Tax-Revolt Victories

November's elections gave evidence that the tax revolt is no passing fad. Across the country, voters gave their approval to nearly every ballot measure cutting taxes or limiting state spending. Property tax cut measures modeled directly after Proposition 13 were enacted in two states; two others were defeated, but only due to the presence of competing anti-tax measures. Spending limits were enacted in five other states, an income tax slash in another. Altogether, 80 percent of all such measures won approval by the voters. The 12 states with taxpayer victories:

• Alabama: voters approved a constitutional amendment to lower property appraisals, so as to prevent a near-doubling of property taxes due to court-ordered reappraisal.

• Arizona: voters approved by 3-to-1 a proposition to limit state government spending to seven percent of personal income.

• Hawaii: a constitutional spending limit was approved here, as well.

• Idaho: a Jarvis-Gann-style constitutional amendment slashing property tax rates to a maximum of one percent passed with about 58 percent of the vote.

• Illinois: an advisory vote on spending limitation was approved by a 4-to-1 margin.

• Massachusetts: voters approved Question 1, granting homeowners a $5,000 property tax exemption and limiting assessed value on residential property.

• Michigan: Measure E, a constitutional spending limit, was passed, while two other measures, H (education vouchers) and J (property tax cut) were defeated.

• Missouri: voters approved a measure allowing the legislature to lower property tax rates if courts order reappraisals.

• Nevada: a property tax rollback to a one percent ceiling (from about 1.7 percent now) passed 3-to-1. It must be approved again in 1980 before taking effect.

• North Dakota: a 37 percent cut in personal income taxes was approved.

• South Dakota: voters approved a measure requiring a two-thirds vote of the legislature or a referendum in order to increase any state taxes.

• Texas: by a 5-to-1 margin, voters approved a constitutional spending limit.

The only noticeable defeats occurred in Michigan (noted above), Colorado, and Oregon. In Colorado a constitutional spending limit was turned down by 59 percent of the voters, but it was widely viewed as being ineffectual, since it tied permissible increases to a combination of the Consumer Price Index and population growth. The state already has a statutory limit of a flat seven percent, which voters evidently preferred. In Oregon the Jarvis-backed property tax cut plan, Measure 6, went down to defeat, as many voters opted for a watered-down substitute (Measure 11) proposed by the politicians. Both suffered narrow defeats by splitting the anti-tax vote.

All things considered, the tax revolt thus showed itself alive and well as of November.

Other Freedom Victories

November's elections brought other gains for freedom, besides reductions in taxes. Alaska voters approved a plan whereby up to 30 million acres of state-held land will be privatized—given out to residents—with the size of the parcel based on the length of residency (40 acres for three years, 80 acres for five years, and 160 acres for 10 or more years). If upheld as constitutional (it's being challenged), the measure could be the 20th century's largest episode of privatization.

California voters defeated two initiatives that would have restricted freedom: Proposition 5 to ban smoking in restaurants, offices, and other private properties; and Proposition 6 to fire homosexual teachers. Los Angeles city and county voters gave overwhelming approval to measures permitting contracting with private firms for public services, while San Franciscans approved an advisory measure directing city officials to cease enforcing marijuana prohibition.

In North Dakota voters turned down a measure that would have imposed price controls on various health care providers. Demonstrating a better way to hold down such costs, Oregon voters repealed the state's ban on dental technicians' fitting dentures. Formerly, only dentists were allowed to do so, and consumer advocates promoted the measure as a means to lower prices via increased competition.

Even the advocates of nonvoting had something to cheer about. Voter turnout nationwide was only 34 percent, compared with 36 percent in 1974 and 43.5 percent in 1970, the previous off-year elections. That's the lowest since 1942's 32 percent but still doesn't "top" the 30 percent turnout recorded back in 1926.

NHI Support Lacking

Support for proposed National Health Insurance (NHI), once thought to be inevitable, is nowhere near what it once was, according to several indicators. A 1977 poll by the University of Chicago revealed that 88 percent of the public was satisfied with its health care. And President Carter appears willing to risk the wrath of congressional liberals by putting any sort of NHI legislation on the back burner for the next two years.

Should such a plan eventually be enacted, what would the consequences be? That question was addressed recently by economist Ted Frech and policy/community health scientist Paul Ginsberg in a study for the American Enterprise Institute. A full-scale NHI plan would lead to an explosive rise in costs, followed by a decline in the level of medical care, they concluded.

One of the major problems is that none of the proposed NHI plans includes any direct payment by the patient; "therefore, the price of services is irrelevant to him.…The consumer will demand the best possible care regardless of its costs." Government would respond to this increased demand, and the resulting price increases, with price controls. That, in turn, would lead to cuts in services, as doctors chose specialties they preferred, moved to more desirable areas, and cut quality and amenities. The result would be longer waits and other forms of non-price rationing—as are common, for example, in England.

