the example of the inclusion of Kidney dialysis in Medicare, by a 1972 Congressional decision. This provision initially cost taxpayers $135 million a year, but is expected to cost $1 billion per year by 1983. Likewise, demand for Medicaid was vastly underestimated; the original estimate of $258 million per year has mushroomed to an actual expenditure of $10.5 billion annually. Fortunately, responsible medical experts are making these points now, while NHI is still being debated; hopefully, this information may prevent a costly repetition of medical history.

SOURCES:
• "National Health Insurance: Will It Promote Costly Technology?" Deborah Shapley, Science, Nov. 3, 1974, p. 423.
• The Rising Cost of Hospital Care, M.S. Feldstein (Information Resources Press), 1971.
• Disease by Disease Toward National Health Insurance? (Institute of Medicine), 1973.

MILESTONES

Economic Controls. Sen. William Proxmire, vice chairman of the Joint Economic Committee, has denounced economic controls as a "cruel joke" and an "economic nightmare." In a speech on the Senate floor, Proxmire pointed out that controls have been tried and have failed. Bucking the Democratic Party leadership (which has recently endorsed comprehensive wage and price controls), Proxmire warned that "the economy may be on the verge of a permanent economic straitjacket" if across-the-board controls are implemented. The reason for this danger is that there is never a "right" time to remove controls, so as to prevent a post-controls wage and price explosion; hence, there would be a strong temptation not to remove the controls at all. (Source: "Proxmire's Emphatic 'No' to Controls," Los Angeles Times, Dec. 6, 1974)

Bureaucracy. A highly-paid Federal bureaucrat has proposed the abolition of the commission he heads—including his own job—because he's convinced that it is a waste of the taxpayers' money. Robert D. Moran heads the three-member Occupational Safety and Health Review Commission, set up as a body to review decisions made by OSHA. Moran says the Commission's work generally affects only the size of the penalties, not the substance of the cases, and could be handled by the chief administrative judge instead. Abolition of the Commission and its staff of 44 would save about $1 million per year, Moran estimates. (Source: "U.S. Job-Health Official Would Abolish Own Job," Newhouse News Service (Washington, D.C.), Nov. 22, 1974)

Regulations. The Transportation Department's automobile bumper standards are due to be reduced under a plan made public in December. The revised standard would reduce the bumper's impact speed from 5 mph to 2½ mph. Auto makers have estimated that such a change would save in the vicinity of $125 per car in initial cost, and reduce a typical car's weight by 100 pounds, thereby improving fuel economy. Although low-speed accident repair costs would increase, high speed accident repair costs would go down, averaging a $30 saving over the life of an average car. (Source: "U.S. May Ease Car Bumper Rules to Reduce Costs and Save Fuel," Dan Fisher, Los Angeles Times, Dec. 28, 1974)

Privacy. Banks in California can no longer allow law enforcement officers to examine or seize bank records about individuals or businesses without a warrant or court order, according to an end-of-year ruling by the State Supreme Court. The Court ruled unanimously that allowing unlimited access to a person's financial transactions "opens the door to a vast and unlimited range of very real abuses of police power." The Court also stated that customers have a "reasonable expectation" that banks would treat checks, statements, and other financial records as confidential. (Source: "Supreme Court Upholds Privacy of Bank Data," Philip Hager, Los Angeles Times, Dec. 28, 1974)