Let’s get this huge ‘hidden tax’ of regulation out into the open
Smack dab in the middle of contentious debt limit negotiations, the House Budget Committee held another in its series of hearings on American economic growth, this one titled “Removing the Burdens of Government Overreach.” I had the opportunity to testify and make CEI’s case for sweeping regulatory liberalization. The following is a lightly edited version of what I had to say.
When it comes to headline news, federal spending gets all the attention. That’s unfortunate, because the “hidden tax” of regulation is equally important. The Code of Federal Regulations is 188,000 pages and counting.
Regulations affect nearly every aspect of our lives, from the houses we live in to the food we eat to what we do at work. Recent proposed White House changes in an already opaque rulemaking process threaten to make regulation even less transparent.
For example, Members of the Committee may be unaware that there has been no formal Office of Management and Budget (OMB) Report to Congress on regulatory costs and benefits since 2020, covering fiscal year 2019.
Only a relative handful of regulations receive rigorous analysis. Independent agencies, ascendant in President Joe Biden’s “whole-of-government” progressive pursuits like “climate crisis,” “equity” and “competition policy,” get little OMB scrutiny. Nor do the thousands of guidance documents, memoranda, circulars, notices and other decrees we refer to as regulatory dark matter.
The bottom line is that the federal government does not have any justification for its claims of net-benefits for the entire regulatory enterprise, especially since unmeasured categories of intervention such as antitrust propel cost as well.
At Biden’s direction, OMB is reformatting central regulatory review procedures through a rewrite of so-called “Circular A-4” guidance on regulatory analysis. This is problematic given the progressive transformations and federal consolidations underway in the United States.
When government steers cross-sectorally as it does today while the market merely rows—especially in the wake of the Inflation Reduction Act and other recent control-oriented spending bills—it creates compounding costs of intervention even if no specific notice-and-comment rules get issued.
Comprehensive regulatory reform is important. Congress, as the Republican Study Committee’s “GEAR” (Government Efficiency, Accountability, and Reform) task force correctly noted, has vastly over-delegated lawmaking to agencies. While Congress tends to pass from a few dozen to a couple hundred laws each year, agencies issue over 3,000 rules. So it’s a good thing that the REINS Act to require congressional approval of certain hefty rules appears in the debt limit deal proposed by the House GOP.
Fortunately, there is an appetite in the 118th Congress for reforms, and we do periodically see bipartisan appeals for transparency and better disclosure of regulatory burdens. Some might not realize that the 118th Congress’s Regulatory Accountability Act, the Guidance Out of Darkness Act, a Regulatory Improvement Commission and even regulatory budgeting boast bipartisan pedigrees. I discuss these and more in my written testimony.
Speaking of regulatory budgeting, Representative Bob Good’s “Article I Regulatory Budget Act” would make Washington’s presence in the economy more explicit by capping what agencies individually and collectively compel the private sector to spend on compliance.
More thorough cost analysis and more transparency are bipartisan winners. A generation ago, the Unfunded Mandates Act, the Small Business Regulatory Enforcement Fairness Act, and shockingly enough, the Congressional Review Act—the very CRA that generates so much consternation now—passed with overwhelming bipartisan support with Nevada’s Harry Reid among those leading the charge.
Unfunded mandates reform was once so popular it was dubbed “S. 1” in the Senate. If, as I suspect is likely, a rise in mandates on lower-level governments and small business materializes, reform may again garner bipartisan appeal. It certainly enjoys constituent appeal.
That said, mere regulatory reform won’t suffice if Congress continues enacting legislation like that of recent years. A series of transformations are fusing the spending and regulatory state into a colossus, much of it pushed by the federal government’s extraordinary procurement and contracting power.
Overdoing regulation will derail our post-pandemic march into an era of renewed prosperity. When it comes to healthy and prolonged economic expansion, you don’t need to tell the grass to grow, but you do have to take the rocks off of it.