Federal Regulation Costs More than $1 Trillion

Published September 1, 2006

In a 2004 report for the U.S. Small Business Administration, W. Mark Crain of Lafayette College estimated annual costs related to federal environmental, safety and health, and economic regulations were a staggering $1.113 trillion. The costs were from price and entry restrictions, environmental regulation, compliance costs, and “transfer” costs such as price supports.

After adjusting the estimate for 2005 by computing the average economic growth over the past five years, the final estimate comes to a whopping $1.127 trillion in hidden costs that never make it into the official federal budget.

Regulatory Costs Dwarf Deficit

To put this number in perspective, budgeted government spending for 2005 was $2.47 trillion, which means hidden regulatory costs are nearly half as much as all on-budget federal spending. Moreover, $1.127 trillion in estimated regulatory costs dwarfs the 2005 federal budget deficit of $318 billion, one of the largest deficits in our nation’s history.

Even the revenues of $894 billion in individual income taxes or the $226 billion in corporate taxes cannot compare to the enormous $1.127 trillion in regulatory costs that remain hidden from public view.

U.S. federal regulatory costs exceed the output of many major national economies. In 2003 Canada had a GDP of $857 billion and Mexico had a GDP of $626 billion.

When Congress debates the federal budget, these hidden regulatory costs continue to fly below the radar, taking billions of dollars out of Americans’ pockets. In the Fiscal Year 2006 federal budget, President George W. Bush proposed $2.77 trillion in discretionary, entitlement, and interest spending, but these costs reflect only budgeted expenses, not regulatory costs.

Regulations Shift Costs

Congress can fund new programs in three ways. It can raise taxes or borrow money with a promise to repay, with interest, from future tax collections. In each of these cases, the American people can assess the cost of new programs and measure them against their expected merits. The ability to hold congressional spending accountable is essential to government oversight. These two ways of funding make it possible for citizens to know what Congress is doing with our money.

The third way that Congress funds programs is by regulating. Instead of paying directly and booking the expense of a new initiative, it can require private businesses and state and local governments to bear the costs. Disclosure of these costs is rare, which leads to an accountability problem. When regulations are unpopular, Congress often can escape public scrutiny by blaming agencies for the costs.

In law school we call this the SODDI–Some Other Dude Did It–defense, which is hardly conducive to responsible spending. Through the use of regulations, Congress can spend the American people’s money without our knowing who is spending it and how much is being spent.

4,000 New Rules Issued

In addition to creating huge regulatory costs, agencies continue to increase their sphere of control. Consider this: Congress passed and the president signed into law 161 bills in 2005. Regulatory agencies issued 4,062 rules. That means unelected bureaucrats are doing the bulk of the lawmaking. Making Congress directly answerable to voters for costs is a much better system than allowing Congress to use agencies as scapegoats.

The current opaqueness of the system renders the determination of the costs and benefits of regulations extremely difficult. Just as government demands transparency from the private sector, the people deserve transparency from government. To find out about regulatory trends and to accumulate information–such as the number of rules produced by each agency, their costs, and their benefits–interested citizens must comb through the Regulatory Plan and Unified Agenda of Federal Regulatory and Deregulatory Actions–more than 1,000 pages of small multi-column print.

Transparency, Accountability Lacking

Congress could issue a compact and concise report that would not only show the current regulatory costs but also five years of historical data to illustrate trends. The trends would prove useful to scholars, third-party researchers, and Congress. Such a report would reveal more clearly to the public what we know about regulatory costs … and also what we don’t know about the regulatory state.

Transparency is only part of the solution. Accountability is a prerequisite for control of the situation. Congress should be held accountable for regulation the same way it is for legislation. For too long Congress has avoided its duty to make the tough calls, delegated too much lawmaking power to agencies, and failed to require greater benefits than costs from the agencies.

Requiring explicit congressional approval of the agencies’ regulatory decisions would ensure direct congressional responsibility for every dollar of new regulatory costs.

Clyde Wayne Crews ([email protected]) is vice president for policy and director of technology studies at the Competitive Enterprise Institute, and is author of “Ten Thousand Commandments: An Annual Snapshot of the Regulatory State,” published in June. Brian Glidden ([email protected]) is a research associate at the Competitive Enterprise Institute.

For more information …

“Ten Thousand Commandments: An Annual Snapshot of the Regulatory State” is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.heartland.org, click on the PolicyBot™ button, and search for document #19569.