RPC Reg Spotlight October 24, 2011

 

Regulatory Action in the Spotlight:

 

The cost of federal regulations

 

Adverse Effects:

 

Financial drain on the U.S. economy.

 

Response of the Obama Administration:

 

During the first 26 months of the Obama administration, 75 major regulations with a net increase in reporting costs to the private sector of $38 billion dollars have been imposed on the private sector.   At of the end of 2010, the Federal Register, which spells out all of the new regulations, issued by the government, stood at 82,590 pages, an increase over the 69,676 pages in 2009.  At the moment, the Federal Register stands at 65,926 pages for 2011 alone. 

 

Impact on the United States:

 

A study by Nicole and Mark Crain on behalf of the Small Business Administration in 2010, estimated the annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008.   This represents nearly twice the amount of individual income taxes collected in 2009.  

 

According to a Heritage Foundation publication, Red Tape Rising:  A 2011 Mid-Year Report, “The spring 2011 Unified Agenda (also known as the Semiannual Regulatory Agenda) lists 2,785 rules (proposed and final) in the pipeline.  Of those, 144 were classified as “economically significant.”  With each of the 144 pending major rules expected to cost at least $100 million annually, they represent at least $14 billion in new burdens each year.  This is an increase of 15.2 percent in the number of economically significant rules in the agenda between spring 2010 and spring 2011.   Moreover, in the past decade, the number of such rules has increased a whopping 102 percent, rising from 71 to 144 since 2001.” 

 

Like an anchor on the economy, regulations impose a significant cost on the private sector.  On a per employee basis, the regulatory cost to business averages $8,086, with the cost of compliance for the smallest businesses topping $10,585 per employee per year.  This is 36 percent more per employee than their larger counterparts.  Furthermore, the regulatory compliance cost per U.S. firm of any size was over $161,000, or 19 percent cost as a share of payroll.  Manufacturing is the industry hit hardest by this burden with a per-firm cost of $688,194, or a 29 percent cost as a share of payroll!

 

Of note are various government statistics that project the enactment of the Dodd-Frank Act alone will require the government to spend $1.25 billion by mid-2012, requiring an additional 2,849 government jobs, and 2.2 million man-hours for financial institutions to comply with all of the paperwork generated by the first 30 rules. 

 

In implementing Section 404 of the Sarbanes-Oxley Act, the Securities and Exchange Commission estimated that the cost of compliance would be approximately $91,000 per firm.  However, research conducted by CRA International indicates that the actual cost of Section 404 compliance was $7.3 million for larger corporations, and $1.5 million for corporations smaller than $700 million in market capital.   In the aggregate, it amounts to $35 billion in compliance costs, almost 30 times that of the original SEC estimate.  Moreover, a 2009 SEC study  revealed that the long-term cost burden on smaller companies is more than seven times greater than the burden imposed on large firms.  

 

In Closing:

 

Looming in the background of everyday life is the cost of regulations imposed by the federal government.  Indeed, most Americans view government regulation as a problem faced by business, but every facet of daily life - from the cars Americans drive, how they heat and cool their homes, the light bulbs used, the food they buy, the toys children use, and the cost to use their bank - is affected.  Although much of this regulatory burden is borne by business, the costs of these regulations are inevitably passed along to consumers, as a “hidden tax”, in the form of higher prices and more limited product availability. 

 

Relevant Legislation:

 

In light of this information, House Republicans are working to bring accountability to the regulatory process:

 

  • H. Res. 72, sponsored by Rep. Pete Sessions and which passed the House of Representatives in February 2011, directed certain standing committees to inventory and review existing, pending, and proposed regulations and orders from agencies of the federal government, particularly with respect to their effect on jobs and economic growth.

 

  • Rep. Geoff Davis sponsored H.R. 10, the Regulations from the Executive In Need of Scrutiny (REINS) Act.  The REINS Act would require that Congress take an up-or-down vote on every new major rule (more than $100 million annual economic impact) before it could be enforced.  If the REINS Act becomes law, it will encourage Congress and agencies to work together to develop and pass regulations that implement the original intent of laws.  Furthermore, the REINS Act would prevent future administrations from bypassing Congress to implement an agenda via regulation.  Final consideration by the House of Representatives is expected this fall.

 

  • Rep. Lamar Smith introduced H.R. 527, the Regulatory Flexibility Improvements Act, also expected to come to the floor of the House of Representatives this fall, which would require federal agencies to identify and reduce the costs new regulations could impose on small businesses.