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INTRODUCTION: TOWARD ENDING "REGULATION WITHOUT REPRESENTATION"
The federal government primarily funds its programs in three ways. The first is to raise taxes to pay for new programs. The second is to borrow money to pay for them (with a promise to pay back that borrowed money, with interest, from taxes collected in the future). No matter how controversial government spending programs can be, taxpayers can always see how much programs cost by looking at the federal budget, and Congress can be held accountable for programs that are controversial. While not perfect, such accountability is a fundamental, necessary condition for controlling government.
The third way the government can accomplish its goals is to regulate. That is, rather than pay directly and book the expense of a new initiative, it can require that the private sector and lower-level governments pay. By regulating, the government can carry out desired programs but avoid using tax dollars to fund them. This process sometimes allows Congress to escape accountability and to blame agencies for costs. Since disclosure and accountability for regulation are limited, policymakers have little incentive to care about the extent of regulatory costs or where those costs stand in relation to ordinary government spending. Regulatory costs are unbudgeted and lack the formal presentation to the public and media to which ordinary federal spending is subject, and thus regulatory initiatives allow the government to direct private-sector resources to a significant degree without much public fuss. In that sense, regulation can be thought of as off-budget taxation. Figure 1 provides perspective on the level of "hidden regulatory taxation," by presenting summary data for selected topics described in this report. Trends over the past few years are provided where information is available.