President Barack Obama’s federal budget for fiscal year (FY) 2010 proposed $3.552 trillion in discretionary, entitlement, and interest spending. The previous fiscal year, President George W. Bush had proposed the first-ever $3-trillion U.S. budget. President Bush was also the first to propose a $2-trillion federal budget—in 2002, a scant seven years ago.
Now the administration projects actual FY 2009 spending of almost $4 trillion ($3.938 trillion) instead of Bush’s $3 trillion, thanks to the late-2008 bailout and “stimulus” frenzy. The result: a projected FY 2009 deficit of a previously unthinkable $1.752 trillion. The Congressional Budget Office (CBO) paints an even more dismal picture.
To be sure, many other countries’ governments consume more of their national output than the U.S. government does; but in absolute terms, the U.S. government is the largest government on Earth, whether one looks at revenues or expenditures.
The “Hidden Tax” of Regulation
Those costs fully convey the federal government’s on-budget scope, and they are sobering enough. Yet the government’s reach extends even beyond the taxes Washington collects and the deficit spending and borrowing now surging. Federal environmental, safety and health, and economic regulations cost hundreds of billions of dollars every year over and above the costs of the official federal outlays that dominate the policy agenda now.
Firms generally pass along the costs of some taxes to consumers. Likewise, some regulatory compliance costs that businesses shoulder find their way into consumer prices. Precise regulatory costs can never be fully known; unlike taxes, they are unbudgeted and often indirect. But scattered government and private data exist on scores of regulations and the agencies that issue them, as well as on regulatory costs and benefits. Some of that information can be compiled to make the regulatory state somewhat more comprehensible. That is one purpose of the annual Ten Thousand Commandments report, highlights of which appear next:
• A very rough extrapolation from an estimate of the federal regulatory enterprise by economist Mark Crain estimates that regulatory compliance costs hit $1.172 trillion in 2008.
• Given 2008’s government spending of $2.98 trillion, the regulatory “hidden tax” stood at 39 percent of the level of federal spending itself. (Because of the months-old spending surge, this proportion will surely be lower next year.)
• Trillion-dollar deficits and regulatory costs in the trillions are both unsettling new developments for America. Although FY 2008 regulatory costs are more than double that year’s $459 billion budget deficit, the more recent deficit spending surge will catapult the deficit above the costs of regulation for the near future.
• CBO now projects 2009 federal spending to hit $4.004 trillion and the deficit to soar to $1.845 trillion. The game has changed; although these spending levels eclipse federal regulatory costs now, unchecked government spending translates, in later years, into greater regulation as well.
• Regulatory costs are equivalent to 65 percent of 2006 corporate pretax profits of $1.8 trillion.
• Regulatory costs rival estimated 2008 individual income taxes of $1.2 trillion.
• Regulatory costs dwarf corporate income taxes of $345 billion.
• Regulatory costs of $1.172 trillion absorb 8 percent of the U.S. gross domestic product (GDP), estimated at $14.3 trillion in 2008.
• Combining regulatory costs with federal FY 2008 outlays of $2.978 trillion implies that the federal government’s share of the economy now reaches 29 percent.
• The Weidenbaum Center at Washington University in St. Louis and the Mercatus Center at George Mason University in Virginia jointly estimate that agencies spent $49.1 billion to administer and police the 2008 regulatory enterprise. Adding the $1.172 trillion in off-budget compliance costs brings the total regulatory burden to $1.221 trillion.
• The 2008 Federal Register is close to breaking the 80,000-page barrier. It contained 79,435 pages, up 10 percent from 72,090 pages in 2007—an all-time record high.
• Federal Register pages devoted specifically to final rules jumped nearly 16 percent, from 22,771 to a record 26,320.
• In 2008, agencies issued 3,830 final rules, a 6.5-percent increase from 3,595 rules in 2007.
• The annual outflow of roughly 4,000 final rules has meant that well over 40,000 final rules were issued during the past decade.
• Although regulatory agencies issued 3,830 final rules in 2008, Congress passed and the President signed into law a comparatively low 285 bills. Considerable lawmaking power is delegated to unelected bureaucrats at agencies.
• According to the 2008 Unified Agenda, which lists federal regulatory actions at various stages of implementation, 61 federal departments, agencies, and commissions have 4,004 regulations in play at various stages of implementation.
• Of the 4,004 regulations now in the pipeline, 180 are “economically significant” rules packing at least $100 million in economic impact. Assuming these rulemakings are primarily regulatory rather than deregulatory, that number implies roughly $18 billion yearly in future off-budget regulatory effects.
• “Economically significant” rules increased by 13 percent between 2007 and 2008 (following a 14-percent increase the year before). As noted, high federal budgetary spending now likely implies higher future regulatory costs as well.
• The five most active rule-producing agencies—the departments of the Treasury, Agriculture, Commerce, and the Interior, along with the Environmental Protection Agency—account for 1,837 rules, or 46 percent of all rules in the Unified Agenda pipeline.
• Of the 4,004 regulations now in the works, 753 affect small business.
Liberate to Stimulate
The short-lived string of budgetary surpluses enjoyed from 1998 to 2001 (the first since 1969) seems like ancient history—even inconceivable—in today’s spending culture. Indeed, CBO projects no surpluses whatsoever over the coming decade. However, if regaining and maintaining an honest surplus ever again become political priorities, policy makers must control regulatory costs as well. The dramatic fact of regulations and deficits now each costing over $1 trillion a year is an unsettling new development for America. The deficit is already widely—and rightly—criticized by the media, citizens, and policy makers, but reducing the scope of the regulatory state and fostering a “deregulatory stimulus” should occupy policy makers as well. When it comes to stimulating a limping economy, reducing both deficits and regulations is critical.
Indeed, without better regulatory oversight and monitoring—that is, without an effort to “liberate to stimulate”—the urgency of deficit reduction invites lawmakers to opt for off-budget regulations on the private sector rather than new deficit spending. Taxation and regulation can substitute for each other; a new government program (job training, for example) would mean either increasing government spending or imposing new rules and regulations requiring such training. If regulatory costs remain largely hidden from public view, regulating will become increasingly attractive compared with increasingly unpopular taxing and spending.
Disclosure and Accountability
Like federal spending, each agency’s flow of regulations and their costs should be tracked and monitored each year. Cost-benefit analysis of rules is the usual approach to policing excess regulation. A problem with cost-benefit analysis, however, is that it largely amounts to agency self-policing; agencies that perform “audits” of their own rules would rarely admit that a rule’s benefits do not justify the costs involved. At the least, some third-party review is needed.
Going further, Congress should answer for the compliance costs (and benefits) of federal regulations. Requiring expedited votes on economically significant or controversial agency rules before they become binding on the population would reestablish congressional accountability, helping to fulfill a principle of “no regulation without representation.”
Disclosing regulatory costs remains important even if Congress approves all rules. Openness about regulatory facts and figures is critical, just as disclosure of program costs is critical in the federal budget. Simple federal regulatory report cards, similar to the presentation in Ten Thousand Commandments, could be officially issued each year to distill information to the public and policy makers about the scope of the regulatory state.
For more information, visit: cei.org/10kc