Trends

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Tax Cut Benefits Why cut federal taxes? Most fundamentally, because government has no right to claim an arbitrary share of people's hard-earned money (as opposed to charging for those services people actually want and use). But besides this moral argument, there is overwhelming practical evidence that large-scale tax cuts could revitalize the American economy.

The "supply-side" argument for tax cuts is that many federal tax rates are so high that they actively discourage work, savings, and investment. The argument that cuts in high marginal tax rates can spur productive effort (and, incidentally, often lead to higher net revenue—a lower rate times higher economic activity) rests on at least three prior instances:

• The Mellon tax cuts of 1922-25. Absurdly high post-World War I marginal tax rates were cut in 1922, 1924, and 1925. The result was an economic boom, with higher tax revenues in every year but 1923 (when Congress actually refunded 25 percent of previously collected taxes). During the boom years, the inflation rate was actually negative.

• The Kennedy cuts of 1964-65. This time, monstrously high post-World War II marginal rates were cut. Again, the economy boomed, and, after a two percent decline in 1964, federal tax revenues were three percent higher in 1965 and 16 percent higher by 1966. Inflation averaged two percent a year.

• The Steiger cut of 1978. The top rate on capital gains was slashed from 50 percent to 28 percent. Revised government data, revealed in February, show that the Treasury actually collected $1.1 billion more from capital gains in 1979 than it had at the higher rate in 1978.

What these cases all demonstrate is that people's behavior is different when they are relieved of burdensome marginal tax rates. This becomes crystal-clear when the behavior of different income groups is examined. In the Mellon cuts, income taxes paid by those in the $50,000-$100,000 class went up 28 percent between 1921 and 1925; in the $100,000-$500,000 class, by 64 percent; and in the $500,000-$1 million class, by 114 percent. Likewise for the Kennedy cuts. From 1963 to 1966 those earning $100,000-$500,000 ended up paying 68 percent more; those earning $500,000-$1 million paid 88 percent more. What happened was that they shifted huge amounts of money from buying fur coats and Rolls-Royces into productive (and hence taxable) investments. Why? Because they were no longer penalized by such high rates.

These examples serve to underscore recent findings about which groups actually do the saving and investing. Much criticism of the Kemp-Roth tax cut plan concerns the alleged tendency of people to spend rather than save the money they will retain when rates are cut. A Gallup poll last August, for example, found that only 40 percent said they would save "most" of the extra money, whereas 41 percent expected to spend it. Such figures tell us very little, however, because they ignore income groups. Based on detailed surveys by William J. Fitzgerald, Inc., economist Michael K. Evans has concluded that "more than 100 percent of total personal saving in the U.S. is done by those with incomes over $25,000 per year." (Those with incomes under $15,000 tend to be net borrowers.) Analyzing the effects of a three-year, 30 percent across-the-board cut in tax rates (the Kemp-Roth plan), Evans concludes that about 60 percent of the $120 billion left in people's pockets would be saved.

Facts such as these are being used to counter the usual "soak-the-rich" demagoguery that opposes large-scale cuts in the upper brackets. And a number of liberal Democrats are coming around. Rep. William Brodhead (D-Mich.) has proposed cutting the maximum rate on "unearned" income to 50 percent from 70 percent. Rep. James Jones (D-Okla.) is considering canceling the capital gains tax for two years to see what would happen. Those are amazing straws in the wind.

Gold Commission Being Activated Little-noticed in last year's congressional enactments was an amendment—by Rep. Ron Paul (R-Tex.) and Sen. Jesse Helms (R-N.C.)—to create the US Gold Commission. The purpose of this body is to study "the role of gold in the domestic and international monetary systems" and to recommend what the policy of the US government should be.

Interestingly, the legislation provided that the new administration, whoever it would be, would appoint the commission's 15 members. And at this point the odds appear good that the commission will have a pro-gold-standard make-up. It is to be chaired by Treasury Secretary Donald Regan—several of whose deputies favor a gold standard. Membership is to include three representatives of the Federal Reserve, three Democratic and three Republican members of Congress, two members of the Council of Economic Advisors, and four private citizens appointed by the president.

