How Tax Revolts Start

September 16, 1991

Every taxpayer knows only too well: You have a legitimate deduction, and you know how much it should be, but you don't have receipts for every item, so you throw in some receipts that you do happen to have, and it's not really cheating because the total adds up to what your really-truly deduction is, so you're not really deducting any more than you're really, truly entitled to.

That seems to be the best light we can throw on the $89,119 Johns Hopkins University has admitted overbilling the federal government in "research costs" that included liquor, flowers, social-club dues and a party for a retiring provost.

Doing research for the federal government involves more than the salaries of the researchers and the price of test tubes, Bunsen burners and other materials. It also means drawing on existing university resources such as the library, computer facilities, secretarial and administrative services, even light and water and building depreciation. Universities are allowed to add these "indirect" costs to the value of research they perform. By negotiation, Johns Hopkins is entitled to a 65 percent markup. It came to $49 million in 1987, the year under audit.

The controversy arises when the government tries to find out what expenses universities are charging off to these "indirect costs" of research. Hopkins' indiscretions look like chump change next to those of other universities. Opera tickets, Steuben wine goblets, a Caribbean vacation for a university president's wife, the overdue library fines of another president: All were merrily billed to the taxpayers as "research" costs. Stanford University finally gave boodling a bad name when its "research" costs were found to include bed linens, a grand piano, depreciation on a yacht and a reception for the university president's remarriage. The president, Donald Kennedy, says although Stanford did nothing wrong, he will resign and the university will repay nearly $1 million to the federal Treasury.

The day after Hopkins admitted to its overcharges, another story broke. The federal government rejected Maryland's Medicaid raid -- the "scam" (the word gleefully used by the Annapolis public servants who thought it up) by which the state would collude with physicians to falsify Medicaid records so as to scoop extra reimbursement from the federal Treasury.

And there were more stories about Congress' heyday with the highways bill -- 500 unneeded "demonstration" projects costing about $11 billion.

Taxes, Justice Holmes said, are what we pay for civilized society. Watching the great institutions of our society -- prestigious universities, elected governments -- play with tax dollars, it's small wonder that citizens join tax revolts.

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