November 3, 2016

November 3, 2016 | Commentary on Regulation

Red Tape on the Upswing

How much do federal regulations cost? That question has been debated for decades. The truth is that nobody knows for sure. But we do know the cost is very high—and new rules are being added to the pile at a disturbing rate. According to figures we have compiled, 43 major regulations—imposing more than $100 billion in new, annually recurring regulatory costs—were adopted during the past seven years of Barack Obama’s presidency.

So far in 2016, the Administration is keeping up that remarkable pace, imposing almost 50 new major rules in the first six months alone. And with a rush of “midnight regulations” widely expected, the cost of new red tape for President Obama’s full term could easily top $130 billion. That would likely make him the most regulatory president ever.

This growth in regulation should set off alarm bells for policymakers of all political stripes.   Reforms are needed to strengthen both prospective and retrospective regulatory reviews and increase the accountability of Congress and agencies in rulemaking.

To reach these figures, we calculated the number and cost of new major rules in a straightforward and transparent manner. The regulatory headcount was compiled from a database maintained by the Government Accountability Office, which by law receives notification of all rules adopted by regulators. To determine dollar costs, we relied on formal Regulatory Impact Statements or similar analyses prepared by the proposing agency.

We found that over 20,000 rules were issued from January 21, 2009 to January 20, 2015. Of those, 566 were classified as “major,” defined for most purposes as those rules that are expected to have an annual effect on the economy of at least $100 million. Reviewing each of the 566 major rules, we found that 229 increased regulatory burdens on the private sector. A paltry 26 decreased regulatory burdens. The remaining rules involved budgetary and administrative matters such as setting Medicaid reimbursement rates, seasonal quotas for migratory birds, or agency rules of procedure.

In terms of cost, we documented more than $112 billion in costs from rules imposed since President Obama took office. Reductions in regulation totaled $3.4 billion, producing a net annual cost for major rules of $108 billion as of January 20, 2016.

The “true” cost of red tape is doubtless much higher than reported here for several reasons. First, the costs of thousands of non-major rules—for which no cost-benefit analysis is required—are not included. Independent agencies are also largely exempt from mandates requiring agencies to conduct formal benefit-cost analysis requirements. Thus, some of the most active regulators in Washington, D.C.—such as the Consumer Financial Protection Bureau—do not provide quantified costs for the rules that they impose.

For some rules, impact analyses are conducted but costs are not quantified. In fact, much of the regulatory burden is unquantifiable. Costs such as lost innovation and loss of freedom, for instance, cannot be expressed in dollars and cents.

The costs reported here also do not factor in the benefits of each rule. Ensuring that a regulation’s benefits justify costs is essential, of course. But benefits do not eliminate cost any more than the cost of a government program is negated by its benefits. Simply put, the total cost of regulation—independent of benefits—is useful and necessary information for policymakers and the public.

The $108 billion cost of President Obama’s rules is the heaviest imposed by any administration since at least 1980, based upon data from the White House Office of Management and Budget (OMB). But Republican administrations have imposed substantial costs as well. President George W. Bush, Obama’s predecessor, generated regulatory costs of nearly $70 billion during his eight years in office—$33 billion of which occurred in the last two years.

The largest proportion of regulatory costs over the past seven years has come from the U.S. Environmental Protection Agency (EPA). Under this Administration, the Agency was responsible for nearly half of all new regulatory costs, followed by the U.S. Department of Transportation, at about 15 percent.

In terms of the number of major regulations, the most active agency has been the U.S. Securities and Exchange Commission, with 40 of the 229 new major rules—many of which were issued pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

EPA ranks second in the number of rules, with 34 rules, followed by the U.S. Department of Energy, with 27 rules. The Energy Department rules have been issued largely due to the flood of energy efficiency mandates that are being slapped on everything from household microwave ovens to stadium lights.

The statistics on the number and cost of regulations confirm what small businesses and consumers experience daily: federal red tape is increasingly costly and burdensome. Unsurprisingly, then, reform proposals abound. A good starting point would be to require congressional approval of new major rules before they can take effect, as is called for by the REINS Act, which was passed by the House earlier this year. Such a requirement would make legislators more accountable for the rules that they have authorized through legislation. Another step would be to require all new rules to carry sunset dates, thereby requiring agencies to take affirmative action to renew them. Such actions would then be reviewable in court as if they were new rules.

A host of other reforms have been proposed, including requiring independent agencies to prepare benefit-cost analyses, creating a congressional Office of Regulatory Analysis, and increasing the staff of OMB’s Office of Information and Regulatory Affairs (OIRA), which reviews proposed rules. OIRA has a staff of about 50 full-time professionals—a number that renders its staffers vastly outnumbered, on the order of 6,000-to-one, by the regulators whose work OIRA reviews.

Reform need not be tangled in partisanship. The rapid growth of regulatory restrictions and mandates should be a concern for all, and the reforms suggested here are measured responses to the problems at hand. The goal is not to arbitrarily reduce the number of rules. Instead, the goal is to ensure that each regulation is thoroughly assessed and that policymakers are held accountable for the impacts. This is good policy and good politics.

About the Author

James L. Gattuso Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies

Diane Katz Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies

Related Issues: Regulation

First appeared on RegBlog and can be found at https://www.regblog.org/2016/10/31/gattuso-katz-red-tape-upswing/.