Check out the arithmetic. If the GOP appoints pro-gold congressmen (and Representative Paul has already been named as one of the three), and if President Reagan appoints pro-gold private citizens (for example, Lewis Lehrman), and if the CEA representatives favor gold as well, there will be a clear majority recommending a gold standard. And if that is the outcome, the odds for enactment of gold standard legislation—such as the Art Laffer plan embodied in Senator Helms's Gold Reserve Act or Representative Paul's Monetary Freedom Act—would increase markedly. As it is, virtually all of the supply-side economists at Treasury and the Office of Management and Budget think a gold standard is the best way to solve the inflation problem.

Interestingly, Senator Helms has also indicated his intention to work for repeal of the legal-tender laws. As Helms explained to the Gold Bug (March), "Using the coercive power of government to require people to use a particular medium of exchange in their business dealings is unnecessary when the dollar is as good as gold, and unjust when it is not."

Cutting Out Conrail Last month's cover story told the tale of Uncle Sam's misadventures in running passenger trains. Altogether the taxpayers are now coughing up nearly a billion dollars a year to support Amtrak. Less well-known but equally a boondoggle is the nationalized freight-hauler, Conrail. Created by merging six bankrupt railroads—and ignoring the reasons they went belly-up—this iron elephant has consumed some six billion of your dollars since it was cobbled together in 1976.

That kind of hemorrhage may soon be ended, however, if the Transportation Department has its way. "The government does not belong in the railroad business," DOT Secretary Drew Lewis told Congress late in March. The only sensible solution is to liquidate the railroad—that is, to let competent buyers take over those portions that can be operated profitably, abandoning the rest to the dustbin of history.

There will be plenty of willing buyers—if Conrail is, in fact, liquidated. That means that its outrageously political guarantees of lifetime employment (or pay) to 60,000 employees will be scrapped along with the railroad. Potential buyers could then start from scratch, buying up whatever track and equipment made sense and hiring whatever workers they needed, under mutually agreeable terms. Legislation to permit just that, by repealing Title V of the merger act, has been introduced by DOT.

The howling has already begun, in part from shippers (Q: "Who would haul our goods?" A: Trucks.), in part from Conrail's unions, and even from Conrail management and from its overseers, the US Railway Association and the Interstate Commerce Commission. Yet all the screaming and special pleading cannot erase the simple fact that Conrail is losing billions because it makes no economic sense as a railroad company. Only the purgative of liquidation can restore health to eastern railroading—by transferring assets into productive hands.

Tax Evaders Unite Much to the disquiet, no doubt, of the Internal Revenue Service, the results of the most recent attitude survey commissioned by the IRS strongly indicate that a large segment of the American population consists of tax evaders. When asked how much their consciences would bother them over various tax evasions, some 62 percent said they would not be bothered over failing to declare the bartering of services. In addition, 53 percent would not feel bad about hiding gambling earnings, 49 percent would pad business travel expenses without too much guilt, 46 percent would pad medical expenses, and 42 percent would understate their income.

Aside from the slow deterioration of respect for the IRS, the agency also has on its hands a full-fledged tax revolt in Michigan. Some 3,500 taxpayers in that area doctored their tax liabilities by declaring as many as 99 dependents on their withholding forms, by claiming tax exemptions as members of the clergy, and by scrawling the word unconstitutional across their income tax forms. The revolters are counting on the fact that there are too many of them to prosecute, although, of the 1,100 people of that group to receive warning letters from the IRS, 500 did subsequently request their employers to revert to the "correct" withholding amounts.

An antitax citizen's group called We the People ACT (American Citizens Tribunal) seems to be spearheading the Michigan revolt. News reports at press time have indicated a similar revolt by construction workers at a nuclear power plant site in Washington State, also using the practice of claiming a large number of dependents. The IRS refuses to comment on the existence of a Washington revolt.

