Memo To Presidential Campaigns — Federal Regulation Matters More Than Spending

President Barack Obama’s federal budget proposal for FY 2016 sought $3.999 trillion in discretionary, entitlement, and interest spending; the Republican alternative a little less.

High debt and deficits notwithstanding, we will soon cross again the line of $4 trillion in annual spending, never to return. We were there before during the downturn after 2008, but recovered for a while.

In the near term, President Obama’s 2016 budget does project smaller deficits than recent highs—with $485 billion in 2014 projected to jump to an estimated $583 billion in 2015 before dipping. But then deficits head back to $600 billion and beyond.

Indeed, at no point is spending projected to balance in the coming decade. We experienced trillion dollar deficits between 2009 and 2012, and the Congressional Budget Office projects that deficits will exceed $1 trillion again by FY 2025.

Trillion dollar deficits were once unfathomable. Such sums typified the level of budgets themselves, not shortfalls. The overall national debt topped $18 trillion in December 2014, the same month the International Monetary Fund calculated China’s economy to be worth $17.6 trillion in terms of purchasing power parity, making it the world’s largest economy (albeit obviously still lagging far behind the U.S. on a per capita basis).

Some consolation is that many other countries’ government outlays make up a greater share of their national output, compared with nearly 20 percent for the U.S. But in absolute terms, the U.S. government is the largest  on the planet. Only five other nations top $1 trillion in annual government revenues, and none but the United States and now China—for the first time—collect more than $2 trillion.

Clearly, the scope of federal government spending and deficits is sobering.It’s almost always topic number one.

Yet the federal government’s reach extends well beyond taxes, deficits, and borrowing. Federal environmental, safety and health, and economic regulations affect the economy by hundreds of billions—perhaps trillions—annually in addition to the official dollar outlays that dominate the federal policy debate.

Still, scattered government and private data exist about the number of regulations issued, their costs and effects, and the agencies that issue them. Compiling some of that information can make the federal regulatory enterprise more comprehenible; that’s an urgent concern as we enter the 2016 campaign phase. The bullets below summarize the new 2015 edition of Ten Thousand Commandments, my annual survey of regulatory trends:

• For some 20 years, estimates of the aggregate annual cost of regulation have reached hundreds of billions of dollars (for example, GAO’s $647 billion reckoning in 1995). Based on federal government data, past reports and contemporary studies, this new report highlights regulatory compliance and economic impacts of $1.88 trillion annually. Separately, a study from the National Association of Manufacturers finds costs of $2.028 trillion annually.
   
• In 2014, 224 laws were passed during the calendar year, whereas 3,554 rules were issued by agencies. That means there were 16 rules for every law passed last year. This “Unconstitutionality Index,” the ratio of regulations issued by agencies to laws passed by Congress and signed by the president, was 51 in 2013; the decade’s average has been 26. While each year’s particular rules aren’t normally substantively related to that years particular laws, this disparity highlights the delegation of lawmaking power to unelected agency personnel.
   
• If all costs of regulation and intervention were assumed to flow all the way down to households (they don’t, but ultimately individuals, in our myriad capacities as employers and employees and citizens, do bear the burdens all the same), U.S. households would “pay” $14,976 annually in regulatory hidden tax. That amounts to 23 percent of the average income of $63,784, and 29 percent of the expenditure budget of $51,100. The “tax” exceeds every item in the budget except housing. More is “spent” on embedded regulation than on health care, food, transportation, entertainment, apparel and services, and savings.
   
• The estimated cost of regulation exceeds half the level of the federal budget itself, which was $3.504 trillion in 2014.
   
• Regulatory costs of $1.88 trillion amount to 11 percent of the U.S. gross domestic product (GDP), which was estimated at $17,599.8 billion in 2014 by the Commerce Department’s Bureau of Economic Analysis.
   
• When regulatory costs are combined with federal FY 2014 outlays of $3.5 trillion, the federal government’s share of the entire economy now reaches 30.6 percent.
   
• The costs of the regulatory “hidden tax” surpass federal income tax receipts. Regulatory compliance costs exceed the 2014 estimated total individual income tax revenues of $1.386 trillion.
   
• Regulatory compliance costs vastly exceed the 2014 estimated corporate income tax revenues of $333 billion, and rival corporate pretax profits of $2.235 trillion.
   
