The Hidden Tax: Regulation
We see what Uncle Sam makes us pay every April. But a new edition of an annual report shows there’s an insidious fee we pay on a daily basis.
We all know what last Monday was. As many of us paid Uncle Sam’s toll — mine was almost a wash, which worked out about how I wanted it — one had either a sour mood knowing that Fedzilla took more of one’s hard-earned salary or that giddy feeling of having absconded with free money because a refund was due. (In many cases, of course, that was just the money loaned to Beltway bureaucrats — interest free! Try finding a bank who will give you those terms!)
Yet we forget there’s a hidden tax which gnaws at our pocketbooks and the economy at large every day. It was pointed out by the Competitive Enterprise Institute in their “Ten Thousand Commandments” report, released on Tax Day.
Regulations cost $1.75 trillion in compliance costs, according to the Small Business Administration. That’s greater than the record federal budget deficit — projected at $1.48 trillion for FY 2011 — and greater even than all corporate pretax profits. Says report author Wayne Crews, CEI’s vice president for policy:
Trillion-dollar deficits and regulatory costs approaching $2 trillion annually are both unsettling new developments for America. … Every year, the federal government blows past previous deficit, debt, and regulatory burdens with no end in sight. No wonder Americans are fed up with Washington.
Just think of the handicap that sucking over $1 trillion annually out of the national economy places on job creation, for regulations that normally have little to do with safety but a lot to do with selecting winners and losers. There’s a school of thought out there which believes that big business (and by that I mean Fortune 500 multinational corporations) is in bed with government to promulgate new regulations in order to discourage competition — a sort of trust-busting in reverse. Since start-up businesses have great ideas but little capital behind them, creating a maze of red tape they need to navigate before they can begin making their mark tends to discourage competition.
But this also tends to retard progress and innovation. Imagine if regulations were so complex that creators and inventors like Henry Ford or Thomas Edison were discouraged from doing their work and seeking their fortune. With the vogue job of the day being so-called “green” jobs — a path paved with federal regulations — self-appointed experts tend to forget there is a bridge to be built from the technology of today to their vision of the future. Ford and Edison served as pioneers in a previous era, but today’s pioneers are being discouraged from it by overregulation. That bridge is hardly in the planning stages.
In Maryland: Governor Martin O’Malley is pushing for offshore wind farms. They would indeed provide “renewable energy,” but at a premium which would cost Maryland residents more for their electricity. An industry which uses a lot of power may see this pricing differential and decide to locate in another state (or country, since we’re now playing on a global scale) where energy can be had more cheaply. By being short-sighted and regulating the market — the Maryland General Assembly mandated that a certain percentage of electricity be created from “renewable” sources — the state has lost a tool for attracting business at the behest of a lobbying group which carries great weight around Annapolis and has figured out how to use government for its own ends.
But even a state like Maryland — a place which is doing its best to be a socialist paradise, with the added advantage to that end of being the residence for thousands of federal bureaucrats — doesn’t hold a candle to the power embodied in authoring federal regulations themselves. As the CEI report notes, the Federal Register now weighs in at over 80,000 pages — about six dozen copies of Atlas Shrugged stacked high. Each of those pages can be used as a landmine to discourage competition and reward corporate friends if written in just the right manner.
Closer to home, both corporate winners and losers have to make up the huge hit that regulations present to their bottom line in higher prices, passed on to wholesalers and end-users. This phenomenon was illustrated best when gas prices last surged toward $4 a gallon a few years back — suddenly service bills sprouted new “fuel surcharges” as a line item. (In a lot of cases, though, these additional tolls didn’t disappear once gasoline retreated under $2 a gallon.)
Our bills don’t have a separate line item for regulatory costs. The CEI report attempts to illustrate the impact at a federal level, but it misses the additional price passed on by state and local government. Even a nearly $4 trillion federal budget doesn’t scratch the fiscal surface of what regulations hold back from an eleven-figure economy.
“Just think of the handicap that sucking over $1 trillion annually out of the national economy places on job creation, for regulations that normally have little to do with safety but a lot to do with selecting winners and losers.”
