Federal government regulators issued 4,148 new rules in the 71,269-page Federal Register in 2003, 19 fewer than they did in 2002. The cost of those rules appears nowhere in the federal budget.
In his fiscal year 2005 federal budget, President Bush proposed $2.4 trillion in discretionary, entitlement, and interest spending. Although that figure fully expresses the on-budget scope of the federal government, there is considerably more to the government’s reach. Federal environmental, safety and health, and economic regulations cost the economy hundreds of billions of dollars every year on top of official federal outlays.
The exact cost of federal regulations can never be fully known. Some of those costs, although generally imposed on businesses, get passed on to consumers, just as firms generally pass along to consumers some of the costs of the taxes they are required to pay.
But government and private data exist on scores of regulations and the agencies that issue them, as well as on regulatory costs and benefits. Some of this information can be compiled in a way that makes the regulatory state more comprehensible to the public.
Regulators Gone Wild
The 2003 Federal Register contained 71,269 pages, a 6 percent decrease from 2002’s all-time record of 75,606 pages. A total of 4,148 final rules were issued by agencies in 2003. By comparison, Congress passed and the president signed into law a comparatively low 198 bills in 2003.
In the 2003 Unified Agenda, which summarizes the rules and proposed rules that each federal agency expects to issue during the next six months, agencies reported on 4,266 regulations at various stages of implementation throughout the 50-plus federal departments, agencies, and commissions, an increase of 2 percent from the previous year.
Of the 4,266 regulations now in the pipeline, 127 are “economically significant” rules that will have at least $100 million in economic impact. Combined, those rules will impose at least $12.7 billion in future off-budget costs every year.
According to the Federal Register, the five most active rule-producing agencies (the Departments of Treasury, Transportation, Homeland Security, and Agriculture and the Environmental Protection Agency) account for 46 percent of the rules under consideration.
Costs Outweigh Benefits
The Office of Management and Budget’s latest report on the costs and benefits of federal regulations finds cumulative 1993-2004 costs of major regulations to have been between $34 and $39 billion, while noting the benefits of all the rules range from $62 billion to $168 billion.
A more broadly constructed compilation of annual regulatory costs by economists Thomas Hopkins and Mark Crain finds regulatory costs hit an estimated $869 billion in 2002, an amount equivalent to 40 percent of all FY 2003 outlays.
Regulatory costs are more than twice the $375 billion budget deficit; more than the entire Canadian gross domestic product; and equivalent to 7.9 percent of U.S. gross domestic product, estimated at $10,980 billion for 2003.
Federal regulatory costs of $869 billion, combined with on-budget outlays of $2,158 billion, bring the federal government’s share of the economy to some 27 percent.
Regulatory costs also exceed all corporate pretax profits, which were $665 billion in 2002. Regulatory costs are greater than the estimated 2003 individual income tax outlays of $849 billion, and far greater than the year’s corporate income taxes of $143 billion.
On the basis of estimates from the Weidenbaum Center at Washington University in St. Louis and Mercatus Center at George Mason University in Arlington, Virginia, federal agencies spent $30.8 billion merely to administer and police the regulatory state in 2003, 12.8 percent more than in the previous year. Including the $869 billion in off-budget costs, that brings the total regulatory burden to $899.8 billion.
More Accountability Needed
Regulations and taxes can be substitutes for one another; a new government program can require increased spending or the imposition of new rules and regulations. Thus, unless regulatory activity is better monitored, deficit control may tend to invite Congress to adopt new, off-budget, private-sector regulations rather than new spending that would increase the federal budget deficit. If regulatory costs remain largely hidden from public view, regulating will continue to look like an attractive alternative to taxing and spending.
The solution is to treat regulations the same way federal spending is treated. Whenever possible, Congress should be held accountable for the compliance costs as well as the benefits of federal regulations. Cost/benefit analysis of rules is the typical remedy proposed to police excess regulation. The problem with cost-benefit analysis, however, is that it is largely a form of agency self-policing; agencies perform “audits” of their own rules, but rarely admit the benefits of a rule do not justify the costs involved. Third-party review is necessary.
One way to maximize congressional accountability would be to require Congress to vote explicitly on agency rules (in an expedited fashion) before they become binding. Vital for true accountability, this step would fulfill citizens’ expectations of “no regulation without representation.”
Disclosing the costs of proposed rules would remain important, however, even if Congress approved the regulations, just as disclosure of direct program costs is critical in planning the federal budget. Rather simple “regulatory report cards” could be issued officially each year by the federal government to distill regulatory data.
The maximum surplus projected by the Congressional Budget Office over the coming decade is a minimal and highly speculative $13 billion in 2014. Regulatory costs of more than $800 billion clearly dwarf that amount. If regaining and maintaining a true surplus remains a priority, policymakers must seek to control regulatory costs.
Clyde Wayne Crews Jr. is vice president for policy and director of technology studies at the Competitive Enterprise Institute and an adjunct scholar at the Cato Institute. His email address is [email protected].
For more information …
Crews presents a more in-depth analysis of regulatory issues in Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State, available online at http://www.cato.org/tech/pubs/10kc_2004.pdf.