The Other Federal Budget

The Other Federal Budget

February 28, 1999

The Clinton administration proposes to spend $1.77 trillion on all programs from Social Security, to defense, to domestic programs in the new fiscal year 2000 Federal Budget. But is that the whole story?

Not really. Aside from spending the money it collects in taxes, the federal government has the option of regulating us to accomplish its endless goals.

Federal environmental, safety, and economic regulations "taxed" the public $737 billion in compliance costs in 1998, according to compilations from Professor Thomas D. Hopkins. These costs come on top of the above-board taxes we pay and that are detailed in the federal budget. Unlike when the government taxes or borrows to carry out its ends, the regulatory costs imposed by Uncle Sam are off-budget. You won’t find them in the Clinton administration’s new budget, though regulatory costs are now equivalent to more than 40 percent of the on-budget costs of government.

For an even better perspective, the $737 billion in regulatory compliance costs exceeds all $640 billion of 1996 pretax U.S. corporate profits. And by coincidence, 1997 personal income taxes collected were $737 billion as well.

To help ensure that officials’ appreciation of the regulatory state’s true scope continually improves, disclosure must be maximized. Greater attention must be focused on reducing the number of costly rules that slip by with few or no benefits. Typically today, no formal weighing of costs against benefits takes place. Despite hundreds of billions spent yearly to comply with federal environmental, safety, and economic regulations, very little official accounting for their costs exists at all. Most regulatory discipline today relies on agencies’ voluntary disclosure of the costs and benefits of their regulations – on the few occasions when they are required to do so.

Official Washington must recognize that agency rules don’t necessarily do more good than harm, and granting them the benefit of the doubt is getting expensive. However convenient it may be for lawmakers and regulators, the public should not have to tolerate off-budget, hidden government-required expenses of $737 billion. Such costs must be above-board to the greatest extent possible.

Informal estimates and hand-counting will have to do in the meantime. Presented below are some findings of the forthcoming 1999 edition of the Competitive Enterprise Institute’s Ten Thousand Commandments: A Policymaker’s Snapshot of the Federal Regulatory State. Much more is contained in the document itself.

• Regulatory costs now more than knee-high to the federal budget itself: Complying with off-budget federal regulations cost the United States $737 billion in 1998. That’s an amount equivalent to 44 percent of the entire federal budget.

• Who monitors all this regulation: The Center for the Study of American Business reports that agencies spent $17 billion to administer and enforce the rules and regulations. If this number is thrown into the mix, total regulatory costs jump to $754 billion.

• I pledge allegiance to regulation: U.S. regulatory costs almost exceed the combined 1995 GNPs of Canada and Mexico — $542 billion and $237 billion, respectively.

• More to come: The twice-yearly Unified Agenda of Federal Regulations describes rules in the pipeline (at the prerule, proposed, final, completed and long-term stages) at the 50-plus federal departments, agencies, and commissions. Now in the pipeline are 4,560 new regulations, a 3.5 percent increase over the previous year’s 4,407.

• $11.7 billion in new costs: Of the 4,560 rules in the pipeline, 117 are tagged "economically significant," meaning that they will impose at least $100 million in new costs annually. All told, that’s at least $11.7 billion annually in new off-budget costs. It’s also important to remember that these are recurring costs, not one-time expenses.

• More aches and pains for small business: Those rules contained in the Unified Agenda pipeline that agencies expect to have significant impacts on small businesses jumped 28 percent in the past year, from 733 to 937 — and are up 37 percent over the past five years.

• Environmental Regulation Agency: Hyper-regulator EPA, with 462 rules in the new Unified Agenda, boasts over 10 percent of the total 4,560 rules in the pipeline. Its 462 rules represent a seven percent increase over last year’s count. Furthermore, the EPA alone boasts 38 of the 117 economically significant rules under development by agencies. Thus, at $100 million apiece, EPA’s "major" rules alone will cost at least $3.8 billion.

• Small business must suffer too: EPA’s rules impacting small business jumped 9 percent over the past year, from 163 to 178, and are up 45 percent over the past five years.

Agencies will likely never perform adequate cost-benefit analyses no matter how strict the analysis requirements imposed upon them. Such campaigns, which in essence seek to get agencies to police themselves better, are not the path to fundamental regulatory reform and disclosure. The most important element of controlling the existing $737 billion regulatory state is to hold Congress accountable for every dollar of costs agencies impose on the public — preferably by requiring Congress to vote to approve agencies’ final rules — especially the most costly ones. Agency employees, after all, are not our elected representatives — members of Congress are. Voters cannot hold agencies accountable. Congressional approval — rather than mere agency approval — of both regulations and regulatory costs is the ultimate realization of accountability in regulation. Placing repsonsibility for the regulatory state’s costs where it belongs — at the feet of Congress — will provide the best incentives for the cost-benefit tradeoffs that many seek today, because it will finally be in Congress’ interest to recognize such tradeoffs.