Fred L. Smith, Jr. on the “Paperwork and Regulatory Improvement Act of 2003.”

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Thank you, Mr. Chairman, and members of this Committee, for the opportunity to present testimony on H.R. 2432, the “Paperwork and Regulatory Improvements Act of 2003.” I’m Fred Smith, President and founder of the Competitive Enterprise Institute (CEI), a free-market public policy group focusing on regulatory issues.

I commend you for holding this hearing on a perennially important but increasingly urgent issue. Put quite simply, federal regulatory spending is uncontrolled and, therefore, out of control.

Economist Clyde Wayne Crews, Jr., formerly an analyst with CEI and now director of technology studies at the Cato Institute, produces an annual survey of regulatory trends called Ten Thousand Commandments. The just-released 2003 edition estimates the annual cost of federal regulation at $860 billion. That is larger than the Gross Domestic Product (GDP) of Canada ($701 billion), and easily exceeds the combined pre-tax profits of all U.S. corporations ($699 billion). Federal regulatory costs equal 42 percent of federal on-budget outlays ($2,011 billion), and dwarfs the federal budget deficit.1

Although federal fiscal discipline is far from perfect, federal regulatory discipline is practically nonexistent. Consequently, regulation has long been the preferred tool of both special interests seeking to manipulate public policy for competitive advantage and ideological groups pursuing their particular visions of the public interest. For example, government can promote wind-, solar-, and biomass-generated electricity not only through on-budget tax breaks and subsidies but also through renewable portfolio standards—regulatory schemes imposing un-funded mandates on electricity producers and, thus, hidden taxes on electricity consumers.

With the federal deficit once again seen as a major fiscal and political liability, policymakers will increasingly be tempted to use off-budget regulatory spending to achieve their goals. That is why this hearing is so timely. Congress must begin to discipline federal regulatory spending.

CEI strongly supports the “Paperwork and Regulatory Improvements Act of 2003.” Although the bill is by no means a cure for the defects of the regulatory process, it is a positive step in the right direction. Of particular importance, by directing the Office of Management and Budget (OMB) to designate at least five agencies as pilot projects in regulatory budgeting, the bill requires the Executive Branch to experiment with an essential component of fundamental reform.

My testimony has three main parts. Part 1 will discuss why federal regulatory spending is uncontrolled. There are two main reasons. First, nothing like a coordinated, unified federal budget exists to discipline regulatory spending. Second, Congress has little incentive to enact regulatory budgets because it does not take responsibility for the cost and quality of regulatory decisions. Rather, Congress delegates the authority not just to develop and propose but also to adopt regulations to bureaucrats—non-elected officials who are not accountable via the ballot box to the public they supposedly serve. Part 2 will briefly discuss steps both big and small Congress and OMB should take to discipline the regulatory state. Part 3 will address three questions raised in the Chairman’s letter of invitation.