The IRS does, on the other hand, have a battle plan to fight this particular method of tax evasion. It has issued a new regulation emphasizing an already existing rule that requires employers to report any withholding claims of more than nine dependents so that the IRS can check on that individual's past records. If the IRS determines that there is no justification for the excessive number of dependents and the taxpayer cannot justify the increased number, the new regulation allows it to tell the employer how much tax to withhold. Falsifying a W-4 form, the IRS warns, could mean up to a year in jail and a $500 fine.

Meanwhile, tax protester Irwin Schiff (The Biggest Con) has finally been jailed for "knowingly failing to provide financial information" on his 1974 and 1975 federal income tax forms. Schiff has not given up. He says he will seek President Reagan's help as a "political prisoner."

CAB Coup de Grace Many airline officials have become converts to deregulation over the past two years. But, as reported here earlier (see Trends, Aug. 1980), they've begun to chafe at remaining under partial regulation during the six-year phase-out of the Civil Aeronautics Board provided for in the 1978 Deregulation Act. As Rep. Elliott Levitas (D-Ga.) of the House Public Works and Transportation Committee has put it, "As deregulation is becoming institutionalized, there is no need to continue the CAB."

Consequently, the Reagan administration has sent Congress a bill to terminate the agency two years early, on September 30, 1982, instead of January 1, 1985. At that point domestic airline routes and fares would be completely deregulated, with international agreements left to the Transportation Department. (The measure would also increase aviation user taxes—on airline tickets and aviation gasoline—and take 41 large airports off of federal subsidies.)

As for the airlines' viability under deregulation, the release of 1980 earnings figures should dispel any lingering doubts. Despite soaring fuel prices and the general recession, only four of the 11 major carriers (excluding Braniff, which failed to report) lost money in 1980. The other seven showed profits, as did many of the smaller, more aggressive carriers like Southwest and Air Florida. Overall, the 11 major lines earned $216 million in profits last year—not a lot (on $25 billion in gross revenues), but hardly the economic debacle many commentators had led us to believe was occurring.

Medicaid: Terminally Ill? The latest figures from the Census Bureau show that Medicare coverage extends to one in every four households, or 18.5 million households. Medicaid, which is meant for needy persons (in contrast to Medicare's coverage of the aged and disabled), covers another 18.1 million in 8 million households. That's a lot of people—and a lot of money. Medicaid payments alone have gone up from $1.9 billion in 1967 to $21.7 billion. Economists have charged that because Medicare and Medicaid subsidize medical costs, demand is disproportionately high and the services overused. Whatever the reason for the spiraling costs of subsidized health care, critics say, something must be done to stem them. Now, two states are experimenting with alternative Medicaid systems.

Massachusetts's plan is pretty radical: the state government is asking the federal government to let it impose a ceiling on its Medicaid program (states pay about half of the costs) and, furthermore, to allow it to use private prepaid medical group plans. Massachusetts health officials say that some $50 million is spent unnecessarily each year for Medicaid patients who use emergency room facilities for routine ailments—and the state is obliged to shell out the money. They think they can save 20 percent or more by farming out patients to private "intermediaries"—separate corporations formed by doctors, nurses, pharmacies, etc.—who would get a flat per capita fee for each patient enrolled. Intermediaries would then be responsible for that patient's health; if the intermediary were run efficiently and discouraged unnecessary visits, it could make a profit. If it lost money, the state would not make up the difference. Massachusetts Secretary of Human Services Charles Mahoney believes that adopting this plan nationally could save taxpayers $6 to $7 billion a year. At press time, it was not clear whether the federal government would approve the experiment.

Arizona, on the other hand, is the only state that has refused to adopt Medicaid, electing instead to provide its own state-run health care program for the indigent. Total spending, however, is expected to reach $141 million this year, almost twice the amount spent four years ago. This despite the fact that Arizona's plan does not cover many standard Medicaid items like preventive health care, hearing aids, psychiatric care, and eyeglasses. Ironically, it's the new, expensive diagnostic machines that are costing the state a lot of money—and not only these machines' acquisition and maintenance, but the fact that they have introduced modern lifesaving techniques such as saving very premature babies (this alone can cost the taxpayers $100,000 for a single baby). A second high-cost factor is long-term care for the aging, quite a problem in a retirement area.

