Won’t Cut Federal Spending? Then Cap The Cost Of Regulation

Last week a group of libertarian and conservative groups issued a coalition letter calling on Congress to cap regulatory costs.

While some of us have long advocated experimenting with a regulatory budget (albeit not at the expense of not reducing government itself, nor of continuing to tolerate Congress’ over-delegation to agencies), the impetus for our letter was the new House Budget Resolution for fiscal year 2017‘s “Policy on Federal Regulatory Budgeting and Reform.”

Here was something new: a regulatory policy statement in a fiscal budget. (Specifically, see Sec. 605, pp. 94-103.)

The United States federal government spends $4 trillion annually, yet runs a perpetual fiscal budget deficit.

But federal tentacles clearly extend beyond the taxes, deficits and borrowing dominating Beltway policy deliberation. Environmental, safety and health, economic rules and paperwork cost hundreds of billions yearly, an issue sorely neglected in the presidential campaigns. And insatiable agencies are going after the emerging-tech sector: for example the Federal Aviation Administration seeks regulation of drones without congressional authority or even normal agency review and comment; several bureaus are targeting driverless cars. The Federal Communications Commission’s net neutrality campaign to turn the Internet into a regulated public utility is already well known.

As firms pass federal taxes and regulatory compliance costs to everyone, it all becomes an insupportable burden to entrepreneurship, jobs, the economy. Among many such surveys, Pew Research Center reported that “A Majority Says that Government Regulation of Business Does More Harm than Good.”

As our letter noted, regulations and their costs should be capped, tracked and disclosed annually, like the fiscal budget. Granted, costs are both difficult and impossible to measure. But cost-benefit analysis now amounts to agency self-reporting and accompanies only a few rules besides.

This uncertainty regarding the regulatory enterprise has made it urgent that Congress know and certify everything agencies do, preferably alongside legislation whereby Congress visibly approves all agency major and/or controversial rules.

The idea of a regulatory budget is not new, nor solely “Republican.” Sen. Lloyd Bentsen (D-TX) proposed legislation in the 95th and 96th Congresses to:

[P]ut an annual cap on the compliance costs each agency could impose on the private sector through its rules and regulations. The process for establishing the annual regulatory budget would resemble the process currently used to set the fiscal budget. (Congressional Record, Vol. 125, March 5, 1979, p. S2024)

Recent proposals include Sen. Marco Rubio’s (R-Florida) “National Regulatory Budget,” and Sen Mike Lee’s (R-Utah) “Regulatory Cost Assessment Act,” soon reappearing.

With the new House budget document, the budgetary process itself formally recognizes that government achieves its ends not just by spending, but by regulation. To the extent that unelected bureaucracies make law—sometimes above board via the Administrative Procedure Act but often not (as with guidance, memoranda and notices)—our elected Congress should keep costs within bounds.

Congress better start practicing, and fast; as interest rates in the economy return to normal historical levels, both political parties will discover a need to address both fiscal and regulatory burdens with urgency since cutting spending won’t be enough.

Agencies think within their own squares, imposing costs and proclaiming benefits without constraint; the approach does not work. Federal regulation displaces liability and insurance standards and other competitive disciplinary pressures even as new technologies render “market failure” obsolete and expose the regulatory mindset’s political failures, and both enable and underscore cronyism.

Budgeting would force agencies to “compete” to ensure that their least effective, most poorly performing mandates save more lives per dollar or correct some alleged market imperfection or meet congressional intent better than another agency’s rules.

The budget’s compliance cost calculations would be easier to manage than intractable separate cost and benefit calculations for every rule, which are not being performed anyway. Congress should specify the total cost budget for which it is willing to be held accountable, and allocate authority among agencies and distinguish among categories like economic, health and safety, and environmental regulations. Only our elected representatives, not individual agencies, can survey the whole, and make trade-offs given goals embodied in laws and societal needs.

Our elected Congress should control the regulatory hidden tax; and, further, revoke powers it delegated inappropriately to agencies.

Originally posted to Forbes.