Regulations are Politicians’ (and Lobbyists’) Best Friends

The annual ritual of calculating taxes and rushing to file is upon us today. And it is hardly news that the ever-increasing complexity of the U.S. tax code has made the whole exercise unnecessarily time-consuming and confusing — and therefore wasteful, as it takes up people's time that could have gone toward more productive endeavors.

However, that pain in the process helps remind people of how much money the federal government costs them directly. Unfortunately, there is no similar process to make many of the indirect costs of government transparent. The greatest indirect costs are imposed by regulation. 

To account for those costs, my colleague Wayne Crews compiles CEI's annual survey of the costs of the federal regulatory state, 10,000 Commandments. The new edition, released today, shows thoses costs at an all-time high.

  • An evaluation of the U.S. federal regulatory enterprise by economists Nicole V. Crain and W. Mark Crain finds annual regulatory compliance costs hit $1.752 trillion in 2008.
  • Given 2010’s actual government spending or outlays of $3.456 trillion, the regulatory “hidden tax” stands at an unprecedented 50.7 percent of the level of federal spending itself. 
  • The dramatic reality that regulations and deficits now each greatly exceed $1 trillion a year is an unsettling new development for the United States. In 2008, regulatory costs were more than double that year’s $459 billion budget deficit. However, the deficit spending surge to more than $1 trillion since 2009 has catapulted the deficit to a level approaching the costs of regulation. 
  • Government spending’s relationship to government regulation bears scrutiny. Unchecked government outlays and deficit spending translate, in later years, into greater regulation as well. We are seeing that expansion happen now.
  • Regulatory costs exceed all 2008 corporate pretax profits of $1.463 trillion.
  • Regulatory costs dwarf corporate income taxes of $157 billion.
  • Regulatory costs tower over the estimated 2010 individual income taxes of $936 billion by 87 percent—nearly double the level.
  • Regulatory costs of $1.752 trillion absorb 11.9 percent of the U.S. gross domestic product (GDP), estimated at $14.649 trillion in 2010. 
  • Combining regulatory costs with federal FY 2010 outlays of $3.456 trillion reveals a federal government whose share of the entire economy now reaches 35.5 percent.
  • 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 $55.4 billion (on budget) to administer and police the regulatory enterprise. Adding the $1.752 trillion in off-budget compliance costs brings the total regulatory burden to $1.8 trillion.

    The numbers are astounding and should distress most Americans. However, the process that got us to this point has been going forward for years. How does the government get away with this? Quite simply, regulation allows government to grow out of public view. Crews explains:

    [T]axation and regulation can substitute for each other because regulation can advance government initiatives without using tax dollars. Rather than pay directly and book expenses for new programs, the government can require the private sector—as well as state and local governments—to pay for federal initiatives through compliance costs.

    Because such regulatory costs are not budgeted and lack the formal public disclosure of federal spending, they may generate comparatively little public outcry. Regulation thus becomes a form of off-budget or hidden taxation.

    As the mounting federal debt causes concern, the impulse to regulate instead can also mount. Deficit spending, in a manner of speaking, can manifest itself as regulatory compliance costs that go largely unacknowledged by the federal government. Worse, if regulatory compliance costs prove burdensome, Congress can escape accountability by blaming the agencies that issue the unpopular rules.

    Regulation is not only politicians' best friend, it is also lobbyists' lifeblood. The power to regulate is also the power to advantage certain industries and companies at the expense of other industries, competitors, and taxpayers. The fact that such benefits are concentrated makes lobbying for them profitable. Meanwhile, the costs are diffuse across a larger population, which blunts the payers' incentive to resist such impositions.