There is a simple way to promote economic opportunity that helps the poor without using any taxpayer money: The federal government can eliminate numerous misguided policies. Policymakers too often think that big government is the only solution to creating opportunity and reducing poverty. They fail to ask how government might itself be the problem.
This Backgrounder answers that question and focuses on federal policies that hurt the poor, with an emphasis on economic regulation. The policies identified are merely the tip of the iceberg. An interagency task force is needed to identify and eliminate policies throughout the federal government that are making it more difficult to achieve the American dream.
Policies that Limit Opportunity and Hurt the Poor
Heritage Foundation scholars identified many harmful policies at the federal, state, and local levels in a recent Special Report. (See the appendix for the full list). There are two recurring themes to these policies, including the federal policies. First, they limit the opportunities for poor and other Americans to secure jobs or otherwise advance their economic status. Second, they drive up consumer prices for goods and services that meet basic needs, which has a disproportionate impact on lower-income households. As shown in Chart 1, low-income households spend a greater share of their after-tax income than higher-income households on meeting basic needs, such as food and electricity.
A special interagency task force could evaluate, and consider ending, the following federal policies—and other similarly harmful ones:
- Climate Change Regulations. The Obama Administration issued a wide range of climate change regulations that would drive up electricity prices. Based on a Heritage Foundation analysis, electricity expenditures could increase between 13 percent and 20 percent, hitting America’s poorest households hardest. These significant costs would be imposed despite the climate return on these regulations, if any, being negligible.
- Energy Efficiency Regulations for Appliances. The Department of Energy imposes energy efficiency regulations on over 60 different household appliances, from showerheads to toilets. The higher up-front costs and reduced choices that result from such regulations can have a significant impact on the poor.
- Fuel Efficiency Mandates and Tier 3 Gas Regulations. As required by Congress, the U.S. Department of Transportation and the Environmental Protection Agency (EPA) recently finalized new fuel-efficiency standards for cars and light-duty trucks (Corporate Average Fuel Economy, or CAFE, standards) that will require an average fuel economy of 54.5 miles per gallon (mpg) for 2025 model-year vehicles that will drive up prices for new vehicles. If the agencies involved eliminated future targets, people who buy new cars could save up to $3,400 for model year 2025. The EPA also set new standards on gasoline (Tier 3 gasoline standards) in order to lower sulfur and other tailpipe emissions from gasoline starting in 2017, with smaller companies required to comply by 2020. Industry estimates that the new gas standard could raise the cost of formulating gasoline by six cents to nine cents per gallon.
- Stricter Ozone Standards. The EPA again tightened the ozone standard on ground-level ozone in 2015, even though states have had insufficient time to implement the strict 2008 standard. Further, the national average ground-level ozone levels have fallen 32 percent since 1980. The ozone standard has become increasingly controversial as it has become more expensive to meet tighter standards with smaller margins of tangible benefits.
- Renewable Fuel Standard (RFS). The RFS mandate that requires renewable fuels to be mixed into America’s gasoline supply has led to higher food and fuel prices. According to separate analyses by University of California–Davis economists and a Heritage Foundation economist, the mandate accounts for an increase in corn prices of 30 percent, or even as much as 68 percent, respectively.
- Tennessee Valley Authority (TVA). Counter to its original purpose of providing affordable electricity to an economically depressed region, the TVA does not sell the cheapest electricity in the region, and in recent history has had some of the highest rates in the Tennessee Valley.
- Federal Sugar Program. As a result of government attempts to limit the supply of sugar, the price of American sugar is consistently higher than world prices: Domestic prices have been as high as double that of world prices. This policy may benefit the small number of sugar growers and harvesters, but it does so at the expense of sugar-using industries and consumers.
- Fruit and Vegetable Marketing Orders. Marketing orders are ostensibly aimed at helping to provide stable markets for certain commodities. The most egregious problem with marketing orders is the volume controls. These controls allow representatives from a specific industry to intentionally limit the supply of commodities, thereby driving up food prices and disproportionately harming the poor.
- U.S. Department of Agriculture’s (USDA) Catfish Inspection Program. While the Food and Drug Administration is generally charged with inspecting seafood for safety, a special exception was created in the 2008 farm bill to have the U.S. Department of Agriculture inspect catfish. This special exception will likely reduce competition for domestic catfish producers. Foreign exporters will be blocked from selling catfish in the U.S. unless their countries develop new and unwarranted regulatory inspection schemes. This policy is a textbook example of cronyism and trade protectionism in order to help a very small interest group (domestic catfish producers) at the expense of everyone else, including the poor.
- Import Restraints on Food and Clothing. A 2013 report by the International Trade Commission estimated annual welfare benefits from liberalization of import restraints for various sectors, including food. Between 2012 and 2017, liberalization of import restraints would benefit U.S. consumers annually by an average of $50 million for cheese, $277 million for sugar, and $8 million for tuna.
- The Merchant Marine Act of 1920 (Jones Act). The Jones Act requires the use of domestically built ships when transporting goods between U.S. ports. The law drives up shipping costs, increases energy costs, stifles competition, and hampers innovation in the U.S. shipping industry. It costs about $2 per barrel to ship crude oil from the Gulf of Mexico to Canada, but due to the Jones Act it costs between $5 and $6 to ship it to the U.S. East Coast.
- Smart Growth. This anti-development urban planning philosophy drives up housing prices. “Smart growth” plays a significant role in agencies, such as the EPA and the U.S. Department of Transportation, which have been leading drivers of these policies that are so harmful to the poor.
- Payday Lender Rules from the Consumer Financial Protection Bureau (CFPB). The proposed payday lending rule is written in a manner that will likely force many lenders to stop offering these small-dollar loans. By the CFPB’s own admission, these rules could effectively destroy the payday lending industry, eliminating up to 85 percent of the loans currently made. More than 12 million people per year use short-term loans, and the majority are those who have emergency credit needs and lack other forms of credit.
Recommendation: The Trump Administration Should Create an Interagency Task Force
On April 25, 2017, President Trump issued an executive order creating an interagency task force to promote agriculture and rural prosperity. The President should issue a similar executive order creating an interagency task force to identify and eliminate federal policies that limit opportunity for all Americans, including the poor.
A leading economic official in the Administration, such as the Chairman of the Council of Economic Advisers, should lead the task force. The task force, through a public comment process, should develop a comprehensive report that lists policies for elimination that would be submitted to the President and widely disseminated to the public, congressional leadership, and relevant committees. While the report should focus on federal policies, the task force should identify harmful state and local policies that the federal government perpetuates through federal funding. The report should also identify which policies could be eliminated by the Administration on its own, and which changes would require legislation.
President Trump can help lead the nation to an era in which federal policies become less harmful to those who want to advance their lives and the lives of their families. This leadership could help to transform the lives of the poor, in particular, by allowing them to have the necessary freedom to improve their lives without the government standing in their way.
—Daren Bakst is Research Fellow in Agricultural Policy, and Patrick Tyrrell is Research Coordinator, in the Center for Free Markets and Regulatory Reform, of the Institute for Economic Freedom, at The Heritage Foundation.