But despite some calls for joining federal Medicaid, both Arizona's house majority leader, Burton Barr, and Gov. Bruce Babbitt are determined to stick it out. Barr wants to introduce a prepaid health care system that relies on private insurers and fixed per capita rates. Cochise County has already introduced competitive bidding for doctors and a referral system that stipulates that specialists on contract with the health department be used first; if patients are not satisfied with the health department contractee, they are referred to a specialist group in Tucson.

Neither state's program solves the fundamental problem of government intrusion into health care, but both appear to represent small steps toward greater fiscal sanity.

Oceans Treaty Surprise When James L. Malone, the new chief US delegate to the UN Law of the Sea Conference, announced just before the opening of the 10th session that the Reagan administration wished to reopen the entire text of the treaty to review, he must have ended any hopes of potential friendships with the delegates from over 150 nations. The delegates had expected that session to be the last one, a mere cleaning up of language and loose ends, since the former US delegate, Elliott Richardson, had seemed amenable to the terms in the most touchy aspect of the treaty: seabed mining rights. But now the administration seems to have come around to the viewpoint that REASON Editor Robert Poole espoused in an article on the subject many years ago ("The Seabed Power Struggle," July 1974): that seabed minerals are not the "common heritage of all mankind," to be mined for the benefit of the neediest among the earth's countries. This "common heritage" view had become the prevailing one, with a tentative plan to set up a 36-member council—composed mainly of delegates from developing nations—to decide who would get to mine, how much they could mine, and to whom the royalties would go.

Fortunately, the new chief delegate is unwilling to go along with these proposals. The administration has indicated that it will not back any treaty that denies seabed mining rights to US companies, even if that means scrapping the entire treaty now a decade in the making. While the delay has come under fire from Democrats for holding back on a process "that has had the bipartisan support of three previous administrations," as Sen. Claiborne Pell (D-R.I.) put it, the US mining industry is supportive of the delay. They are even happier over the return of attorney Leigh Ratiner as a member of the US delegation, since Ratiner worked on the seabed treaty in the mid-'70s and opposes the "common heritage" approach.

While it is tempting to hope that the administration will hold firm to free-market policies and maybe even adopt Poole's recommendation that the United States "take a firm stand for private property rights on the seabed, free of sovereignty, taxation, and regulation," one wonders if the tide can still be stemmed.

Nonaligned Nations Move Away from USSR At a February conference attended by the foreign ministers of over 90 nations claiming nonalignment with either the United States or Soviet Russia, a pronounced shift from previous endorsements of Russian policies was evident. The conference adopted resolutions at its concluding session calling for the withdrawal of "foreign troops" from Afghanistan and for the withdrawal of "all foreign forces from all states" in Southeast Asia, specifically, in Cambodia, where an estimated 200,000 pro-Soviet Vietnamese have invaded the country. The resolution on Afghanistan was unanimously passed.

At last year's conference, held in Havana, Cuba, the mood seemed to be that the unaligned nations and the Soviet bloc are "natural allies." Sierra Leone's Foreign Minister Abdulai Conteh, however, stressed at the 1981 conference's inaugural session that "the movement has no natural allies except its own members." Attempts to soften wording on the Afghanistan resolution—and to imply recognition of the Soviet regime—were unsuccessful, as was a resolution deploring military buildup in the Indian Ocean and naming the US military base under construction there. "How can you have increased tensions and confrontation with just one superpower?" Singapore Foreign Minister Suppiah Dhanabalan explained, referring to the Soviet base in South Yemen. "Either name all the bases or none." (None were named.)

