Policy Perspectives: A drag on your business and the economy

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While anyone who runs a business knows intrinsically that government regulation costs time and money and is a drag on the whole economy, thorough research on the costs to the entire economy has not been well known. 

But Clyde Wayne Crews, Jr. of the Competitive Enterprise Institute this spring issued the 2014 edition of "Ten Thousand Commandments,"(TTC) his "Annual Snapshot of the Federal Regulatory State." 

By way of perspective, the federal government spent $3.45 trillion in FY 2013.  President Obama's FY 2015 budget calls for $3.9 trillion.  Only four other nations on the planet collect more than $1 trillion and we are the only one over $2 trillion.

Yet that spending is before the cost of regulations.  Companies pay the costs of regulation, pass some on to consumers and some affects wages workers earn.  It is impossible to precisely pin down regulatory costs because they are not budgeted by agencies and often are indirect costs, the report notes.  "Ten Thousand Commandments" combs through government and private data and estimates to compile the numbers.

Just the bottom line numbers are staggering.  Regulatory compliance and economic impact cost is estimated at $1.863 trillion annually.    U.S. households annually "pay" regulatory hidden taxes of $14,974.  That means the cost of regulations comes to 23 percent of the average household income of $65,596.  That is on top of the 29 percent of the average income that households pay to cover the regular budgeted federal expenditures.  Put them together and the average household pays 52 percent of its income for regulatory taxes and federal spending. 

The regulatory tax exceeds every item in the household budget except housing, more than is spent on health care, food, transportation, entertainment, apparel and services and savings [savings?].

Using that perspective noted above, the estimated cost of regulation exceeds half the level of the federal budget itself, TTC noted.  In fact, the $1.8 trillion amounts to 11.1 percent of the entire U.S. GDP.  Add the regulatory costs to federal spending, and the federal governments share of the GDP is 31 percent.  Incredibly, the cost of regulation actually exceeds individual income tax revenues of $1.234 trillion (2013).

Is that all?  Well, not exactly.  Agencies show budgeted expenses of $57.3 billion to administer and enforce the regulatory complex, according to a joint project of Washington University at St. Louis and the Regulatory Studies Center at George Washington University in D.C..  Add the hidden costs to the budgeted costs and the grand total cost of federal regulation tops $1.9 trillion.

So now that your head is drowning in figures, so we'll just skim through a few others.  Over 3,500 new rules are issued annually, and another 3,300 are in various stages of implementation.  Of the latter, the agencies themselves consider 191 of them as costing over $100 million.  What about those cost estimates?  We in the beef industry know from the rules we're familiar with, from USDA (mCOOL) and the GIPSA Rule and EPA rules, that these costs are usually woefully underestimated.  TTC noted such self-policing by agencies.  Having agencies "audit their own rules is like asking students to grade their own exams," the report said.  Not only do agencies say little when a rule's benefits do not justify the costs, it might be that they invent dubious benefit categories to justify the rule.

On top of everything else, as one might expect, the cost of complying with all these regulations hammers small firms the most.  Crews' chart, calculated in 2008, shows the regulatory cost per employee at $7,755 for large firms (> 500 employees) vs. $10,585 for small companies (< 20 employees).  For the medium size company, the cost was $7,454.

So besides changing who people vote for, what can we do?

The Heritage Foundation backgrounder, "Red Tape Rising: Five Years of Regulatory Expansion," (03/26/14) has four suggestions.  The first one is to require Congressional approval of any new major regulation, i.e. over $100 million in impact.  The second suggestion is to require regulatory impact analyses of any legislation Congress considers.  The third is for all regulations, including ones already on the books.  They should be required to have a sunset date by which they will expire unless explicitly reaffirmed by the agency involved.  Four, many regulations are now coming from independent agencies not subject to executive branch control, agencies like the FCC, SEC and the new Consumer Financial Protection Bureau.  These agencies aren't subject to normal budget review or required to do cost-benefit analysis.  These agencies need to be subject to executive branch review.

Now you know why you feel so burdened by regulation, why it seems so hard to get ahead.  Some regulation is necessary but do we need nearly $15,000/household, $1.9 trillion nationally?


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