Red tape rising: 2010's record flood of regulation

Posted: Monday, November 01, 2010

Regulation ranks high among this year's election issues, and new data on what it's costing Americans certainly justify voters' concern. In fiscal year 2010, the federal government adopted 43 major rules that will cost Americans a whopping $26.5 billion annually - the highest amount on record and more than the GDP of some 90 countries.

This torrent of regulation would be problematic under any circumstances.

But it is particularly detrimental during a tepid economic recovery. It raises prices, stifles wages and job creation, and diverts dollars from investment and innovation.

Regulatory burdens have been increasing for years. Even during the supposedly "deregulatory" Bush administration, some $70 billion in new federal rules were adopted. But, under the Obama administration, the red tape has worsened to unprecedented levels, data provided by the Government Accountability Office shows. The FY 2010 total, in fact, is nearly twice that of any other year since 1981, the earliest year for which records are available.

Only five major rules in the past year eased regulatory burdens, at a relatively modest savings of $1.5 billion.

Unlike on-budget spending, there is no transparent accounting of regulatory costs. Instead, they are largely hidden in the form of lost jobs, higher prices, and slowed investment. If anything, the actual costs of the FY 2010 rules are likely higher than $26 billion, since regulators tend to minimize the costs of their rules.

The regulations unleashed during the past year affect every segment of American life. Fifteen involve financial regulation. Another five stem from the Obama health care makeover. Ten others are from the Environmental Protection Agency, including the first mandatory reporting of "greenhouse gas" emissions and new more stringent fuel economy standards (adopted jointly with the National Highway Traffic Safety Administration).

The new fuel standards, in fact, are the most expensive of the FY 2010 regulations - with an eye-popping price tag of more than $10 billion each year. The agency acknowledges that consumers will bear the cost in the form of higher sticker prices of up to $985 for each vehicle.

Other costly new rules include:

• Mandated quotas for renewable fuels, costing almost $8 billion a year for the next 15 years. By diverting crop production to fuels and away from food, EPA predicts the rule could increase food costs.

• Efficiency standards for residential water heaters, heating equipment, and pool heaters, costing some $1.3 billion. The rules will raise the price of a typical gas storage water heater by $120.

• Limits on "effluent" discharges from construction sites, costing more than $800 million. Regulators estimate the new rules will force the closure of 147 construction firms and the loss of 7,257 jobs. Homebuyers also will bear some of the costs, with an increase in mortgage costs of about $1,953.

There's every reason to believe the regulatory deluge will worsen next year, as yet more financial and health care regulations are released.

The EPA already is writing an array of budget-busting rules, including even more stringent fuel economy standards. And the Federal Communications Commission is mulling new Internet regulations that would undermine investment in broadband infrastructure.

It won't be easy to stem this red tide, although a number of remedies have been proposed. Among them is the automatic "sun-setting" of rules (an expiration date, essentially), as well as requiring congressional approval of all new major regulations. Lawmakers should seriously consider such worthwhile steps.

But such procedural reforms - while necessary - won't be enough.

Regulatory costs will continue to rise until policymakers appreciate the burdens being imposed on Americans and the economy, and start exercising the political will to reduce those burdens.

Unfortunately, political leaders of both parties have lacked such an appreciation for far too long. The question now is, will that change given voters' concern about the problem? Or will that concern continue to be ignored?

• James Gattuso is senior research fellow in regulatory policy for The Heritage Foundation, where Diane Katz is a research fellow in regulatory policy.

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