Tax Revolt Update

Efforts to reduce or limit government spending continue to grow, around the country. At press time, tax-limitation measures have qualified for the November ballot in seven states: spending limits in Arizona, Colorado, Michigan, and Texas and property tax limits akin to California's Proposition 13 in Idaho, Nevada, Oregon, and Texas. Petition drives were still under way in Florida and Illinois, while such drives had failed in Utah and Washington.

State politicians were clearly on the defensive. The governors of Alabama, Maine, Nebraska, and Texas called special sessions of the legislature to produce tax reduction measures, and even the New York legislature passed a measure allowing renters to deduct part of their rent, as property tax, on state income tax returns. Minnesota House Speaker Martin Sabo told the National Conference of State Legislatures that the tax revolt poses "a very serious threat to the fabric of government," while California Assembly Speaker Leo McCarthy told a standing-room-only session that it would be a "serious blunder" to underestimate the movement's momentum.

Nationally, the Gallup Poll reported that 81 percent of the public favors a constitutional amendment requiring Congress to balance the federal budget each year. In an unexpected move, the Senate voted 58 to 29 to require a balanced budget by the beginning of fiscal year 1981. And the National Tax Limitation Committee announced the appointment of a 29-member panel to draft a constitutional amendment to limit federal spending. Chaired by economist Milton Friedman, the group includes former Council of Economic Advisors chairman Paul McCracken, former Commissioner of Welfare Robert Carlson, and Ford Motor Company chief economist William A. Niskanen. They plan to have the amendment drafted and ready for congressional action by January.

The tax revolt has even crossed the Canadian border. Prime Minister Pierre Elliott Trudeau announced in August that he was cutting $2 billion from the government's $50 billion budget and pledged to cut personal income taxes and reduce government intervention in the economy. These steps were being taken to stimulate the economy, Trudeau said, thereby joining the ranks of the ex-Keynesians.

Toward Medical Freedom

A host of current controversies revolves around the issue of medical freedom of choice. Both state licensing bodies and the federal Food and Drug Administration have traditionally held that people must be protected from what established authorities define as "quacks," even if their own judgment differs from that of the authorities.

Congress is debating one aspect of the issue in the form of the Symms bill (see "Regulations That Are Killing Us," p. 22). In California the Board of Medical Quality Assurance is also taking up the issue, at the instigation of member Michael J. Carella, a philosopher. Professor Carella thinks the law defining the practice of medicine in the state should be rewritten to face the issue squarely. "Can people choose a treatment we don't feel to be scientific?" he asks. To what extent "can we intrude upon people to protect them?"

The Board has been spurred to address the issue by the growing trend toward self-medication—people going to Mexico for laetrile treatments, using chelation or megavitamin therapies, etc. While bureaucrats debate the issue, courts and scientists continue to argue for greater freedom of choice. The US Court of Appeals has ruled that terminal cancer patients are entitled to laetrile injections if they desire them and has ordered the FDA to set guidelines for its use "with all due dispatch." And an FDA scientist has urged the agency to think twice before enacting a proposed saccharin ban. Morris Cranmer, head of the agency's National Center for Toxicological Research, told FDA Commissioner Donald Kennedy that saccharin's benefits may outweigh the risks and criticized the "all-or-nothing" approach required by the Delaney Clause in the Food and Drug Act. Cranmer's views reflect the results of calculations by physicist Bernard Cohen that, for diet soda, the increase in life expectancy due to reduced obesity is 100 times greater than the decrease in life expectancy due to possible bladder cancer.

Compulsory medication, "for people's own good," is also coming under new fire. The pace of fluoridation of public water supplies has slowed to a crawl in the past decade, with some cities even voting to discontinue the practice. A new study by the National Institute of Dental Research has shown that tooth decay can be prevented effectively without fluoridation of entire water supplies. Its two-year experiment in 17 communities showed that weekly mouth rinsing with a dilute solution of sodium fluoride brings an 18 to 46 percent reduction in cavities—at a cost per child of under 50 cents per year.