• If it were a country, U.S. regulation would be the 10th largest economy, ranked behind India and ahead of the Russian Federation.
   
• U.S. regulatory costs exceed the GDPs of Australia and Canada, the highest income nations among the countries ranked most free in the annual Index of Economic Freedom and Economic Freedom of the World reports.
   
• The Weidenbaum Center at Washington University in St. Louis and the Regulatory Studies Center at George Washington University in Washington, D.C., jointly estimate that agencies spent $59.5 billion (on budget) to administer and police the regulatory enterprise.
   
• The Federal Register finished 2014 at 77,687 pages, the sixth highest level in its history.
   
• Among the six all-time-high Federal Register page counts, five have occurred under President Obama.
   
• Federal Register pages devoted specifically to final rules stands at 24,861. The record high is 26,417 in 2013.
   
• The 2014 Federal Register contained 3,554 final rules and 2,383 proposed rules. The annual outflow of more than 3,500 final rules—sometimes far above that level–means that 90,836 rules have been issued since 1993.
   
• Since the nation’s founding, more than 15,209 executive orders have been issued. President Obama issued 215 as of the end of 2014.
   
• President George W. Bush averaged 62 major rules annually during his eight years in office; Obama’s six years so far have averaged 81.
   
• While the federal government issues over 3,500 rules annually, public notices in the Federal Register normally exceed 24,000 annually, with uncounted “guidance documents” and other matter among them. There were 23,970 notices in 2014—and 501,899 since 1995.
   
• Sixty federal departments, agencies, and commissions have 3,415 regulations at various stages of implementation, according to the 2014 “Regulatory Plan and the Unified Agenda of Federal Regulatory and Deregulatory Actions,” which lists federal regulatory actions at various stages of implementation.
   
• Of the 3,415 regulations in the pipeline, 200 are “economically significant” rules, which the federal government defines as having annual effects on the economy of $100 million or more. Assuming that those rulemaking effects are primarily regulatory implies roughly $20 billion yearly in future off-budget regulatory costs.
   
• Of the 3,415 regulations now in the works, 674 affect small businesses. Of those, 374 required a regulatory flexibility analysis; 300 were otherwise noted by agencies to affect small businesses.
   
• The five most active rule-producing agencies—the Departments of the Treasury, Interior, Commerce, Transportation, and Health and Human Services—account for 1,453 rules, or 43 percent of all rules in the Unified Agenda pipeline.
   
• The Environmental Protection Agency (EPA), which was formerly ranked consistently in the top five, now comes in at sixth, but adding its 186 rules brings the total from the top six rulemaking agencies to 1,639 rules, or 48 percent of all federal rules.

When it comes to stimulating a limping economy, controlling spending and relieving regulatory burdens both matter, but regulation increasingly so.
The short-lived series of budget surpluses from 1998 to 2001—the only ones since 1969—is ancient history in today’s debt- and deficit-drenched policy setting. Pressures to restrain budgets can induce lawmakers to impose off-budget regulations on the private sector rather than add to unpopular deficit spending. Unlike federal spending, regulatory costs remain largely hidden from public view, increasing regulation’s attractiveness to lawmakers. And since regulators are already disinclined to emphasize when a rule’s benefits do not justify the costs involved, one could expect agencies to devise new and dubious categories of benefits to justify rulemaking.

The source of overregulation is the delegation of lawmaking power to agencies by Congress. Requiring expedited votes on economically significant or controversial agency rules before they become binding would reestablish congressional accountability and help affirm the principle of “no regulation without representation.” The REINS Act (Regulations from the Executive In Need of Scrutiny) from Sen. Rand Paul (R-KY) and Rep. Todd Young (R-IN) would do this.

Like federal spending, regulations and their costs should be tracked and disclosed annually, with routine housecleaning performed. Openness about regulatory facts and figures can be bolstered through federal “regulatory transparency report cards”  each year to distill information for the public and policy makers about the scope of the regulatory state. Ten Thousand Commandments describes some of what we know about the scope of regulation, but some of the solutions just mentioned are detailed in “One Nation, Ung0vernable? Confronting the Regulatory State,” a chapter in the just-released Fraser Institute book What America’s Decline in Economic Freedom Means for Entrepreneurship and Prosperity.

As we enter a new presidential campaign phase, both parties should listen closely to constituents on the question of barriers to job creation.