We often hear of the burden of excessive regulation. When we measure the cost of federal regulation, we find that the numbers are truly shocking.
The report Ten Thousand Commandments 2009: An Annual Snapshot of the Regulatory State, published by the Competitive Enterprise Institute, reveals the costs of the hidden tax of regulation.
How much does federal regulation cost? “A very rough extrapolation from an estimate of the federal regulatory enterprise by economist Mark Crain estimates that regulatory compliance costs hit $1.172 trillion in 2008.”
To put that in perspective, federal income tax collections in 2008 were $1,145.7 trillion — just about the same number. Corporate income taxes were $304.3 billion, or just 30% of the cost of regulation.
As the report explains, regulation is often a way to government to do the things it wants without having to explicitly pay for it:
The government can also “fund” programs or achieve its objectives by regulating the private sector. Regulation can advance government initiatives or goals without using tax dollars. Rather than pay directly and book expenses for new initiatives, the federal government can require the private sector (and state and local governments) to pay for federal initiatives through compliance costs.
It would be one thing if regulation accomplished its goals. But often it doesn’t. Regulation didn’t protect the victims of Bernard Madoff, for example. Despite federal inspectors being in food processing plants on a permanent basis, we still have food-borne illness.
Then, as shown in Regulation can backfire, benefit wrong parties, sometimes large companies figure that they can bear the costs of regulation better than their competitors. Another example is Walmart’s support of higher minimum wage laws. That company already pays its employees more than most state minimum wage laws require. But their competitors — often small “mom and pop” businesses — may not. So it’s a competitive advantage for Walmart to force their competitors to pay higher wages.
Regulations are also made without the benefit of the legislative process.