One place where NHI has been tried and rejected is Australia. As of last November 1, the Australian government scrapped its NHI program, Medibank. Health insurance taxes are no longer compulsory, nor is the purchase of any form of health insurance. Instead, health insurance has become entirely voluntary. Perhaps it's not too late for America to profit from Australia's experience and avoid making a costly mistake.

Airline Competition Blossoms

President Carter signed into law the Airline Deregulation Act on October 25. It loosens the Civil Aeronautics Board's control over fares and routes, ends them entirely by 1983, and abolishes the CAB altogether in 1985. A CAB aide told the Wall Street Journal the agency would start handing out new routes "like confetti."

Airlines didn't have long to wait. The CAB announced that dormant routes could be applied for immediately, and even before the ink of Carter's signature was dry, representatives of 20 carriers were camped on the agency's doorstep. Less than three weeks later the agency awarded 248 routes to 22 airlines, among them six that had never before flown in interstate service. The biggest winner was Braniff, which gained 60 new routes. Parceling out dormant routes (those that had only one carrier or weren't being served at all) was only the first step; in coming months the CAB will be allowing much additional service, as carriers apply under greatly liberalized procedures.

All across the country airlines began advertising new service, many of them offering special promotional fares. Pan American, for example, to celebrate its newly awarded New York-Los Angeles run, announced a $99 round trip—for a limited number of seats, three days a week. One Florida airline was even offering to pay passengers $1 to fly its new Florida-Bahamas route on a stand-by basis. On a more serious level, Trans-International and World Airways both announced the start of coast-to-coast service at a one-way fare of $99 for all seats on a regular basis. The lowest nightcoach fare had been $207, with advance purchase required.

The effects of deregulation were even spilling over into the international arena. The International Air Transport Association (IATA)—long acting as a price-fixing cartel among international air carriers—voted almost unanimously to relinquish its fare-setting powers. In the future, it will stick to service functions like coordinating baggage transfers among airlines. Freddie Laker's Skytrain service marked the beginning of the end for the cartel, demonstrating to other airlines the potential of price-cutting competition. But the final blow was struck by Alfred Kahn's CAB. It issued a show-cause order asserting that IATA's cartel-like operations violated US antitrust laws. From then on, the cartel's dissolution was inevitable.

Parent/Student Victories

In two separate cases, courts have upheld the rights of parents and students to choose alternatives to public schooling. In Kentucky, Franklin County Circuit Court Judge Henry Meigs ruled in favor of the Kentucky Association of Christian Schools in their battle with the Kentucky Department of Education. The state had issued truancy warrants against parents of children in these Christian schools because the schools lacked state accreditation. The association filed suit against the state, arguing that the First Amendment allows them to operate schools without state supervision or interference. As part of its defense, the association presented achievement test scores showing children in the schools as much as 1.7 years above the national average. Judge Meigs ruled that the state failed to present evidence that it had a prevailing interest in the schools. They are therefore free to continue operating unmolested.

An organization that assists such schools and parents in battling public schools and interpretations of attendance laws has won a victory of its own. For several years the Internal Revenue Service had refused to grant tax-exempt status to the National Association for the Legal Support of Alternative Schools, contending that it advocated disobedience of compulsory attendance laws. Not so, ruled the Tax Court. NALSAS provides the public information about alternatives, but there is no evidence that it advocates disobedience of the law. The decision will help the organization to survive, says founder Ed Nagel, by opening the door to foundation grants.

ICC to Follow CAB

Now that the Civil Aeronautics Board is on the way to abolition, the next target for deregulation is the Interstate Commerce Commission, the nation's oldest regulatory agency. For years economists have documented the agency's harmful effects—on the one hand, limiting entry into trucking and keeping truck rates high; and on the other, hamstringing the railroads by refusing to allow abandonment of unprofitable branch lines while restricting rate increases on viable routes, leading to a severe capital shortage.

Deregulation of both trucking and railroads is now on the horizon. Transportation Secretary Brock Adams announced in November that the administration is drafting legislation to largely deregulate both industries. The bills, expected in March, will let railroads raise and lower rates much more freely, abandon money-losing lines, and generally get out from under the ICC's thumb. This would restore their financial health, thereby avoiding the need for further subsidies to Conrail, forestalling additional bankruptcies, heading off proposals for nationalization of roadbeds, and maybe even bailing out Amtrak.

And many railroad leaders are supporting the idea. Chessie System vice-president John Snow has told reporters that the railroads are considering proposing total deregulation for the rail industry over a five-year span. "It may be called the 5-R Act," Snow said, adding that "the forces of deregulation are winning out and I am delighted at that. For the sake of rail transportation, the sooner the better."

