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America's Hidden Trillion-Dollar Tax

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America's Hidden Trillion-Dollar Tax

We need a breather to take it all in: TARP, a $787 billion stimulus bill and a projected $1.845 trillion budget deficit. But lost among all the spending commotion is yet another trillion-dollar poker hand — federal regulation.

Compliance costs from thousands of regulations — pouring out from over 60 departments, agencies and commissions — amounted to $1.17 trillion in 2008. The federal government spends an additional $49.1 billion just to administer and enforce its rules. This figure is on par with federal income tax revenue ($1.2 trillion) and Canada's entire 2006 GDP ($1.265 trillion).

How To Hide Trillions

When doing business becomes so expensive, there tends to be a lot less of it. Of course, businesses pass on their costs, so regulation becomes a hidden trillion-dollar tax on consumers. This is bad policy at any time.

During a recession, it's economic hara-kiri.

The numbers are up as well as the costs. The 2008 Federal Register reached a record 79,435 pages, up 10% from the previous year.

Even as the economy dipped into recession, agencies issued 3,830 new final rules. As you read this, 4,004 new federal regulations fill the pipeline, 753 of which affect small businesses.

"Economically significant" is the bureau-speak description for rules costing at least $100 million per year. There are 180 of them in the 2008 Register, up 13% from 2007 — which was itself up 14% from 2006.

Anti-Stimulants

Some rule makers are more active than others. Out of 61 rule-making agencies, just five — the departments of Treasury, Agriculture, Commerce and Interior, and the Environmental Protection Agency — account for 46% of all rules in the pipeline.

This economy needs stimulus. Taxing and spending are anti-stimulants — and so is regulating. The administration's fiscal "stimulus" amounts to taking money out of the economy and putting it back in. That is like ladling water out of the deep end of a pool only to pour it back in at the shallow end — all the while paying somebody to make the pointless transfer.

Worse, today's deficits are tomorrow's tax increases. And more spending is usually followed by more regulation. The Bush spending explosion was accompanied by more than 30,000 new regulations.

What the economy needs instead is a deregulatory stimulus. There are three fronts in the battle to achieve it.

The first is disclosure. The more that policymakers and the public know about overregulation, the more likely they are to do something about it.

To that end, our organization, the Competitive Enterprise Institute, issues the annual Ten Thousand Commandments report. Official Washington needs its own such report card. Each year's federal budget, or the annual Economic Report of the President, should include in-depth chapters exploring the regulatory state.

The second front is installing sunset provisions. Like a carton of milk, every newly created regulation should have an expiration date, beyond which it gets discarded unless renewed by Congress. Obsolete rules should not be on the books at all.

The third front involves Congress reasserting its lawmaking authority.

Article I, Section 1 of the Constitution says, "All legislative powers herein granted shall be vested in a Congress." Much of that power has been given away to federal agencies. Congress passed 285 laws last year, compared with 3,830 final rules from agencies. The alphabet soup of agencies should answer to Congress for the regulatory burdens they impose.

Congress Should Step Up

At the very least, Congress should take the time to review the most onerous rules. Overdelegation allows Congress to shift blame to the agencies for excessive or unpopular regulations.

But the people's elected representatives should perform their rightful duty and approve all new laws, not just 285.

In this age of trillions, we cannot afford the regulatory state as it now stands. It is a hidden trillion-dollar tax on consumers, on top of what they already pay.

A deregulatory stimulus is in order, the sooner the better. In the game of government poker, perhaps it is time to fold.