The Hidden Tax
February 2004
By, Ed Feulner
What would you do with an extra $8,000 this year? Pay off
your credit card debt? Fully fund your 2004 and 2005 I.R.A.?
Make a down payment on a new car?
On the other hand, if the government announced plans to
increase your taxes by the same amount, you’d certainly
raise a ruckus. That’s probably why the government keeps
quiet about exactly how much its regulations cost.
Economists Mark Crain and Thomas Hopkins did a study for the
Small Business Administration and found that in the year
2000, federal regulations
cost us $843 billion. That’s $8,000 per household -- almost
half the amount collected in federal taxes that year. In
other words, Washington didn’t overtly increase your tax
burden last year. However, its policies cost each American
household more than $8,000 in hidden regulatory expenses.
That’s unfortunate, because while some federal regulations
are justified, even critical, many aren’t necessary. And
Congress needs to identify which are which.
To do that, lawmakers should set up an Office of Regulatory
Analysis, modeled on the Congressional Budget Office. This
ORA would study all existing regulations, explain to
lawmakers what purpose those regulations serve, and
determine how much those regulations cost citizens and
businesses. Any outdated or overly expensive regulations
then could be eliminated.
The Bush administration can help out, too. The president
should let all federal agencies know that reining in
regulations is a priority. He also ought to continue
strengthening the Office of Information and Regulatory
Affairs (OIRA) at the Office of Management and Budget.
Again, before a new regulation is put into place, the
government should have to explain what it will accomplish
and how much it will cost.
Making any of these improvements will require a change in
the Washington culture. There are more than 4,300 regulatory
agency staffers for every OIRA staffer. Ronald Reagan once
said that bureaucrats believe, "if it moves, regulate it."
That attitude has added thousands of regulations and
hundreds of pages to the Federal Register in recent decades.
But it has to change if the U.S. economy is to retain a
leading role in the 21st century.
For example, our telecommunications regulations haven’t been
updated since 1996, when few of us used mobile phones or the
Internet. Congress should write new laws that reflect
today’s reality and minimize regulation.
Lawmakers should make sure that consumers have choices,
because competition drives down prices. That means, first of
all, reducing regulations so that a variety of Internet
service providers, cell-phone companies and television
services can continue to compete in each area. It’s also
important that the marketplace, not regulators, set prices,
as that will ensure that prices fall as new technology
becomes widespread.
Congress also should eliminate requirements that force
companies to share their investments with competitors. These
sorts of regulations discourage new ideas and investment and
are unnecessary when multiple competitors exist.
The federal government also ought to ease its involvement in
the financial industry, which has been tightly regulated for
decades. Many of those rules are simply outdated, and
they’re costly: Because of government involvement, taxpayers
frequently have been required to foot the bill for expensive
regulatory failures, as they were with the Savings and Loan
bailout.
Things have only gotten worse in recent years. Because of
the Sarbanes-Oxley accounting reform law, businesses spend
more than ever to comply with federal regulations. In fact,
some firms have gone so far as to buy back their stock and
retreat from public markets. That won’t help the United
States remain the world leader in capital markets.
Simply put, our economy is over-regulated. There’s a saying,
"Thank goodness we’re not getting all the government we’re
paying for." Well, if we reduce the burden of unnecessary
regulations, we’ll have less government -- and pay less for
it.
We’ll never get that $8,000 per household down to zero --
but we can reduce it. And chances are, that extra money will
come in handy.
Ed Feulner, president of the Heritage Foundation (heritage.org),
a conservative think tank based in Washington.