The administration's trucking bill is expected to sharply reduce ICC control over both rates and entry to the industry. Moving to head off legislation, ICC chairman Daniel O'Neal has circulated a memo to the other commission members urging partial deregulation. His plan, received without enthusiasm by the other commissioners, would largely eliminate regulation of 15,000 specialized truckers—those that don't operate over regular routes. For the general-commodity truckers, entry restrictions would be eased and the burden of proof switched from new applicants to incumbents. The ICC would also permit truck rates to be raised or lowered within a "zone of reasonableness" and eliminate antitrust immunity on rate setting for specialized carriers. (The Justice Department is urging that all antitrust immunity be abolished.)

O'Neal backs away from deregulation of other trucking services, such as household movers, arguing that individual consumers need ICC protection. This concern is flatly contradicted by Prof. Denis A. Breen's study of moving costs in Maryland. That state is the only one that does not regulate many trucking rates (including movers). About 175 firms compete in moving household goods in Maryland. Breen made two surveys of the cost of moving a typical 7,000-pound load of household furniture a distance of 125 miles. In one case, the move was to be within Maryland; in the other, across the state line and therefore subject to ICC regulation. The ICC-regulated rates were from 27 percent to 67 percent higher than the competitive (unregulated) rates. So much for ICC protection!

The trucking industry trade group—the American Trucking Associations—is gearing up to fight deregulation, offering a proposal of its own that would reduce rate regulation but retain restrictions on entry—thereby assuring high rates due to limited competition. One of its major arguments is that small communities will lose service under deregulation. Don't you believe it! A study commissioned by Sen. Howard Cannon's Committee on Commerce, Science, and Transportation last year found that this is simply not so. Policy and Management Associates of Cambridge, Massachusetts, concluded: "Predictions of wholesale elimination of service to small communities following deregulation are completely unsupported by the data.…Rather, it appears that service to small communities would not deteriorate and might, in fact, improve under deregulation," thanks to the greater number of firms in the market. The Journal of Commerce now reports that "some large and medium-sized firms…have apparently concluded that deregulation is inevitable and that they can survive it."

Perhaps the most interesting commentary on the whole subject comes from the editors of Business Week. After reviewing the political support building for trucking deregulation, the magazine's editors have urged, "Do it quickly." Partial or delayed deregulation, they wrote, "would create uncertainties for operators and shippers alike.…By contrast, complete deregulation—abolishing exclusive routes, permitting unlimited entry, allowing each hauler to set his own rates—would let the industry make a quick adjustment and plan for the future on the basis of a known set of rules." We couldn't have said it better.

Unions Lose Two Big Ones

For several years the National Right to Work Committee has been waging a campaign against the use of union dues for political purposes. Since in many cases workers are compelled to join unions in order to hold a job in a particular field, it is illegal for an individual's dues money to be spent on political campaigns without his consent. But this requirement has frequently been evaded by politically powerful unions.

In October 1976 the National Right to Work Committee took on one such evasion—a reverse check-off scheme of the National Education Association, the country's largest teachers union. Under the plan, the NEA automatically deducted political contributions from teachers' paychecks; to get them back, teachers had to file written requests for refunds—a process that not only is time-consuming but also has the effect of singling out those who disagree with the union's political stance. The committee therefore filed a complaint with the Federal Elections Commission. Last July US District Court Judge Oliver Gasch ruled that the reverse check-off system is by its very nature illegal. The NEA then proposed to refund past contributions only to teachers who asked for a refund—a continuation of the very principle the judge had found illegal. Not good enough, Judge Gasch ruled in November. The entire $800,000 must be refunded to all the teachers from whom it was collected.

That same month the committee's nonprofit affiliate—the National Right to Work Legal Defense Foundation—won an important victory of its own. In 1973, 12 unions, led by the United Auto Workers, sued the Foundation, contending that it was serving as a conduit by which employers financed legal activities against unions—a violation of the Landrum-Griffin Act. The foundation offers free legal aid to workers whose rights have been violated as a result of compulsory unionism. It is supported by contributions from individuals and corporations—some of whose employees might call on the foundation's aid.

It is because of the latter possibility that the unions sued, demanding to see the foundation's list of contributors. The organization objected, fearing that if its contributors' names were made public, they would be potential targets for harassment. It argued that First Amendment guarantees of petition, association, and free speech protected it and its contributors in this regard.

In 1977 a federal district court agreed with the foundation's position. And last November a unanimous three-judge Court of Appeals agreed. The unions must seek other forms of evidence against the foundation, it ruled. Moreover, the court affirmed the foundation's right to litigate on behalf of employees as not inconsistent with the Landrum-Griffin Act. That act would only be applicable if the unions could prove that employers have direct control over foundation suits.

