TCS Daily

It's Not Just the Spending

By Susan E. Dudley - August 29, 2005 12:00 AM

Before leaving town earlier this month, Congress approved nearly $300 billion in increased spending. But spending, supported through taxes, is not the only way the federal government diverts resources from the private sector to accomplish its goals. The other is through regulation and, in recent years, that too has increased at an impressive rate.

Every year, over 60 federal departments, agencies, and commissions employ a combined staff of roughly 242,000 full-time employees to write and enforce federal regulations. Together, they issue thousands of new rules each year. Like the programs supported by taxes, regulations can provide benefits to Americans. Unlike the direct spending supported by taxes, however, there is no mechanism -- like the fiscal budget and appropriations process -- for keeping track of the off-budget spending required by regulation.

Regulations are, in effect, a hidden tax on Americans. We must rely on proxies to measure this tax, such as the number of pages printed in the Federal Register, or the size of the budgets of regulatory agencies.

Consider this. The federal tax code occupies 2 volumes, each thicker than the Bible. But, the Code of Federal Regulations is much larger; it now occupies over 20 feet of shelf space. And it is growing. In 2004, the federal government printed 78,851 pages of new rules and announcements in the daily Federal Register. At 4 minutes per page that would require 2.5 people reading 8 hours per day for a year, just to keep up with the new rules and pronouncements (to say nothing of actually complying with them).

Another interesting measure of regulatory activity is provided by an annual report issued jointly by the Mercatus Center at George Mason University and the Weidenbaum Center at Washington University in St. Louis. It examines the Budget of the United States Government to track federal expenditures and staffing devoted to regulation between 1960 and 2006.

The FY 2006 Budget requests that Congress allocate $41.4 billion for regulatory activities, up from $39.5 billion in 2005. This reflects a 4.8 percent increase in outlays directed at writing, administering, and enforcing federal regulations. The regulators' budget is growing at a faster rate than other nondiscretionary spending, which the President's budget held to only 2.1 percent in 2006. Since 2000, the regulators' budget has grown an amazing 46 percent, after adjusting for inflation.

Regulatory activities related to homeland security get the largest increases in the FY 2006 Budget; the Department of Homeland Security is budgeted to receive an additional $1.1 billion in regulatory funding compared to last year. The regulators' budget also includes large increases in outlays at the Environmental Protection Agency ($250 million), the Food and Drug Administration ($191 million), and the Patent and Trademark Office ($351 million). Staffing at the federal regulatory agencies is expected to reach an all-time high of 242,376 in 2006, a 0.6 percent increase over 2005.

Regulations impose social costs on individuals and businesses beyond the direct tax dollars expended to write and enforce them, and Federal Register pages, agency staffing, and these on-budget costs merely provide insights into the trends in magnitude of the hidden tax. According to the Small Business Administration, the cost of federal regulation on American businesses, workers and consumers is close to $1 trillion per year.

But why should the average citizen care about this hidden tax? It's born by big businesses, not us. Not so. Small entrepreneurs, the engine of economic growth in America, bear the greatest burden. For small manufacturers, those employing fewer than 100 workers, the cost-per-employee of complying with workplace regulations is 68 percent higher than for large firms. Unnecessary regulatory burdens increase the cost of hiring U.S. workers, reducing American competitiveness, hindering job growth, and sending jobs overseas.

We also pay the price as consumers. From the moment we wake up in the morning -- flushing the toilet twice, courtesy of the Department of Energy's appliance standards -- to the time we put our children in their Consumer Product Safety Commission-approved pajamas, regulations not only increase the cost of goods and services we buy, but also the choices we can make.

Americans are right to be alarmed by the increase in direct spending authorized by Congress this month. But, they should also be concerned about the hidden tax of regulation, which by all measures, is also growing.

Susan E. Dudley is Director, Regulatory Studies Program, Mercatus Center at George Mason University.


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