CEI Report: Regulations Cost Businesses $1.86 Trillion

Tuesday, 10 Jun 2014 04:03 PM

By Jennifer G. Hickey

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The Environmental Protection Agency's new proposal to regulate carbon dioxide emissions from power plants could cost the U.S. economy $50 billion a year by 2030, but that pales in comparison to the massive burden imposed on the economy by all federal regulations, a new report says.

In his annual assessment of the compliance costs of federal regulations, Clyde Wayne Crews, vice president for policy at the Competitive Enterprise Institute (CEI), reports that complying with regulations cost $1.863 trillion in 2013, which is more than the gross domestic products of Canada or Australia.

While the impact of federal and state taxes are more apparent to individual Americans, regulations are a hidden burden that costs an average U.S. household $14,974 annually.

"Every year, there are thousands of regulations compared to only a handful of new laws, which has created a situation in which unelected agencies and departments are doing most of the lawmaking. This is evident from looking at the sheer growth in the number of pages of the federal register, particularly during this administration," said Crews, who notes that the 2013 Federal Register contained 79,311 pages, the fourth-highest ever.

The top two all-time totals are 81,405 pages in 2010 and 81,247 in 2011, both under President Barack Obama.

The Office of Management and Budget, in its recent report to Congress on the Benefits and Costs of Federal Regulations, found there were 3,348 rules in various stages of planning or implementation — an increase from the 3,305 rules identified in its 2013 report.

Regulations are stealth taxes that can result in both increased costs and decreased productivity and economic growth.

"Regulation not only takes time away from businesses by forcing employers to spend time on paperwork, they can also stifle innovation or make it too expensive. While regulations by their nature have costs and benefits, recent studies have shown that the cumulative effect of regulations is to slow economic growth and stifle innovation," Patrick McLaughlin, a senior research fellow at George Mason University's Mercatus Center, told Newsmax.

One study, released in June 2013 by John Dawson and John Seater, economists at Appalachian State University and North Carolina State University respectively, analyzed the effects of regulation on economic output from 1949 to 2005.

The study found that federal regulations reduced the aggregate growth rate by an average of 2 percentage points annually. The economists said that because the "accumulated effect of a moderate change in the growth rate leads to large effects, estimates indicate that annual output by 2005 is about 28 percent of what it would have been had regulation remained at its 1949 level."

Dawson and Seater estimated that the average American would have been $129,300 richer if regulations had stayed at their 1949 level.

"Considering that economic growth is an exponential process, that seemingly small 2 percent reduction annually has an enormous impact over the course of 57 years," McLaughlin said. "The authors highlight the cost to the economy when businesses are forced to use valuable resources and time for compliance rather than focusing on innovation, development, and research."

In his book "Where the Jobs Are," John Dearie, executive vice president of the Financial Services Forum, addressed the overall impact of excessive regulations.

"Regulation imposes costs — costs borne principally by businesses. Regulation can also create economic distortions, entrenched interests, and powerful constituencies, and can lead to cronyism and dependency. In short, if overdone or unwisely implemented, regulation can cease to be a facilitator of economic activity and instead become an obstacle," Dearie wrote.

In seeking an answer to the question of why entrepreneurship is on the decline, Dearie held roundtables with entrepreneurs in 12 cities to receive feedback on the challenges they faced in establishing their businesses.

While a range of responses were given, Dearie found a common theme was that the uncertainty and complexity of the regulatory environment made it difficult to start a business and expand through hiring new employees.

The burdens fall disproportionately on small businesses. A 2010 study by the Small Business Administration found that regulatory compliance costs small businesses 36 percent more per employee than it costs larger firms.

The CEI report reached a similar conclusion: small businesses pay more in per-employee regulatory costs. Firms with fewer than 20 employees pay an average of $10,585 per employee, compared to $7,755 for those with 500 or more employees, according to the report.

Democratic Rep. Patrick Murphy of Florida, a former small-business owner, told Newsmax that he "witnessed firsthand the negative impact that burdensome regulations" have on the ability of small businesses to thrive.

"For economic growth, entrepreneurs and the community banks that support them need to be able to spend their time and energy innovating and creating value in the marketplace, not buried in paperwork," said Murphy, who is co-sponsoring legislation to establish an independent commission to review the utility and effectiveness of federal regulations.

Introduced on May 20 by Murphy and Republican Rep. Mick Mulvaney of South Carolina, the bill would give authority to a Regulatory Improvement Commission (RIC) to review, eliminate, modify, or update regulations that are ineffective or outdated. A Senate version was introduced last year by Sens. Angus King, an independent from Maine, and Roy Blunt, a Missouri Republican.

After a formal regulatory review, the RIC would submit a list of regulatory changes to Congress for a straight up-or-down vote. The idea for a regulatory commission, based on the 2005 Base Closure and Realignment Commission, was initially floated in a 2013 paper co-written by Michael Mandel and Diana Carew of the liberal Progressive Policy Institute.

Mulvaney told Newsmax the genesis of his legislation was a discussion the lawmakers had during a congressional golf tournament.

"We found a shared passion about this issue and were energized by the fact that members of both parties were intensely interested in achieving reform," Mulvaney said.

"Have regulations slowed the recovery? Absolutely. There is no question it has stymied growth, particularly small-business creation. We have not taken a serious look at regulations since the 1970s. Regulations are smothering economic innovation and choking entrepreneurship in America," Mulvaney said.

Two new studies demonstrate how individual regulations slow economic growth and jeopardize job creation.

An analysis of the EPA's new rules governing carbon emissions by power plants released by the U.S. Chamber of Commerce estimates the cumulative impact to the economy could be $859 billion by 2030, or an average of over $50 billion a year.

The chamber's Institute for 21st Century Energy found the EPA's proposal also could result in an average of 224,000 fewer jobs created per year while producing only a 1.8 percentage-point reduction in overall emissions.

Another study released on May 30 by the Center for Automotive Research (CAR) examined the economic burden faced by U.S. automobile dealerships to comply with as many as 60 federal regulations.

The CAR analysis found the average dealership incurred $182,754 annually in costs pertaining to employment, vehicle maintenance, and business operations in 2012. That figure amounts to 21.7 percent of an average dealership's before-tax profit, or nearly $2,400 per dealership employee.

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