Enriched flour is another compulsory health measure. Among the enrichments is iron, and for the past eight years some public health officials have been pushing a proposal to triple—by law—the amount of iron added to flour and bread. But studies from Sweden, where iron fortification is nearly twice as great as in America, have thrown cold water on this scheme. The Swedish researchers have discovered in the Swedish population an unusually high incidence of a rare and often fatal disease—hemo chromatosis—that can be exacerbated by excess iron intake. Once again, the attempt to impose good health on people leads to bizarre side effects.

Environmental Misinformation

Ever since Earth Day in 1970, the World has been burdened with a growing accumulation of environmental myths and half-truths. Repeated in Sunday supplements and at cocktail parties, they have become entrenched as what passes for general knowledge. Increasingly, though, they are being called into question by scientists and other researchers.

One widespread misconception concerns air pollution—nearly always regarded as solely a humanly caused phenomenon. Not so, it turns out. Trees and shrubs are a major contributor to air pollution. In California's Lake Tahoe Basin, for example, emissions of terpene from trees and shrubs cause 56 percent of the air pollution, autos only 35 percent, according to environmental consultant Robert Sculley of the firm of Johnson and Stokes. And when terpenes combine with nitrogen oxides from auto exhaust, ozone—a major component of smog—is formed.

Trees are also an important source of atmospheric carbon dioxide, whose accumulation some scientists fear is creating a greenhouse effect of rising world temperature levels. Worldwide burning of wood, primarily via forest fires, puts 1.5 trillion kilograms of CO2 into the atmosphere each year, compared with 5 trillion kilograms from fossil fuel burning (oil, coal, and natural gas), according to C.S. Wong of the Institute of Ocean Sciences in British Columbia. Thus, technology is not solely to blame for the gradual increase in atmospheric CO2.

Other environmental truisms are also open to question. The Southern California Coastal Water Research Project is a group of scientists studying the impact of municipal sewage discharges on coastal sea life. Last June the project issued a report on its findings that sea life is not being harmed by sewage outfalls in the ocean. "The general public has been misled by half-truths and misrepresentations," the authors concluded. In fact, coastal waters are not "dying," there is no great body of sludge on the ocean floor, no species of fish has been destroyed or driven away by pollution, nor has great kelp been harmed by the outfalls. Costly secondary-treatment plants now required by the Environmental Protection Agency are therefore a waste of money.

What about energy sources? We hear a great deal about supposedly safe, non-polluting solar and wind energy devices. But most such speculation neglects the environmental hazards inherent in such systems. A Department of Energy report recently pointed out that solar heating systems must contain a working fluid other than water (e.g., antifreeze); widespread use of such toxic fluids holds the potential of contaminating drinking water supplies. For direct conversion of solar energy to electricity, solar cells are required. Workers assembling these devices will be in danger of inhaling toxic chemicals or silicon that can lead to lung disease. Large-scale solar plants will require high-temperature thermal storage facilities, some of which "are like napalm," according to Henry Kelly of the Office of Technology Assessment. Orbiting satellite solar power systems would send back power to earth via giant microwave beams, with possible risks to fliers and nearby residents. Even large-scale windmills, besides obstructing views, cause environmental effects: their massive rotating blades interfere with TV and radio signals.

The point is not that such systems should not be developed. Rather, they should not be looked on as panaceas. All forms of technology entail certain risks and hazards. Wishful thinking by misinformed environmentalists contributes little to intelligent decision making about options for the future.

Road and Rail Deregulation Progress

With airline deregulation proceeding apace, deregulation of railroad and truck transportation is moving to the front burner. Though no comprehensive legislation has yet been introduced, the case against continued cartelization of these industries via the Interstate Commerce Commission continues to grow.

In July the head of the Federal Railroad Administration, John Sullivan, issued a blistering attack on the ICC. "Government and the burdens of regulations" are at the root of the problems facing the nation's financially ailing railroads, he said. "We have substituted ICC management of the industry for competition and the law of supply and demand," he told the transportation subcommittee of the House Interstate Commerce Committee. The ICC has been "protecting some shippers at the expense of other shippers and the general economy, thus preventing the railroads from making a reasonable profit."

