The Cost of Federal Regulation

COMMENTARY Government Regulation

The Cost of Federal Regulation

Aug 4th, 1999 2 min read

Visiting Fellow

If lawmakers want to lower the cost of government, they need to do more than cut taxes. They need to pare back federal regulations-those countless rules that drive up business and consumer costs.

In fiscal year 1998, 53 federal departments and agencies spent $17 billion writing and enforcing regulations. The General Accounting Office, the federal government's spending watchdog, estimates that between April 1996 and March 1999 agencies issued 12,925 final rules. Of this total, 188 were "major" rules with an estimated annual cost of $100 million each, saddling the U.S. economy with $18.8 billion in new regulatory costs. And this doesn't account for the other 12,737 "minor" rules.

Surely the public deserves some explanation of how government regulations affect the bottom line for businesses and consumers. Yet the costs remain largely hidden. The Office of Management and Budget (OMB), the White House's own budgetary agency, puts the price of existing regulations at approximately $300 billion annually. Others, such as Professor Thomas Hopkins of the Rochester Institute of Technology, say it's closer to $700 billion. This means regulations cost somewhere between $3,000 and $7,000 per household every year. What the GOP tax cut would give back in 10 years, regulators take away in one.

And the number of regulations has only grown over the last decade. In 1988, the last year of the Reagan administration, the Federal Register totaled 53,376 pages. By 1997, the official catalog of government rules had hit 64,549 pages-an 11,173-page increase. The frenetic pace at which government produces these regulations strongly suggests the need for accountability and common sense. But efforts by federal regulators to provide the public with even minimal information have been woefully inadequate.

During the past three years, Congress has required OMB to report the annual cost of regulation. These reports allow policymakers and the public to see not only the grand total but also an itemized list. As the OMB itself has noted, the "substance is in the details, not in the total." Only by examining regulations line by line can lawmakers determine whether the benefits of a particular rule outweigh its costs.

Such costs aren't always measured in terms of dollars and cents. For example, the Environmental Protection Agency never performed a cost-benefit analysis before mandating the use of MTBE, a chemical that adds oxygen to gasoline and allegedly reduces air pollution. Now, with MTBE in wide use throughout the United States, it turns out to be a toxic substance that has contaminated groundwater supplies in several regions.

John D. Graham, director of the Center for Risk Analysis at the Harvard School of Public Health, told Congress in April that an MTBE cost-benefit analysis could have prevented this public health hazard. Reacting to reports that MTBE has polluted many wells and lakes, an EPA advisory panel on July 27 recommended a sharp reduction in its use.

A similar cost-benefit analysis might also have saved a number of children from being hurt or killed by passenger-side airbags in cars. Before airbags were mandated, Graham says, General Motors and Honda had already identified the risks airbags pose to children. But without any serious cost-benefit analysis, the National Highway Traffic Safety Administration concluded that such a threat was minimal. The result was a series of needless fatalities and injuries.

The problem is that federal regulators often underestimate the costs and overestimate the benefits of the rules they issue. Fortunately, some members of Congress want to make this information public. The Regulatory Right to Know Act of 1999, sponsored by Sens. Fred Thompson, R-Tenn., and John Breaux, D-La., would require OMB to supply data on the cost and intended benefit of proposed regulations. Similar legislation recently passed the House.

It's a small but crucial step. Congress can't even begin to curb regulation until it understands the costs as well as the benefits. As Professor Hopkins told Congress, "If we want to continue shooting ourselves in the feet, collectively, I think it only fair that we have a count of the bullet holes."

Angela Antonelli is director of The Heritage Foundation's ( Thomas A. Roe Institute for Economic Policy Studies.

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