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Costs of Deadweight Effects of Federal Spending and of 'Budget' or 'Transfer' Rules

This post is part of a series on “Rule of Flaw and the Costs of Coercion: Charting Undisclosed Burdens of the Administrative State,” and comprises an element of A Brief Outline of Undisclosed Costs of Regulation.

Theoretically, policymakers distinguish between economic and social regulation when examining and reporting on costs, effects, and employment.

Alongside these rules and regulations affecting the public are also process rules for service-oriented administrative paperwork such as business loans, passports, government benefits, and leasing/revenue-collection requirements for federal lands. Further, there are so-called “budget rules” or “transfer rules” that implement federal budgetary programs like income transfers from taxpayers to program beneficiaries. Program changes involving Medicare and Medicaid are examples.

These kinds of rules and regulations sport inherent costs of their own that are rarely noted, as does the raising of taxes itself. The Office of Management and Budget (OMB), with respect to lost efficiencies generated by spending and taxation in general, reckons an associated “excess burden” or deadweight loss such that “public investments that are not justified on cost-saving grounds should include a supplementary analysis with a 25 percent excess burden”:

Unless a tax is imposed in the form of a lump sum unrelated to economic activity, such as a head tax, it will affect economic decisions on the margin. Departures from economic efficiency resulting from the distorting effect of taxes are called excess burdens because they disadvantage society without adding to Treasury receipts. This concept is also sometimes referred to as deadweight loss. (Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs, Circular No. A-94.) 

Deadweight costs aside, administrative programs supposedly represent, not regulation, but rather “services” secured from government by the public. Nonetheless, wealth transfer programs can regulate personal lives on the deepest possible level and displace existing voluntary orderings (government replaces family/community or may undermine them) and emergent alternative voluntary frameworks.

Such interventions gradually lose their identity as regulations or coercive interventions with each passing generation. Ronald Reagan called Medicare “socialism” to universal jeers from the left, which insisted it would never lead to the kind of general government takeover of medicine now proposed by modern political candidates. Republicans are long since fully on board with Medicare, and that has created a clearer path Medicare for All, which future Republicans can be expected to likewise endorse should it come to pass.  

It happens to be the case that “major” budget and transfer rules are partially acknowledged with dollar amounts in each year’s (now extremely late) OMB Report to Congress. They are not included in OMB’s cost-benefit tally however. OMB describes their concrete effect this way: 

[T]ransfer rules may...impose real costs on society to the extent that they cause people to change behavior, either by directly prohibiting or mandating certain activities, or, more often, by altering prices [[and costs]]. The costs resulting from these behavior changes are referred to as the “deadweight losses” associated with the transfer.

Deadweight losses of federal spending in general and of governmental programs in particular do matter (perhaps particularly to non-beneficiaries). Like neglected regulatory costs overall, these need to be more explicitly considered when examining the overall effects of government intervention.