The principal cause for the coolness toward the USSR seems to be its invasion of Afghanistan and its support for the Vietnamese invasion of Cambodia. "Are we still to consider it a friend when it invades or occupies small unaligned countries?" Dhanabalan asked in his speech to the plenary session. It seems that the maddening double standard some non-aligned nations have long held—sharp criticism of any American intrusion and closed eyes to Soviet invasions—is giving way to a more consistent policy.

Alternatives to MX New doubts have surfaced over the cost-effectiveness of the massive MX missile project—a system for hiding 200 ICBMs among 4,600 shelters in Utah and Nevada. Leading the doubters is Defense Secretary Caspar Weinberger, who has ordered a thorough analysis of MX and several alternatives.

Weinberger told Congress he was worried about the system's escalating costs and the prospect that "it could get snarled up with a separate lawsuit over every missile shelter" because of opposition from land-owners and environmentalists. He even questioned the need for a land-based leg of the "triad" of strategic systems—ICBMs, submarine-launched missiles, and manned bombers.

The purpose of such a triad is to have several distinctly different offensive systems, to reduce their vulnerability to enemy countermeasures. But the disadvantages of having two land-based systems (bombers and ICBMs) are that (a) both are to some extent vulnerable to the same type of attack, and (b) both make the US land mass a prime target. Consequently, interest in MX alternatives has focused on the sea and outer space.

Short-term, the two principal alternatives are sea-based missiles. The congressional Office of Technology Assessment released a report in March arguing for a system consisting of a large number of small submarines carrying two to four missiles each and operating relatively near the North American continent. Such a system, advocated by IBM defense expert Richard Garwin, would be distinctly different from the present ballistic missile submarines—a small number of very large subs carrying numerous missiles and operating throughout the world's oceans. The other alternative, urged by former Defense Secretary Melvin Laird, is to carry ICBMs in cannisters on a large number of surface ships, dumping them overboard for launch. The process was proved out by the Navy's Project Hydra in the 1960s. Most analysts think either sea-based alternative would be cheaper and available sooner than MX. The major obstacle seems to be political—the Air Force doesn't want the Navy to operate two legs of the triad (as it has been doing for two decades).

But the longer-term alternative to MX would give the Air Force a new role. That is a system of space-based anti-ICBM laser weapons. The Defense Advanced Research Projects Agency (DARPA) recommended in February that efforts be focused toward deployment of a laser battle station based on a five-megawatt/four-meter-diameter chemical laser. DARPA's report estimated that such a system could be tested in space within nine years, without a crash-program effort. If the Soviets took countermeasures to protect their ICBMs, larger battle stations (25 megawatt/15-meter-diameter) would later be needed and could be operational in 20-25 years, DARPA estimated.

Meanwhile, Lawrence Livermore Laboratory reported a laser breakthrough—the demonstration of a laser device pumped by x-rays from a small nuclear explosion. An orbiting battle station based on this design might consist of 50 laser rods that would be independently aimed at the missiles in a salvo; upon detonation, all 50 would "fire" at once, destroying their targets by shockwave. Missiles hardened against chemical lasers (which destroy by thermal energy) would still be vulnerable to the x-ray laser. The x-ray laser battle station would be small enough to be launched by a single Space Shuttle flight. Defense analysts now envision a mix of x-ray laser stations in low earth orbit and chemical laser stations in higher orbit.

There is some opposition to laser weapons development within the Defense Department, especially from Carter-era officials who see laser systems competing for funds with MX. One senator highlighted the problem to Aviation Week: "If lasers can destroy ICBMs, the question is, then, why do we need ICBMs, and it's a fight looking to happen."

Air Pollution—Bubbling Up Economists have long criticized the brute-force approach to air pollution control in which the Environmental Protection Agency sets arbitrary standards for emissions from every smokestack and tells companies—in detail—what technology to use to obtain them. But basic changes in that approach are in the wind.

To begin with, scientists are now taking a closer look at the health research data that EPA uses to set its national emission standards. A study conducted for the National Chamber Foundation by the American Council on Science and Health reported (in February) that no one really knows at what point prolonged exposure to low levels of sulfur dioxide and particulates becomes a health hazard. EPA has consistently erred on the side of caution—but often at a considerable price for only small increments in emission reduction. When health hazards have not been established, compelling massive expenditures is certainly questionable.