Sullivan's views of the ICC and transportation regulation were seconded by Wayne Hoffman, president of the successful cargo airline Flying Tiger Line. In a speech at Syracuse University, Hoffman praised last year's cargo airline deregulation and called for complete deregulation of passenger airlines and trucking. In his speech Hoffman cautioned against half-way measures called "regulatory reform" and stated that "any restraint on entry or pricing simply means a different and not necessarily better form of regulation. For deregulation to work, it must be complete and total." Hoffman excluded railroads from this prescription, on grounds that free entry would not be possible in the rail industry. (This view neglects the growing phenomenon of shipper-owned trains, which provide a relatively low-cost means of new entry to the industry.)

Meanwhile, the Senate Commerce, Science, and Transportation Committee was digesting a report on trucking deregulation. The independently conducted study concluded that total deregulation of trucking would be quite beneficial. "There is little question that economic efficiency would improve under total deregulation," the study found—due to a more rational rate structure, fewer opportunities for collusion, elimination of regulatory delays and inefficiencies, and introduction of more diverse combinations of prices and service options. Furthermore, "predictions of wholesale elimination of service to small communities following deregulation are completely unsupported by data.…Rather, it appears that service to small communities would not deteriorate and might, in fact, improve under deregulation."

So far the only congressional action has been introduction of a bill to renew for five years the "yo-yo" (zone of reasonableness) rate-making concept of the 4-R Act and eliminate its odious market dominance clause (see "How Federal Railroad Policy Got Derailed," REASON, September 1978). These minor changes, if approved, would permit a small increase in rail-pricing freedom but are a far cry from real deregulation.

Education Vouchers—Alive Again

One of the many side effects of Proposition 13 in California is a resurgence of interest in private schools. One immediate result of the measure's passage was the virtually complete shut-down of public summer school programs—and a resulting boom in private schools. But the boom now shows every sign of being permanent. And it is leading to new support for an old idea—education vouchers.

First proposed in the 1950s by Milton Friedman, the basic idea is for government to distribute all educational tax revenues to parents, rather than to schools, in the form of vouchers. The vouchers would be cashable at schools—any schools, public or private. Under a voucher system, public schools would have to compete with private ones on an even basis; no longer would those choosing private schools have to pay for both public and private schools.

Though the voucher idea has been around for many years, it has never really been tried. But that may soon change. A group of liberals is drafting an initiative for the 1980 ballot that would set up a statewide voucher system. Two of its originators are John E. Coons and Stephen D. Sugarman, law professors at the University of California at Berkeley and authors of Education by Choice: The Case for Family Control. They were influential in devising the legal background for the landmark Serrano vs. Priest case, which upset local property tax funding for California public schools several years ago. Now they have turned to vouchers as the best way to implement the Serrano decision.

A key supporter of the voucher initiative is liberal Democrat Arlen Gregorio, a state senator. In a recent interview, Gregorio provided an intriguing look at the changing thinking of liberals regarding education:

Now we have landed in a very revolutionary time. Many fundamental establishments to which we have become accustomed are up for re-examination—even something as traditional as our school system. You even hear around the state capitol these days the question, "Should we have compulsory education for everyone any more?" We've been taking things for granted too long. A shake-up is good. We need public hearings on all the options.

Also promoting the voucher initiative is the Institute for Contemporary Studies, a conservative think tank based in San Francisco. Its 1977 book Parents, Teachers, and Children promoted the voucher concept and its director, Lawrence Chickering, is helping develop support for the ballot measure. "Proposition 13 has encouraged people to think things that were previously unthinkable," Chickering told an interviewer recently. "Given the mood of California voters today, this proposal is likely to get the needed signatures without a bit of trouble, and I'd be surprised if it didn't pass."

With the support of both liberals and conservatives, education vouchers may well become a reality in California.

