The US Regulatory Black Hole, Quantified

This week the Competitive Enterprise Institute released its annual report on the failures of the regulatory state. Written by Clyde Wayne Crews, the report is aptly titled Ten Thousand Commandments and recaps the last year in regulatory excess. Needless to say, the details are not pretty.

The headline figure was US$1.863 trillion. That is the total that Crews estimates was the annual cost of regulation in the United States in 2012. To contrast, below is a chart comparing the cost of US regulation to the GDPs of the world’s largest economies.

As you can see, the cost of US regulation is larger than the GDP of India, the world’s largest country by population, as well as the major economies of Canada, Australia, and Mexico. On the surface this claim seems absurd. How could US regulations cost that much? The breakdown of the US$1.863 trillion figure by category lends some insight as to where these costs come from.

As you can see, the biggest components are economic regulation, environment, and tax compliance, with more than US$300 billion in costs each. This is not particularly shocking. Environmental rules are costly to comply with and often immensely complex. Such regulations span from auto emissions and fuel standards, to coal ash from power plants, to lead-based paint. With so many categories and so much technology needed to remedy environmental harms, it is no wonder that environmental regulations alone cost more than the GDP of Denmark.

Tax compliance is another major category, and is often the first thing people think of when discussing regulatory costs. Last year Mercatus Center scholars Jason Fichtner and Jacob Feldman found that tax compliance costs could be even higher than Crews’ estimates, adding up to nearly US$1 trillion. Moreover, they find that tax compliance could cost the government more than US$450 billion in unreported taxes. Anyone who has filed taxes knows that it is far from simple, and personal income taxes can be among the easier taxes to handle. Taxes such as Pennsylvania’s Capital Stock and Foreign Franchise Tax are nightmarish to file, and complex even for tax policy experts.

Crews’ study also notes some of the most important and costly regulations that went on the books in 2012. Some highlights:

  • Regulation to reduce the number of right whales struck by ships
  • Various regulations related to Obamacare
  • Applying the Fair Labor Standards Act to domestic service
  • Creation of an incentive program for advanced technology vehicles
  • Energy efficiency standards for a long list of things, from furnace fans to battery chargers to vending machines.
  • Mandatory motor coach seat belts
  • Performance standards for residential wood-burning heaters
  • Mandatory catfish and catfish products inspection (which cost US$14 million per year)

The Crews report does a great job at attempting to quantify the number and cost of new regulations. While it is by no means a perfect measure of these costs, in a field with as little transparency as regulatory policy, it is helpful to understand the sheer scale of the problem. Needless to say, the regulatory state is huge, and that isn’t a good thing.