Over the past year EPA has begun to back away from the detailed specification of how companies must comply. The key innovation is the "bubble" policy—treating an entire plant as if it were a single pollution source and leaving it up to the operator to decide how to meet the emission standards. Under this approach, an Armco steel plant in Middletown, Ohio, was able to accomplish six times the required pollution cutback at one-fourth the usual cost. Armco figured out that more than half the particulates in the air around the plant were from windblown sources—dust from piles of iron ore, roads, etc. Controlling those sources was far less costly than controlling stack emissions.

Several dozen other bubble plans are in the process of being approved by EPA, and up to 100 more are expected this year. In March the agency announced that it intends to extend the use of the bubble approach to areas where air quality is poor and minimum standards are not being met. Up till now, in such areas (for example, southern California) it has been extremely difficult for firms to get permission to expand. Many California oil refineries have been unable to make needed modifications to enable them to refine heavy California oil. A 1980 study by the governor's office estimated that these modifications could result in oil cost savings of several billion dollars a year. Two closed-down GM assembly plants have been unable to retool to produce small, fuel-efficient cars. Thus, expansion of the bubble approach could bring important benefits.

More Broadcasting Deregulation Several promising steps toward free-market broadcasting are being taken in both the radio and television industries.

A bill proposed by Sen. Harrison Schmitt (R-N.M.) would prevent the Federal Communications Commission from regulating radio programming or formats, from requiring program logs, and from limiting the number of commercials—moves the FCC has adopted on its own but which are being challenged in court. It would also grant indefinite, rather than the current three-year, radio licenses. Similarly, the US Supreme Court ruled in March that the market, not the government, should determine a radio station's format. (The FCC had agreed with that ruling.) The case arose when a classical music radio station in 1976 decided to change its format to progressive rock and was challenged by its Listeners Guild, three television networks, the New York City Opera, and various citizens' groups. The Supreme Court said, in its ruling, that "the marketplace alone could best accommodate the varied and changing tastes of the listening public."

Meanwhile, on the television front, two FCC staff reports have recommended deregulation. One, prepared after two years of study, noted that the existence of only three commercial networks can be blamed on previous FCC decisions, so that the best way to encourage diversity is to repeal those rules inhibiting competition. For example, the report noted, an FCC regulation prevents the licensing of a pay-TV station in any market in which there are not at least four commercial stations. "We recommend the rule be repealed," the staff said. Other recommendations were to license new VHF and low-power stations, repeal the prime-time access rule, authorize experimental satellite-to-home broadcasting systems, and repeal regulations on network-affiliate contract relationships.

Another FCC report urged Congress not to apply political broadcasting rules to programs and newspapers distributed by cable. Report author W. Randy Nichols said that "the effort should be toward bringing the print regulatory model to bear in the video environment, rather than permitting the broadcast model to overcome the historic protections afforded the free press in its printed versions." The report was forwarded to Senate Communications Subcommittee Chairman Barry Goldwater (R-Ariz.), who is himself sponsoring another broadcasting bill, S 601.

The Goldwater bill would extend the length of television licenses from three to five years and loosen procedures for renewing a license. Under present rules, existing stations may be challenged at renewal time by competing organizations, in which case the FCC is supposed to hold hearings to decide which is best qualified. Instead of this, Goldwater proposes that as long as the licensee has "substantially met" the needs of its service area, renewal should be automatic. The FCC would be empowered to establish a lottery or some random process to choose among applicants for a new TV license. The bill is cosponsored by Communications Committee Chairman Robert Packwood (R-Ore.) but faces opposition from citizens' groups such as the National Citizens Committee for Broadcasting, which prefer the present system under which they can count on FCC compulsion to ensure that their own views get aired.