Government vs. Developers

The evidence continues to mount that government—local, state, and federal—is a major factor in the soaring cost of housing. To begin with, of course, there's inflation—generated by Congress and the Federal Reserve. Over the past decade, an expanded money supply has inflated the dollar costs of land, labor, and materials. But government regulations, especially local and state controls, are an even bigger culprit.

The regulations fall into several categories. Building codes drive up costs by forcing the use of the most expensive materials and procedures. Many cities and states base their codes on national model codes, drafted largely by building product manufacturers and building trades unions. Such codes typically prohibit cost-cutting technological developments (such as plastic pipe and modular bathroom units). They also forbid many owner-built designs, thereby greatly reducing individual freedom for owner-builders—as pointed out in detail in the June 1978 issue of the Humanist.

A major cost inflator is time delays. A recent Rutgers University study found that the price of a new house increases by from one to two percent for each additional month needed to complete it. Increased regulatory controls have upped average construction time from 5 months in 1970 to 13 months in 1975, according to data from the nationwide study. Since then, the situation has worsened, with many projects now taking two to three years.

The regulatory problem is especially severe in California. In 1972 the state's voters approved the Coastal Zone Conservation Act—a major increase in land-use regulation. In the 30 months after its passage, prices of single-family homes near the coast increased 41 percent, compared with only 27 percent for homes further inland. Additional controls on growth proliferated in California during the '70s. From 1972 to 1977, prices of existing homes in Los Angeles County increased an average of 18 percent each year; in the prior two decades the average annual increase had been only 3.5 percent. To Prof. Robert Ellickson of the University of Southern California Law School, that means only one thing: the explosion of housing prices in the '70s can be blamed directly on reduced supply due to increased limits on development. True, the postwar baby boom generation entered the housing market during this same period, raising housing demand. But Ellickson points out, the '50s and '60s saw a huge wave of in-migration to Los Angeles from other states, swelling the population from 4.2 million in 1950 to 7 million in 1970—yet housing prices rose very slowly during those two decades. It is only in the '70s that inflation and regulations combined to push housing prices through the roof.

But owners and developers are starting to fight back. Developer pressure has occasionally led to reform of local regulations. Breckenridge, Colorado, abolished its zoning law and has substituted a one-step conditional use permit system that guarantees a decision within 40 days. Other developers are turning to the courts. In July, three firms filed a $25 million suit in Los Angeles federal court against the California Coastal Commission. Their complaint charges that, by denying a permit to develop their Santa Monica Mountains property, the commission has denied the owners the reasonable use of their land. A California appellate court has upheld a similar suit in San Diego County. It ordered the City of San Diego to pay over $3 million to San Diego Gas & Electric for depriving the firm of the beneficial use of its property. The city had designated the company's industrial land for inclusion in an open space plan.

What We Didn't Get

Sometimes you have to be grateful for things you don't get. Like when Congress is in session. Consider some of the measures that have gone down to defeat in the current session:

• Carter's proposed crude oil "equalization tax." By mid-July, Energy Secretary James R. Schlesinger had conceded that the tax has no chance of being passed, at least in the present session of Congress.

• A bill to spend taxpayers' money on congressional elections was shot down by the House 213 to 196—the fourth straight defeat of the measure.

• Legislation granting coal-slurry pipeline companies the power of eminent domain (so they could force their way across competing railroad rights of way) was defeated in the House by 246 to 161.

• The Humphrey-Hawkins bill has been so watered down with amendments, including one mandating zero inflation, that its passage—if it ever occurs—will be virtually meaningless.

• And, of course, the comprehensive labor law "reform" bill, which would have increased government intervention on the side of unions, was handily defeated.

To be sure, a Congress that produces yet another $50 billion deficit is nothing to cheer about. But things could have been worse.

Nascent Island Nations?

Several islands in the Atlantic may become the world's newest mini-nations, if independence-minded groups get their way. The islands are the Azores, Madeira, and a portion of the Turks and Caicos islands.

