A ‘Hidden Tax’ Of Rules Hits Economy
Op-ed in Investor's Business Daily
President Bush's fiscal 2009 U.S. budget is the first to top $3 trillion. Federal spending has risen from 18% of GDP in 2000 to 21% today. The administration's spending explosion has been roundly criticized by both the right and the left.
What is less well documented are regulatory compliance costs — such as environmental, labor and energy efficiency mandates. As a result, too many remain unaware of the size and scope of regulation. Regulations are a "hidden tax" now estimated to cost business and consumers hundreds of billions, above and beyond federal spending itself.
The chattering classes are unconcerned over the ill effects of the regulatory levitation; indeed, they cheer it.
In June, New York Times columnist Paul Krugman blamed inadequate food regulation for everything from health scares to foreign policy troubles with South Korea. The Republican administration now proposes sweeping new regulation of America's financial sector. Clearly, many have the impression that the American economy is as lawless as the Wild West.
To be blunt, that impression is wrong.
While the Dow collapses, we have a bull market in government regulations. The 50-plus departments, agencies and commissions are now at work on 3,882 rules; 757 will affect small businesses. More than 51,000 final rules were issued from 1995 to 2007. Those regulations are not free.
Enforcing and overseeing them costs $42 billion per year. A far bigger cost — one that is not counted in the budget — is compliance. Regulatory compliance costs of $1.16 trillion are now higher than Canada's entire 2004 GDP ($1.017 trillion).
At a time of lackluster 1% economic growth, the regulatory state costs 8.5% of U.S. GDP. Combined with the 21% of GDP consumed by federal spending, we have a federal government that absorbs nearly 30% of economic output. None of this includes state and local government, which push the burden of government up to 53.9% of GDP.
The Federal Register, which lists all new rules, ran to 72,090 pages in 2007. This was down 3.8% from 2006. The record year was 2004, which saw 75,676 pages.
Out of more than 60 federal departments, a mere five accounted for 45% of new rules. The departments of Treasury, Commerce, Agriculture, and Homeland Security, along with the EPA, instituted a combined 1,741 new rules in 2007.
Some rules cost more than others and deserve special attention. Of the new rules, 159 are "economically significant," meaning they will cost at least $100 million a year.
How to stem the tide? One way is disclosure. Our group, the Competitive Enterprise Institute, issues the annual Ten Thousand Commandments report (online at cei.org), but that's not enough. Each year's federal budget, or the annual "Economic Report of the President," should include in-depth chapters exploring the regulatory state.
The more the public and policymakers know about regulatory costs, the more likely they are to do something about them. For example, the SBA just instituted a program called "r3" (sba.gov/advo/r3/) that allows small-business people to alert lawmakers to rules that are particularly burdensome.
We need a drumbeat of exposure of regulatory burdens. But disclosure alone is not enough. In an era of rapid technological change, sunsetting rules is in order. Obsolete rules should not be on the books.
Congress could ask the Office of Management and Budget to identify rules to eliminate each year, as well as implement its own bipartisan packages of cuts to be voted on without amendment. Like a carton of milk, every newly created regulation should have an expiration date, beyond which it gets discarded unless renewed by Congress.
Congress should also reassume its lawmaking responsibilities. It passed 168 bills last year, compared with 3,595 final rules issued by federal agencies. This "regulation without representation" should end.
The Constitution says, clear as day, "All legislative powers herein granted shall be vested in a Congress." The EPA and DHS are not part of Congress; they should answer to it via at least expedited approval of the most onerous rules.
By over-delegating its responsibilities to agencies, Congress can shift blame away from itself for excessive or unpopular regulations. The people's elected representatives should perform their rightful duty and approve all new laws, not 168 out of 3,763.
Today's political candidates are proposing a new fiscal spending stimulus, when what we really need is a "deregulatory stimulus." We need to roll back the regulatory state and free up the wealth-creating sector. We cannot afford today's bull market in government regulations.
Crews is vice president for policy at the Competitive Enterprise Institute and author of "Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State." Young is a CEI research associate.
