Uncle Sam's Commandments

Uncle Sam's Commandments

August 01, 1996

While government activity is generally, and rightly, associated with taxing and spending, there is another way Congress carries out its objectives: by imposing health, safety, and economic policy regulations. Taxing and regulating, in fact, can serve as substitutes: The government can tax us, or it can impose mandates on individuals and lower-level governments. For example, the government can raise taxes to pay for worker retraining programs -- or it can mandate that firms provide retraining at private expense.

Unlike taxes, regulations -- now costing an estimated $677 billion per year -- are entirely off-budget. In fact, one of today's under-appreciated administrative risks is that we will succeed in balancing our fiscal budget, but fail to control the regulatory state. That failure could lead to the massive increase of off-budget regulatory burdens as an alternative to deficit finance. The only way to control this dichotomy at the ballot box is to require Congress to vote (in an expedited manner) on major agency regulations before they are binding on the public. Until that's done, off-budget burdens will proliferate.

Even now, though no explicit regulatory cost budget exists, Congress can begin officially documenting the extent of the yearly regulatory burden that it and agencies impose on the public and publish summaries of such information in the fiscal budget or the Economic Report of the President. Currently, third-party researchers do provide estimates that place the regulatory burden in perspective. Even if managing a formal regulatory cost budget turns out to be an intractable problem, Congress can cement the case for permanent and aggressive regulatory management merely by doing a better job presenting the information that now exists but is not easily accessible.

CEI's new study, Ten Thousand Commandments: A Policymaker's Snapshot of the Federal Regulatory State hopes to contribute to such "user-friendliness" by documenting regulatory trends over the past few years. Presented below are just a couple of the report's elements -- based on things we know about the scope of the regulatory state from scattered sources -- that Congress should consider including in an official yearly report on the regulatory state. Surely such disclosure ought to be non-controversial. The number of Federal Register pages -- today's most widely used metric -- is a poor gauge of the extent of the regulatory state, but often is the only one readily available.

Regulatory costs rival on-budget government spending: As the accompanying chart shows, controlling the deficit may be simple compared to wrestling down the regulatory state. Regulatory costs are now well above three-quarters of a trillion dollars, dwarfing the $144 billion deficit by comparison. Regulatory costs will remain at least one-third the level of total budgeted government spending for the remainder of the decade. The lesson? Total government interference in the economy must be recognized to extend far beyond mere federal outlays to embrace regulatory costs as well. We must officially acknowledge that the federal government now directs over one-third of the nation's output, not less than one-quarter, as a focus on outlays would imply.

Regulatory costs absorb about 19 percent of the family's after-tax budget: Firms pass on much of their regulatory costs to consumers, meaning regulation behaves like a hidden tax. Regulatory costs take the form of higher prices for consumer products, grocery, utility, health and housing bills, and increases in state and local taxes.

The $677 billion regulatory burden for 1996 breaks down to about $6,830 per household. Such costs are embedded within the costs of items in the family budget. According to the Tax Foundation, the average two-earner couple brought in $35,541 in 1995 after-tax income. Regulatory costs make up over 19% of this amount. In fact, apart from housing costs ($8,324 annually), regulatory costs are the largest "item" in the family budget, exceeding each of the following: medical, food, transportation, recreation, and clothing costs.

Over 4,500 new regulations in the pipeline will impose at least $11.6 billion in new regulatory costs: The Unified Agenda of Federal Regulations is a twice-yearly compilation of proposed and final regulatory and deregulatory actions by about 60 federal departments, agencies, and commissions, on which action is expected during the coming 12 months. According to the latest release, 4,570 rules are now at various stages of completion. Most are extremely minor rules, having to do with agency housekeeping or ensuring that certain federal programs run smoothly. But many of these rules are costly. Agencies are required by executive order to prepare cost-benefit analyses for those rules that are "economically significant," which means formally that they will cost at least $100 million per year. In the April 1996 Agenda, 116 rules are designated economically significant, meaning new regulatory costs of at least $11.6 billion will be imposed by these rules. That figure is a minimum cost; many rules will surely cost well above $100 million.

Despite the size of the regulatory state, and the certainty of regulatory costs, benefits are far from clear, and are calculated with far less precision. But if Congress were to consolidate even rudimentary yearly regulatory information, we would stand a better chance of forcing Congress vote on regulations the same way it's required to vote to spend our taxes.

Wayne Crews (cwcrews@cei.org) is a CEI fellow in Regulatory Studies.