Most Americans are all too familiar with the income, property, and sales taxes that shrink paychecks and increase the cost of almost every product and service. Just as significant, although less visible, are the ever-increasing costs of regulation. Every facet of daily life, including how Americans heat their homes and light their rooms, what food they buy and how they cook it, the toys that occupy their children, and the volume of their television commercials, is controlled by government’s ballooning compendium of do’s and don’ts. The attendant costs of each one constitutes a “hidden tax.”
Many people may think that regulatory costs are a business problem. They are, but the costs of regulation are inevitably passed on to consumers in the form of higher prices and limited product choices. Everything, from toilets and television sets to health care and Internet access, costs significantly more because of government decrees.
In January, responding to criticism that the regulatory burden had grown too onerous and acknowledging the need to eliminate ineffective and harmful regulations, President Barack Obama issued an executive order calling for an agency-by-agency review of existing regulations. That review identified a number of rules in need of repeal or revision, but the savings from reforming the targeted rules are only a fraction of the cost of new burdens being created each year.
Moreover, the Administration’s review of unnecessary regulations does not address any of the systemic problems that contribute to a regulatory flood that threatens to overwhelm the economy.
Congress—which shares much of the blame for excessive regulation—must step in, establishing mechanisms and institutions to ensure that unnecessary and excessively costly regulations are not imposed on the U.S. economy and the American people. Without decisive action, the costs of red tape will continue to grow, undermining investment, innovation, economic growth, and job creation.
To protect Americans and the economy against runaway regulators, additional oversight and a different approach are necessary. Specifically, Congress should take several steps to increase scrutiny of proposed regulations to ensure that each is truly necessary and that costs are minimized and to rollback existing burdensome regulations. To this end, Congress should:
- Roll back specific burdensome and onerous regulations. Broad procedural reforms should not be a substitute for action on specific regulations. In particular, policymakers should review and roll back the costly and unjustified regulations imposed over the past few years, including Obamacare health regulation, Dodd–Frank financial rules, Federal Communications Commission regulation of the Internet, and costly energy restrictions.
- Require congressional approval of new major rules promulgated by agencies. Under the 1996 Congressional Review Act, Congress has the means to veto new regulations. To date, however, that authority has been used successfully only once. This process should be strengthened by requiring congressional approval before any major regulation takes effect. Such a system would ensure both a congressional check on regulators and the accountability of Congress itself.
- Create a Congressional Office of Regulatory Analysis. Congress needs the capability to review proposed and existing rules independently, without reliance on the Office of Management and Budget or the regulatory agencies. A Congressional Office of Regulatory Analysis, modeled on the Congressional Budget Office, would provide an important backstop to, and check on, executive branch regulatory powers. Such an office would also help Congress better evaluate the regulatory consequences of the legislation it enacts. While it is easy to blame regulators for excessive rulemaking, much of the problem stems from overly expansive or ill-defined statutory language. A congressional office to review legislation before adoption could help to address the problem.
- Establish a sunset date for federal regulations. While the President has asked agencies to review their existing rules and eliminate those that are unnecessary, such actions are insufficient. Even the best plans for periodic review will fall short if there are no consequences when an agency fails to scrutinize adequately the regulations it has imposed. The natural bureaucratic tendency is to leave old rules and regulations in place even if they have outlived their usefulness. To ensure that substantive review occurs, regulations should automatically expire if not explicitly reaffirmed by the agency through a notice and comment rulemaking. As with any such regulatory decision, this reaffirmation would be subject to review by the courts.
Facts & Figures
- There is no governmental accounting of total regulatory costs, and estimates vary. Unlike the budgetary accounting of direct tax revenues, Washington does not track the total burdens imposed by its expansive rulemaking. The oft-quoted estimate of $1.75 trillion annually represents nearly twice the amount of individual income taxes collected last year.
- According to reports by regulatory agencies themselves, over $40 billion in new annual regulatory burdens has been imposed since the start of the Obama Administration.
- Two of the largest increases in regulation were imposed by Congress just last year. Implementation of the Dodd–Frank financial regulation bill, for instance, will require some 243 new rulemaking proceedings by 11 different agencies. The new health care law means a similar amount of new rulemaking.
- Regulations also swell the government workforce and fatten the federal budget. According to a report by the Weidenbaum Center on the Economy, Government, and Public Policy and The George Washington University’s Regulatory Studies Center, regulatory staff at federal agencies (full-time equivalents) increased about 3 percent between 2009 and 2010, from 262,241 to 271,235, and it is estimated that the number will have risen another 4 percent—to 281,832—in 2011. Federal outlays for developing and enforcing regulations are also expected to grow by 4 percent this year, from $46.9 billion in 2010 (in constant 2005 dollars) to $48.9 billion.
- The torrent of new regulation will not end any time soon. The regulatory pipeline is full of proposed rules. The spring 2011 Unified Agenda (also known as the Semiannual Regulatory Agenda) lists 2,785 rules (proposed and final) in the pipeline. Of those, 144 were classified as “economically significant.” With each of these 144 pending major rules expected to cost at least $100 million annually, they represent at least $14 billion in new burdens each year. This is an increase of 15.2 percent in the number of economically significant rules in the agenda between spring 2010 and spring 2011. Moreover, in the past decade, the number of such rules has increased 102 percent, rising from 71 to 144 since 2001.
Selected Additional Resources
- James L. Gattuso, “The Views of the Administration on Regulatory Reform: An Update,” Heritage Foundation Testimony, June 3, 2011.
- James L. Gattuso and Diane Katz, “Red Tape Rising: A 2011 Mid-Year Report,” Heritage Foundation Backgrounder No. 2586, July 25, 2011.
- James L. Gattuso, Diane Katz, and Stephen A. Keen, “Red Tape Rising: Obama’s Torrent of New Regulation,” Heritage Foundation Backgrounder No. 2482, October, 26, 2010.
- Diane Katz, “Dodd–Frank: One Year Later,” Heritage Foundation WebMemo No. 3320, July 21, 2011.
- Diane Katz, “Rolling Back Red Tape: 20 Regulations to Eliminate,” Heritage Foundation Backgrounder No. 2510, January 26, 2011.
Heritage Experts on Regulation