Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
What would you do if federal lawmakers proposed increasing annual taxes by $8,000 per household? You, and many other taxpayers, would likely retaliate in the voting booth. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Every year, American families pay somewhere around that amount in the form of higher prices to cover the costs of federal regulations, according to Small Business Administration estimates. Regulatory costs are essentially hidden taxes, so few people are aware of them, and even fewer know whether these costs yield any benefits. Not surprisingly, regulatory agencies continually slap consumers with regulatory costs without much accountability.
Congress attempted to address this problem in 2000. It required the White House's regulatory watchdog, the Office of Management and Budget (OMB), to produce an annual report on the costs and benefits of regulation to help better inform consumers and hold regulatory agencies more accountable. Yet OMB reports have done little to improve the situation.
OMB's recent draft report, which it will soon make final, doesn't bother to estimate average costs per household or small business. It doesn't bother to correct, critique, or improve questionable estimates from federal agencies. Instead, it simply lists and adds up questionable agency cost and benefit estimates. As a result, OMB's report simply validates misleading information—adding to, rather than clearing up, the confusion.
Numerous problems result because regulators often employ questionable practices, inflating benefit calculations to justify expansion of power. Accordingly, OMB should question outrageous benefit calculations—but it has failed miserably on this point.
For example, the OMB report finds that 52 to 72 percent of all benefits from the 107 major rules studied come from just four EPA Clean Air Act regulations—suggesting that less than four percent of regulations produce up to 72 percent of the benefits. This absurd finding should raise a red flag, but OMB doesn't bother to question it much at all.
The finding highlights serious problems with EPA cost-benefit calculations. EPA tends to grossly exaggerate regulatory benefits, which is something OMB should at least highlight for consumers.
Research by former Office of Technology Assessment scientist Michael Gough demonstrates that the total number of cancer deaths that EPA regulations cover is likely much smaller than the number of lives that EPA claims to actually save from cancer. In a 1991 article for the journal Risk Analysis, Gough analyzed the data contained in scientists Sir Richard Doll and Richard Peto's landmark 1981 study on the causes of cancer, along with EPA estimates from an agency report titled Unfinished Business. Like Doll and Peto, Dr. Gough concluded that at most between two to three percent of all cancers could be associated with environmental pollution.
Accordingly, Gough reported that EPA action could address only a very small percentage of cancer-related deaths. He found that assuming "EPA risk assessment techniques are accurate, and all identified carcinogens amenable to EPA regulations were completely controlled, about 6,400 cancer deaths annually (about 1.3 percent of the current annual total of 435,000 cancer deaths) would be prevented." Using what are probably much more realistic assessment techniques developed by the Food and Drug Administration (FDA), he found that the number of cancers within EPA's regulatory reach is more likely much smaller: about 1,400 a year.
These findings raise serious doubts about the vast majority of EPA benefit estimates, which claim to reduce tens of thousands of cancer deaths annually. For example, EPA claims that its disinfection byproducts rule for drinking water alone saves more than 2,000 lives. That seems outrageously high considering it is only one of nearly 100 drinking water regulations and one of thousands of rules in EPA's total portfolio. Such claims are not even consistent with other EPA estimates. In Unfinished Business, EPA itself estimated that all drinking water contaminants combined cause 400 to 1,000 drinking water-related cancer deaths a year.
If Americans knew that they were paying billions of dollars every year for regulations that likely don't produce anything near the benefits they claim (and in many cases produce no measurable benefits at all), they may finally seek redress from Congress. OMB is in the position to help bring this information to consumers and to call agencies to the mat. Unfortunately, it appears that this regulatory watchdog is asleep.