No Regulation Without Representation

The exact cost of the federal regulatory state may never be fully known. As with taxes, firms generally pass along to consumers some of their regulatory compliance costs. Yet governmental and private data exist on scores of regulations, their costs and benefits, and the agencies that issue them. By compiling and presenting this data in a way that makes the regulatory state more comprehensible to the public, the annual Ten Thousand Commandments report aims to shed light on the impacts of regulation, and propose ways to increase regulatory accountability. Following are highlights from the 2005 report. 

Regulation by the Numbers

In the FY 2006 federal budget, President Bush proposed $2.57 trillion in discretionary, entitlement, and interest spending. While those costs fully express the on-budget scope of the federal government, there is considerably more to the government’s reach than the sum of the taxes sent to Washington. Federal environmental, safety and health, and economic regulations cost hundreds of billions of dollars every year—on top of official federal outlays.

• The number of pages in the Federal Register, the daily depository of all proposed and final federal rules and regulations, is the most often cited measure of the scope of regulation. The 2004 Federal Register contained 75,676 pages, a 6.2 percent increase from 71,269 pages in 2003. This is an all-time record.

• In 2004, agencies issued 4,101 final rules, a 1 percent decline from 2003. In contrast, Congress passed and the President signed into law a comparatively low 299 bills that year.

• The Regulatory Plan and the Unified Agenda of Federal Regulatory and Deregulatory Actions appears in the Federal Register every December. It details rules recently completed and those anticipated within the upcoming 12 months by the roughly 60 federal departments, agencies, and commissions. Therefore, the Agenda serves as a gauge of what is coming down the regulatory pipeline. In the 2004 Unified Agenda, agencies reported on 4,083 regulations at various stages of implementation, a 4 percent drop from the previous year’s 4,266.

• Of the 4,266 regulations now in the pipeline, 135 are “economically significant” rules that will have at least $100 million in economic impact, an increase from 127 such rules in 2003. Those rules will impose at least $13.5 billion yearly in future off-budget costs.

• The five most active rule-producing agencies—the departments of Treasury, Homeland Security, Transportation, and Interior and the Environmental Protection Agency—with 1,850 rules among them, account for 45 percent of all rules in the Agenda pipeline.

• Of the 4,083 regulations now in the works, 789 affect small businesses. Rules affecting small businesses are down 8 percent over the past year and 25 percent over the past five years.

• The Office of Management and Budget’s 2005 draft report on the costs and benefits of federal regulations finds cumulative 1994–2004 costs of major regulations to be between $35 and $39 billion; meanwhile, the estimated range for benefits was $68 billion to $260 billion.

• Based on a more broadly constructed compilation of annual regulatory costs by economists Thomas Hopkins and Mark Crain, regulatory costs hit an estimated $877 billion in 2004—an amount equivalent to 38 percent of all FY 2004 outlays, 7.6 percent of U.S. gross domestic product (estimated at $10,980 billion for 2003), and more than twice the $412 billion budget deficit.

• Federal regulatory costs of $877 billion combined with outlays of $2,292 billion bring the federal government’s share of the economy to some 27 percent.

• Regulatory costs exceed all corporate pretax profits ($745 billion in 2002), estimated 2004 individual income taxes of $765 billion, and 2004 corporate income taxes of $169 billion.

The Hidden Costs of Regulation

The U.S. government recently ended its short-lived string of budgetary surpluses—the first since 1969. To regain and maintain a true surplus, policy makers must control regulatory costs. The maximum surplus projected by the Congressional Budget Office over the coming decade is a minimal and highly speculative $71 billion in 2012.

Regulatory costs of more than $800 billion dwarf that amount. Moreover, regulations can substitute for taxes. Unless regulatory activity is better monitored, deficit control could prompt Congress to adopt new off-budget private-sector regulations rather than new spending that would increase the deficit. If regulatory costs remain hidden, regulating will continue to look like an attractive alternative to taxing and spending.

Years of unbudgeted regulatory growth merits concern. Most of the time we simply don’t know whether regulatory benefits exceed costs. Congress bears much of the blame by delegating too much lawmaking power to agencies, and by failing to require that they deliver greater benefits than costs. Thus, agencies can hardly be faulted for not guaranteeing optimal regulation or for not ensuring that only “good” rules get through. Agencies face overwhelming incentives to expand their turf by regulating even in the absence of demonstrated need, since the only measure of agency productivity—other than growth in its budget and number of employees—is the number of regulations. The unelected rule when it comes to regulatory mandates.

“No Regulation without Representation”

Congressional accountability for regulatory costs assumes new importance in this era of vanished budget surpluses. Disclosing costs of rules would remain key, just as disclosure of program costs is critical in the federal budget. Simple “regulatory report cards” can be issued each year by the federal government to distill the available, but scattered, regulatory data.

Regulations should be treated like federal spending: Whenever possible, Congress should be accountable for federal regulations’ compliance costs—and benefits. Cost/benefit analysis is often proposed to police excess regulation. But this can often take the form of agency self-policing; agencies would perform “audits” of their own rules, but would rarely admit that the benefits of a rule do not justify the costs involved. At the least, some third-party review would be needed.

Since agencies are unaccountable to voters, an annual regulatory report card is a start but not a complete answer. Nor are regulatory reforms that rely on agencies policing themselves capable of harnessing the regulatory state. Instead, requiring Congress to vote on agencies’ final rules—in expedited fashion—before they become binding on the public would best promote accountable regulation.

Requiring explicit approval of all proposed regulations would ensure that Congress bear direct responsibility for every dollar of new regulatory costs. This step would fulfill citizens’ expectation of “no regulation without representation.”