Long-Distance Competition

The growing competition in transmitting information between cities—long an AT&T monopoly—has taken several major steps forward.

To begin with, the US Supreme Court finally settled the long-simmering battle between AT&T and MCI Communications, Inc., by ruling that the telephone giant cannot refuse to provide local telephone links for MCI's long-distance microwave communications links. Since local AT&T affiliates have a legalized monopoly on telephone service, there is no justification for them to refuse service to any user. The ruling means that MCI can finally proceed to expand its low-priced Execunet service to more cities, competing with AT&T for long-distance voice and data communications.

A new competitor has also joined the long-distance market, bypassing the telephone system altogether. Xerox has applied to the Federal Communications Commission for permission to offer its Xerox Telecommunications Network (XTEN) service, starting in 1981 and expanding to 200 cities. XTEN would use satellites for the long-distance links, beaming signals to earth stations that would connect to business users via 10 GHz. microwave radio. Each user would need a two-foot diameter rooftop dish antenna. The service would provide each user with a wide bandwidth, equivalent to a number of telephone lines. Among the services to be offered are document transfer (facsimile), computer networking, and conference calls.

XTEN would compete directly with the IBM/Comsat/Aetna joint venture called Satellite Business Systems and with AT&T's Advanced Communications Service network, as well as with smaller competitors like MCI and American Satellite Corp. Among the services most likely to be affected is the Postal Service. As the cost of sending documents digitally continues to drop, more and more business mail will shift to these firms rather than risk "snow, rain, heat, or gloom of night."

Politics and Economics

Did you ever wonder why the economy seems to perk up in presidential election years? Did you suspect that this may be more than just coincidence, given that the government has control of both the money supply and the tax system? So did Prof. Edward R. Tufte of Yale. His recent book, Political Control of the Economy, shows that these common suspicions are well grounded in fact.

Tufte gathered 11 years' worth of data on elections and per capita disposable income, not just for the United States but for 26 other countries that hold free elections. In 19 of them, including the United States, there was a clear connection between election years and increases in income, as governments stimulated the economy to produce the short-term appearance of prosperity.

Tufte proceeds to itemize the price we all pay for this kind of manipulation: a boom/bust economic cycle, manipulation of transfer payments, playing "pranks" with Social Security and the payroll tax, and a general bias "toward policies with immediate highly visible benefits and deferred, hidden costs."

Which, of course, we knew all along. But it's refreshing to have a Yale professor and Princeton University Press confirming such things.

The Price of Controls

A rising chorus of voices is speaking out against wage and price controls, even as the administration's "voluntary" program begins to look more and more compulsory. Economist Gary M. Wenglowski of Goldman, Sachs & Co. predicts that the controls program will produce more distortions and inefficiencies in the economy than the Nixon controls. Why? Because they're being introduced at a time of high demand and robust economic activity, rather than a time of slowdown. Economic commentator William Wolman adds that the Nixon controls period "may, in retrospect, have been a picnic compared with what may happen" this time.

Another prominent voice is that of Mark H. Willes, president of the Federal Reserve Bank of Minneapolis. His analysis of the Nixon controls period shows that when controls are removed, the economy is actually worse off than if controls had not been imposed. The Nixon controls produced shortages of aluminum that reduced production of air conditioners and refrigerators, steel shortages that hampered coal and oil production, and fertilizer shortages that reduced agricultural productivity—leading to higher food prices. The controls also led to reduced investment in new plants and equipment, in response to limited profit opportunities. This, in turn, reduced job opportunities, leading to higher unemployment.

Taking another tack is Laurence Silberman, who served as a deputy attorney general in the Nixon-Ford administrations. In a strongly worded Wall Street Journal article, Silberman argued that Carter's wage/price control program is essentially illegal, lacking statutory authority. "This whole business is a sad misuse of governmental power and such misuse can be contagious," he wrote. "Where, therefore, is the ACLU? And where, I should like to ask, is the American Bar?"

Where, indeed?


Regs Scrapped. The Occupational Safety and Health Administration has scrapped 928 safety regulations deemed "nitpicking" because of their triviality. Unfortunately, the action leaves firms vulnerable to $1,000 fines for violating about 4,000 other standards still on OSHA's books, many of them nearly as ludicrous and all of them costly.

Moynihan Recants. One of the architects of the idea of a guaranteed annual income has lost his faith in the plan. Sen. Daniel Patrick Moynihan (D-NY), author of the Nixon "Family Assistance Plan," expressed his second thoughts in a letter to William F. Buckley, Jr. As the reason for his conversion, Moynihan cited federally funded experiments with the plan in Seattle and Denver (see "Trends," August 1978) showing that a guaranteed income led to less work and more divorces.