In the Azores and Madeira, separatist groups are demanding independence from Portugal. In both cases, a majority of the local inhabitants is strongly anti-socialist and objects to the policies of the socialist government in Lisbon. In April the deputy premier of Portugal, Antonio Almeida Santos, was assaulted and insulted by a crowd of 200 members of the Front for the Liberation of the Azores (FLA). Like its counterpart in Madeira, the FLA is officially illegal, though (according to the International Herald Tribune) it has considerable popular support. The Madeira group has printed its own currency, while the FLA has been getting advice from the libertarian-oriented Phoenix Foundation, based in Amsterdam.

The Turks and Caicos project is quite different in origin. The islands involved—Big Ambergris and Little Ambergris—are uninhabited. A group of Arizona and California investors has offered to pay $50 million to the Turks and Caicos government (a British crown colony like the Cayman Islands) for ownership of the two islands—with full sovereignty. The terms include the right to establish their own legislature and laws, to operate their own police and defense, to issue passports, to mint coins and print stamps, and to register banks and other corporations. Although British officials are reportedly cool to the plan, the colony's own government backs the proposal as a good deal. Interest alone on the $50 million would match the annual British subsidy to the colony.

What the Arizonans have in mind is to create a "Switzerland of the Caribbean"—a goal similar to that of the Phoenix Foundation advisors to the FLA. Whether either will succeed remains to be seen. But their efforts bear watching.

Tax Revisionism

Remember those populist announcements from Sen. Gaylord Nelson that large corporations pay much lower tax rates than small ones? How about the annual compilation by Rep. Charles Vanik of large corporations that pay little or no taxes? Both have now been revealed as lessons in "how to lie with statistics."

The revisionist in the plot is the Treasury Department's Office of Tax Analysis. For the past two years it has been putting together a comprehensive study of the taxes paid by US corporations in 1972. And the results are just about what one would expect from our "progressive" tax laws: small firms pay lower rates and large firms pay higher rates. Nonfinancial corporations with assets less than $50,000 pay an average effective rate of only 20.6 percent; those between $250,000 and $1 million pay 34.3 percent; from $1 million to $1 billion in assets, the rate is around 40 percent, and above $1 billion, it jumps to 46.2 percent.

Where, then, did Nelson and Vanik obtain their contrary results? By mixing apples and oranges. The figures given above are for US taxes as a percentage of US income, and similar figures result from comparing worldwide taxes with worldwide income. What Nelson and Vanik have always done, however, is to compare US taxes with worldwide income, thereby obtaining misleadingly low rates for the larger corporations (which derive a larger share of their income overseas). As the Treasury folks diplomatically put it, "much mischief may be done" by such false and misleading comparisons. Indeed.


No Forced Altruism. "In our law, there's no duty to rescue someone or save someone's life," wrote Allegheny County Judge John P. Flaherty. "Our society is based on the right and sanctity of the individual." In so ruling, Judge Flaherty turned down a dying man's plea to force his cousin to submit to a bone marrow transplant. The man, Robert McFall, suffers from aplastic anemia, and without a transplant his chances for survival are slim. His cousin, David Shimp, was found to be the only likely family donor but declined for health reasons of his own. McFall then went to court to attempt to force what he could not accomplish by persuasion.

Legal Contraception. The right of people to practice contraception—long denied by law to the people of Ireland—appears likely to be restored soon. Prime Minister Jack Lynch's government has drafted legislation to legalize the sale and distribution of contraceptives. Despite strong opposition from the Roman Catholic Church hierarchy, there is growing popular support for the measure, due to growing covert use of contraceptives. Legalization could help bring peace between the Irish Republic and Northern Ireland. The fear of Northern Ireland Protestants that the Catholic Church seeks to impose its private morality by force of law is considered one of the biggest obstacles to possible reunification of the two countries.

Chew a Coke? A Harvard-based pharmacologist thinks coca leaves—long chewed by Andean Indians as a stimuant—might be the basis for a valuable prescription drug. Andrew Weil therefore plans to seek Food and Drug Administration permission to test a coca-based chewing gum on humans. Weil thinks the gum could be useful as an antidepressant, as a substitute for caffeine, and as a palliative for stomach disorders. Thus far, Weil's announcement has not aroused any opposition.