Big Brother…Hard to Disown Two recent but unrelated news items reveal an alarming trend when put side-by-side. One item, covered by both the Wall Street Journal and the New York Times, reported on a Census Bureau release saying that one out of three US families receives some sort of benefits from the federal government. The second item, in the Los Angeles Herald-Examiner, summarizes a Harris Survey showing that, while 53 percent of respondents believe that big government is the greatest threat to well-being in this country, 72 percent also think the federal government should see to it that "every person achieves at least a minimum standard of living." Our paternalistic government has become so pervasive that even those people who are against big government hesitate to cut those programs they themselves benefit from.

The Census Bureau reports show that out of the 79,108,000 households counted in the 1980 Census, 27,190,000 of these use at least one of five federal benefit programs: Medicare, Medicaid, food stamps, subsidized housing, and school lunch aid. Author Gordon W. Green, Jr., noted that those receiving benefits based on income level accounted for about one household in six. The Wall Street Journal write-up noted that 57.3 percent of households getting subsidized school lunches are above the poverty line, according to the Bureau report, as well as 53.4 percent of those using subsidized housing, 52.5 percent of those covered by Medicaid, and 82 percent of those using Medicare. (The official poverty line in 1979—the year the survey was conducted—was $7,412 for a nonfarm family of four.)

The Harris Survey, on the other hand, showed that 59 percent of the 1,254 adults surveyed nationwide agree with Jefferson's statement that "the best government is the government that governs the least." Only 32 percent had agreed with that sentiment in 1973; 48 percent in 1976. More people also agreed that local government should be given as many of the services to handle as possible (82 percent as compared with 72 percent in 1973). However, respondents also thought that federal government should "handle the most important matters, such as how to control inflation, avoid a depression, and achieve peace in the world" (89 percent, the same percentage that agreed eight years ago). Again, a similar number of present respondents agreed with their 1973 counterparts (78 vs. 76 percent) that the federal government should "regulate major companies, industries and institutions to be sure they don't take advantage of the public."

Insuring Dump Safety As pointed out on REASON's editorial page in February, the recently enacted "Superfund" legislation actually socializes the costs of hazardous waste disposal. By taxing everyone to pay for dump cleanups, it can be expected to reduce incentives to operate and maintain waste dumps responsibly.

But a new federal regulation, issued last winter, points the way toward a better solution. The Environmental Protection Agency has decreed that owners of hazardous-waste disposal facilities must obtain liability insurance to cover up to $3 million per pollution incident. EPA is writing detailed rules for monitoring and maintaining these disposal sites—which is probably not a good idea since (a) actual requirements will vary greatly, and centralized prescriptions tend to be either insufficient or overkill; (b) technology changes faster than regulations; and (c) following the letter of the rules might be used as a defense against liability even though the dump operator was otherwise foolish or negligent.

Nevertheless, imposing certain liability directly on the dump owners is far more sensible than taxing everyone to pay for the irresponsibility of the few. If only Congress would get the message.

Milestones • Santa Monica Rent Control Hit. A superior court judge in California has ruled that Santa Monica's tough rent control law [see REASON's April cover story] must be rewritten to allow larger rent increases. Two portions of the present law are affected: one that defines "investment" as the original purchase price of a building rather than its current market value, thus keeping the landlord's "fair return on investment" very low; and, another that allows rent control investigators to disallow rent increases if they find that the landlord purchased the apartment units as a "speculative venture." Judge Richard A. Lavine called both measures unconstitutional. Another portion of the law that virtually bans condominium conversions and apartment demolitions will be decided at a separate trial, Lavine said.

• Patent Life Extension? Sen. Charles Mathias (R-Md.) introduced a bill earlier this year that would extend the patent life of a product "by the amount of time equal to the regulatory review period," up to seven years maximum. That would add seven years to the current 17-year life of a drug patent, based on the fact that it now takes the Food and Drug Administration an average of 10 years to review a new drug. The extension would allow a larger return on research investment.

• Dairy Subsidy Loses. The Senate voted to cancel a scheduled seven percent increase in dairy price supports by a hefty 88-to-5 vote, and the House concurred soon after. President Reagan signed the measure from his hospital bed.

