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Regulation: The Tax You Don't See

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Regulation: The Tax You Don't See

Government spending—everybody’s talking about it. But unlike the weather, everyone wants to do something about it. Last week, House Ways and Means Committee Chairman Dave Camp (R-Mich.) released a comprehensive tax reform plan. This week Rep. Paul Ryan (R-Wisc.) made headlines by questioning the government’s efforts to tackle poverty, and the following day, President Obama introduced his $3.9 trillion budget proposal. There is another area where government grows in the shadows, which in many ways, hides government spending and taxation – through regulation.

The federal government spent roughly $3.5 trillion last year, but federal regulations impose an annual economic burden of more than $1.8 trillion. And to be clear, this number is an understatement because the vast majority of rules are not required to report their costs.

One reason this gets so little attention is that most regulations are the technical, dry stuff that most people don’t care about until it affects them. For example, the business owner who is forced to spend thousands of dollars to move light switches to comply with Occupational Safety and Health Administration rules. Or the land owner who cannot build on his property because there’s a rare species of salamander also living there, lest he fall afoul of the Endangered Species Act.

Another reason is a lack of transparency. Many headline-worthy regulatory stories stay buried in difficult-to-access government documents, or are never disclosed at all. By way of contrast, in Congress, legislation is at least subject to public hearings and open floor debate. Lawmakers’ votes are a matter of public record that voters can take into account. Regulatory agencies face no such scrutiny.

Government agencies are only required to look at the costs and benefits for a small minority of their rules. In fiscal year 2012, the Office of Management and Budget (OMB) provided cost-benefit analyses for 14 out of more than 3,500 rules—less than one half of one percent. Over the last decade, only 126 rules out of more than 35,000 received full cost-benefit treatment.

One could argue this is all by design. It is easier for policymakers to hide unpleasant or unpopular policies from the public by regulating instead of legislating, and we have seen this in practice. Last year, Congress passed, and the president signed, 65 bills into law. Meanwhile, agencies issued 3,659 regulations, which also have the force of law. That is a ratio of 56 regulations for every law.

 This lack of transparency must end, and fortunately, there is some good news. The House recently passed a number of transparency bills as part of Stop Government Abuse Week.

One reform would expand OMB’s review authority. Currently, OMB can only review rules from the 17 cabinet-level agencies—out of more than 60 rulemaking agencies in total. That would improve the number of rules receiving the full cost-benefit treatment.

Another reform would require the semi-annual Unified Agenda of Federal Regulations, which compiles rules in various stages of the pipeline from every rulemaking agency, to be published on time. The agenda is one of the regulatory state’s most important transparency measures, but the last few editions have been published either months late or on the eve of major holidays, attracting little attention.

A third reform would require agencies to publish an annual report card for all of their programs, how much those programs cost, and other basic information that is currently difficult to access. Our organization, the Competitive Enterprise Institute, has put together sample report cards for the Environmental Protection Agency and Federal Communications Commission that could serve as a model.

As the President and Congress get down to negotiations over the budget and tax reform, they should keep the hidden tax and costs of regulation on their agenda. These reforms, which have already passed the House, would represent a step in the right direction if they can make it past the Senate and the president’s desk. As always, though, there is more to do.