According to the American Legion pamphlet on "Flag Etiquette", which contains the "United States Flag Code", Title 36, Chapter 10, US Code, Paragraphs 170-178, and commentary by the American Legion National Americanisim Commission. Actually now that I mention it, I think I'm supposed to be our Post's "Americanisim Officer", and to this day I'm not quite sure exactly what "Americanisim" is supposed to be all about, or what I'm supposed to be doing to advance it. But here goes a lame attempt, eh?:

The 1976 Congressional Revision of the Code stipulates that it is "simply a guideline" and that "no penalties are provided for violation..." The booklet goes on, however, to warn that "Misuse and improper display (like upside down on the arse of your jeans, I would imagine) will, however, most likely incur ridicule and harassment from those more familiar with these provisions." So there. (Sheesh!)

During the '60s and '70's, some Veteran's groups seemed to get a little anal-retentive about the "flag code" and arguably might have, shall we say, "gone overboard" with it on occasion, creating perhaps some lingering, popular misconceptions.

As to "touching the ground" (or anything beneath it), Ch. 176 (b) suggests that it should be avoided, but apparantly is no great sacralidge if it accidentilly happens. I think that some Military regulations impose consequences similar to what you describe, especially the Marine Corps - but I'm not sure about that. And yes, the proper way to dispose of a retired flag is by burning "in a dignified way"(k). We encourage people to turn them in when buying a new one at selected stores participating in the program (some offer discounts on a new flag for turn-in of a comparable old one), or to local Veteran's organizations. I have the fellows at the "recycling Center" (formerly the "Dump") look out for flags that might get pitched out in the trash, and they collect them for us. Once a year, the Sons of Union Veterans or the Legion conducts a fitting disposal ceremony, as I have described.