• TMI Update. A final Pennsylvania Health Department report concurred with earlier Nuclear Regulatory Commission findings (Milestones, Feb.) that radiation released in the accident at Three Mile Island nuclear plant did not cause the deaths of infants or fetuses. The study covered a radius of 10 miles. The state health department has not yet concluded its study on TMI-related abnormalities such as premature births, mental retardation, and congenital defects, a spokesman said.

• Our Friendly Postal Monopoly. The United States Postal Service has issued a new rule that defines as "Letters" mailers and circulars delivered along with magazines by private delivery services. This makes such circulars subject to separate postage. The USPS then shrewdly suspended the new rule for an indefinite period, defusing attempts to take legal action against it. Despite the suspension, the National Association of Selective Distributors says it will take "appropriate legal action" when the USPS tries to enforce the rule.

• Chinese Disillusioned. An article by a "special commentator" (usually a senior Communist Party official) in the party's People's Daily newspaper acknowledged that errors made during the party's 31-year reign have caused some people to doubt socialism—in fact, workers and students marched on Hebei province government offices by the thousands recently, and workers in Shanghai have attempted to set up Polish-style independent labor unions. But the problem, asserted the commentator, was not in the system but in the former leaders, and current leaders should be allowed to demonstrate that "only socialism can save China." The article further urged readers to revive "revolutionary selflessness."

• What Is Cocaine? The Fourth District Court of Appeals ruled on March 2 that cocaine "is a drug with low abuse potential and not very dangerous"; that it is not a narcotic and cannot be considered addictive and harmful to the body; and that its effects are shorter in duration than those of caffeine, nicotine, or amphetamines. The state of Illinois is bringing that ruling to the state supreme court, and it will base its argument on the "widespread profits and widespread evil connected with the trafficking of cocaine," Staff Attorney David Mannchen said.

• Educational Credit Initiative. The D.C. Committee for Improved Education, an affiliate of the National Taxpayers Union, has begun a petition drive seeking 25,000 names to put a local educational tax credit initiative on the November ballot. The initiative would allow parents, other individuals, and corporations to reduce their income taxes by up to $1,200 per pupil on private or public school fees or programs in Washington, D.C. A Washington Post article on the initiative quoted NTU official Jule Herbert and mentioned that Libertarian presidential candidate Ed Clark had proposed a similar plan during his campaign. The initiative is under heavy attack from the educational establishment.

• Sex Report Law Suspended. The California Supreme Court recently suspended a new state law that requires doctors to report known or suspected sexual activity by females under the age of 18 to the state or face criminal penalties. The provision was attached to a bill consolidating child abuse statutes and has been challenged by both the California Medical Association and the American Civil Liberties Union. The CMA argues that the law breaches the confidential patient-doctor relationship and would deter female minors from seeking medical care, while the ACLU charges that the law violates both federal and state guarantees of privacy.

• Supreme Court Sidesteps Zoning. The US Supreme Court unexpectedly declined to rule on the San Diego Gas & Electric Co. v. City of San Diego case (Trends, Feb.) involving that local government's downzoning of SDG&EC's land. The district Court of Appeal had ruled that the utility was entitled to just compensation for the value of its land having been reduced by the downzoning; the California Supreme Court decided in a somewhat similar case (Agins v. Tiburon), but on narrower grounds, that Agins was not entitled to damages resulting from Tiburon's downzoning of his land. The San Diego court then threw out the utility's award, and SDG&EC brought the case to the higher court. The US Supreme Court has now thrown the ball back into the California Supreme Court's lap, and the issue of just compensation with regard to downzoning remains to be settled.

• Ohio Court on Private Schools. The Ohio Supreme Court unanimously ruled that Ohio's compulsory education law cannot interfere with parents' rights to send their children to private or religious schools, even when those schools do not meet minimum state standards. The court decided that the First Amendment claim to religious freedom would take priority "until such time as the State Board of Education adopts minimum standards which go no further than necessary to assure the state's legitimate interest in the education of children."

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