Further Thoughts on Assessing Regulatory Costs and Benefits

Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

A new study shows that the impact of federal government regulation might be even more significant than that of federal taxation.

I recently wrote about the need for a federal regulation budget, explaining how private-secor activities to comply with regulation do not appear in the official federal budget, while private-sector interactions with tax and spending programs do, in terms of the amount of money they pay or receive. I also pointed to a few first steps to quantifying the amount of regulation.

Last week Sam Batkins of the American Action Forum, which describes itself as “a forward-looking policy institute dedicated to keeping America strong, free and prosperous,” released a kind of federal regulatory budget for each of the last several years.

The budgets began with the Federal Register, a daily journal of laws passed by Congress, executive orders and federal government agency re! ports. Government agencies are often required to estimate private-sector costs of complying with those regulations, and Mr. Batkins aggregated those costs (the federal Office of Management and Budget is obligated to conduct a related analysis on a subset of regulations, as you can see in one of its reports).

As a daily journal, the Federal Register contains federal government activity during the year, which makes it different from, say, the federal budget for taxes. Much of the taxes paid in 2012, for example, were collected pursuant to laws and Internal Revenue Service rules promulgated in previous years, at which times they would have appeared in the Federal Register.

In other words, the 2012 Federal Register might be interpreted as additions and subtractions to the inventory of federal regulations as they stood at the end of 2011, rather than the total amount of regulation faced bythe private sector during 2012. Mr. Batkins found that new regulations cost $236 billion in terms of compliance, while regulations rescinded during the year reduced compliance costs by $2.5 billion.

He found that more compliance costs were added in 2012 than in any of the other several years in his study.

Just as a government revenue budget should not be interpreted as net costs because the revenue makes beneficial spending possible, Mr. Batkins’s regulatory costs should not be interpreted as net costs because the regulations are thought to create benefits, too.

Another difficulty with estimates from the Federal Register is that new regulations may partly replace old ones (even though the old ones may technically remain on the books), so one might want to subtract the previous compliance costs of obsolete regulations from Mr. Batkins’s estimate to arrive at the total increase in compliance costs from, say, 2011 to 2012.

Other costs in Mr. Batkins’s study are those impose! d on stat! e and local governments, which are real costs but largely result in higher taxes for state and local taxpayers. That means Mr. Batkins’s total is really a combination of tax costs and regulatory costs (equivalently, if one were to add tax revenue to Mr. Batkins’s compliance costs, the total would involve some double-counting).

A nice feature of Mr. Batkins’s study, and one it holds in common with a budget for taxes and spending, is that it can be examined by type. He finds that “commodities and securities” was one of the largest categories of new compliance costs, largely because of the implementation of Dodd-Frank regulations. Environmental regulations were another large category.

The results show that, for good or for bad, the costs of complying with federal regulations are probably accumulating more rapidly than taxes are.