The ‘hidden tax’: Report estimates regulation costs economy $1.75 trillion

Chris Moody Chris Moody is a reporter for The Daily Caller.
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The nation remains stuck on the debate over how Washington taxes and spends, but lost in the shuffle are the trillions of dollars Americans spend every year just to comply with federal regulations.

Wayne Crews, vice president for policy at the Competitive Enterprise Institute, combed through the 81,405 pages of the Federal Registry — which contains the nation’s regulations on businesses, and state and local governments — and cites a report showing that regulation cost the economy a whopping $1.75 trillion in 2008.

That’s a lot of dough for an economy struggling to get back on its feet after one of the worst recessions in recent memory. Problem is — and politicians know it — hardly anyone pays much attention. (You mean you weren’t hooked at “federal regulatory code” either?)

Here’s the theory: Americans are reminded of their taxes with each paycheck, they watch debates over government spending on the nightly news and hear members of Congress scream about “waste, fraud and abuse” on the House and Senate floors. But how many Tea Party rallies focus on rules concerning the “importation of manufactured wood articles” that raise the price for companies and consumers? The entire language of regulation — which Crews calls the “hidden tax” — just isn’t sexy enough to get anyone riled up, making it easier to stuff the federal code with more rules.

Agencies write and pass new rules largely out of sight, so even some of the heaviest news junkies out there tend to overlook the economic impact, Crews argues.

“Because such regulatory costs are not budgeted and lack the formal public disclosure of federal spending, they may generate comparatively little public outcry,” Crews writes in his report, entitled 10,000 Commandments: An Annual Snapshot of the Federal Regulatory State.

For elected officials looking for a way to steer a company in a particular direction, regulation could quickly become the preferred method over calling for a new tax they’d be forced to defend and fight for in the public square.

“If regulatory costs remain largely hidden from public view, regulating will become increasingly attractive compared with increasingly unpopular taxing and spending,” Crews writes. “Rather than pay directly and book expenses for new initiatives, the federal government can require the private sector — as well as state and local governments — to pay for federal initiatives through compliance costs.”

Crews admits that measuring the exact cost of regulation is impossible, but there is little doubt that with every new item added to the federal code, the nation’s business owners, and the people who buy the products they make, pay just that much more.

The report also finds:

• In 2010, federal agencies issued 3,573 final rules.

• While agencies issued 3,573 final rules, Congress passed and the president signed into law a comparatively “few” 217 bills. Considerable lawmaking power is delegated to unelected bureaucrats at agencies, an abuse addressed recently in proposals such as the REINS Act.

• Proposed rules in the Federal Register have surged from 2,044 in 2009 to 2,439 in 2010, a jump of 19.3 percent.

• Of the 4,225 rules now in the regulatory pipeline, 224 are “economically significant” meaning they wield at least $100 million in economic impact—this is an increase of 22 percent over 2009’s 184 rules.

• Given 2010’s government spending (outlays) of $3.456 trillion, the regulatory “hidden tax” of $1.75 trillion stands at an unprecedented 50.7 percent of the level of federal spending itself.

• Regulatory costs exceed all 2008 corporate pretax profits of $1.463 trillion.

• Regulatory costs dwarf corporate income taxes of $157 billion.

• Regulatory costs tower over the estimated 2010 individual income taxes of $936 billion by 87 percent—nearly double the level.

• Regulatory costs of $1.75 trillion absorb 11.9 percent of the U.S. gross domestic product (GDP), estimated at $14.649 trillion in 2010.

• Combining regulatory costs with federal FY 2010 outlays of $3.456 trillion reveals a federal government whose share of the entire economy now reaches 35.5 percent.

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Chris Moody