A ‘Hidden Tax’ Of Rules Hits Economy

President Bush’s fiscal 2009 U.S. budget is the first
to top $3 trillion. Federal spending has risen from 18% of GDP in 2000
to 21% today. The administration’s spending explosion has been roundly
criticized by both the right and the left.

What is less well
documented are regulatory compliance costs — such as environmental,
labor and energy efficiency mandates. As a result, too many remain
unaware of the size and scope of regulation. Regulations are a "hidden
tax" now estimated to cost business and consumers hundreds of billions,
above and beyond federal spending itself.

The chattering classes are unconcerned over the ill effects of the regulatory levitation; indeed, they cheer it.

In June, New York Times columnist Paul Krugman blamed inadequate
food regulation for everything from health scares to foreign policy
troubles with South Korea. The Republican administration now proposes
sweeping new regulation of America’s financial sector. Clearly, many
have the impression that the American economy is as lawless as the Wild

To be blunt, that impression is wrong.

While the Dow collapses, we have a bull market in government
regulations. The 50-plus departments, agencies and commissions are now
at work on 3,882 rules; 757 will affect small businesses. More than
51,000 final rules were issued from 1995 to 2007. Those regulations are
not free.

Enforcing and overseeing them costs $42 billion per year. A far
bigger cost — one that is not counted in the budget — is compliance.
Regulatory compliance costs of $1.16 trillion are now higher than
Canada’s entire 2004 GDP ($1.017 trillion).

At a time of lackluster 1% economic growth, the regulatory state
costs 8.5% of U.S. GDP. Combined with the 21% of GDP consumed by
federal spending, we have a federal government that absorbs nearly 30%
of economic output. None of this includes state and local government,
which push the burden of government up to 53.9% of GDP.

The Federal Register, which lists all new rules, ran to 72,090 pages
in 2007. This was down 3.8% from 2006. The record year was 2004, which
saw 75,676 pages.

Out of more than 60 federal departments, a mere five accounted for
45% of new rules. The departments of Treasury, Commerce, Agriculture,
and Homeland Security, along with the EPA, instituted a combined 1,741
new rules in 2007.

Some rules cost more than others and deserve special attention. Of
the new rules, 159 are "economically significant," meaning they will
cost at least $100 million a year.

How to stem the tide? One way is disclosure. Our group, the
Competitive Enterprise Institute, issues the annual Ten Thousand
Commandments report (online at cei.org), but that’s not enough. Each
year’s federal budget, or the annual "Economic Report of the
President," should include in-depth chapters exploring the regulatory

The more the public and policymakers know about regulatory costs,
the more likely they are to do something about them. For example, the
SBA just instituted a program called "r3" (sba.gov/advo/r3/) that
allows small-business people to alert lawmakers to rules that are
particularly burdensome.

We need a drumbeat of exposure of regulatory burdens. But disclosure
alone is not enough. In an era of rapid technological change,
sunsetting rules is in order. Obsolete rules should not be on the books.

Congress could ask the Office of Management and Budget to identify
rules to eliminate each year, as well as implement its own bipartisan
packages of cuts to be voted on without amendment. Like a carton of
milk, every newly created regulation should have an expiration date,
beyond which it gets discarded unless renewed by Congress.

Congress should also reassume its lawmaking responsibilities. It
passed 168 bills last year, compared with 3,595 final rules issued by
federal agencies. This "regulation without representation" should end.

The Constitution says, clear as day, "All legislative powers herein
granted shall be vested in a Congress." The EPA and DHS are not part of
Congress; they should answer to it via at least expedited approval of
the most onerous rules.

By over-delegating its responsibilities to agencies, Congress can
shift blame away from itself for excessive or unpopular regulations.
The people’s elected representatives should perform their rightful duty
and approve all new laws, not 168 out of 3,763.

Today’s political candidates are proposing a new fiscal spending
stimulus, when what we really need is a "deregulatory stimulus." We
need to roll back the regulatory state and free up the wealth-creating
sector. We cannot afford today’s bull market in government regulations.

Crews is vice president for policy at the Competitive Enterprise
Institute and author of "Ten Thousand Commandments: An Annual Snapshot
of the Federal Regulatory State." Young is a CEI research associate.