And just wait, JUST WAIT, until the mandates for Obamacare start to kick in. If you think the cost of government regulation is bad now, wait until this whole new bureaucracy kicks in for insurance for everyone. Mark my words, if this nightmare ever does become a reality, most of our budget every year will go to paying for Obamacare, as is the case in Britain. And businesses will spend a fortune trying to pay for all of the compliance costs of keeping Obamacare going. Our Federal spending is sending us off a cliff, and Obamacare will give us that last final push that will send us to fiscal disaster.
I’m the first to shout that we have too much government in too many places. . . but.
Are the compliance costs really “sucked out of the national economy”, or just “spread around”? How many people are employed by companies to insure compliance? How many companies operate solely as compliance contractors? These are serious questions, I’d like to know how much of the money is “churned” in private industry vs paid directly via fees and fines to the government.
Now, considering how little all the compliance crap (I deal with it every day), the RoHS, the REACH, the ISO, FDA, NSF, UL etc. actually contribute to the quality of the end product vs the cost, I’d submit that even if all of the money stays in the private sector, this dead weight kills our competitiveness and ability to keep manufacturing here in the US.
Are the compliance costs really “sucked out of the national economy”, or just “spread around”? How many people are employed by companies to insure compliance? How many companies operate solely as compliance contractors? These are serious questions, I’d like to know how much of the money is “churned” in private industry vs paid directly via fees and fines to the government.
From the perspective of the broken window fallacy, I’d say those costs are really sucked out of the economy. If a company didn’t have to pay all of those compliance costs, they could use that money to expand, explore new business opportunites, and do something worthwhile. Instead, they’re having to pay all of those costs with no added value just to maintain what they currently have.
Several years ago, the IRS reported that Americans spend 5 billion labor hours a year complying with the tax code. That represents the full-time labor of about 2.4 million people. Sure, a lot of tax accountants are employed helping individuals and companies comply with the tax code but America as a whole would be better served directing all of that labor towards something productive.
When calculating cost/benefit of new regulations the feds now count the need to hire other wise superfluous employees whose sole purpose is to deal with new regulations as an economic benefit. I’ve not heard or read whether or not the need to hire more federal employees to enforce new regs is also considered a jobs program.
When calculating cost/benefit of new regulations the feds now count the need to hire other wise superfluous employees whose sole purpose is to deal with new regulations as an economic benefit. I’ve not heard or read whether or not the need to hire more federal employees to enforce new regs is also considered a jobs program.
Those would count in Obama’s mythical “jobs created or saved” category. Creating another government employee isn’t an economic benefit. While government employees also pay taxes (although not all state/local ones pay SS taxes), all of their income comes from tax revenues and borrowed money so they’re actually only paying back a percentage of the burden they place on others. In the business world, they’re overhead, not revenue producers.
Obama proposed giving waivers for paying back student loans to those who enter “public service.” I don’t recall if that passed or not. The plan would allow him to fill the ranks with a lot of otherwise unemployable “studies” majors (professional malcontents).
OTOH, the Congressional Research Service has strongly criticized the statistics used to arrive at that $1.75 trillion, which among other things apparently assumes that there is simply no financial benefit to regulation whatsoever. The whole topic needs work—a lot of work.
http://www.progressivereform.org/articles/CRS_Crain_and_Crain.pdf
Well anything that the Congressional Research Service says must be gospel. Their track record is so exceptional.
Admittedly, I’m not knowledgeable enough about this to say yea or nay but if the word Congress is involved, it’s probably safe to assume they’re not either.
I think it’s a wild underestimate.
Does it include the burdens of ambulance chasing litigation enabled and encouraged by the federal criminals? Does it include the costs of unrecoved Medicare costs that private insurers recover by increasing YOUR health insurance and privat medical costs? Does it include the costs of the time and lost opportunities individuals and small businesses waste attempting the impossible task of complying with the tax code? Does it include the downstream costs of regulation compliance? Does it include the additional regualatory burdens imposed by states and municipalities? Does it include the costs of massive waste and fraud inherent in every government activity?
I’m convinced that the true cost of government is far more the 50% of GDP; not just more than 50% for wealthy people, more than 50% for EVERYBODY. It may be as high as 75%.
Having studied the federal system for many years, I’ll offer that the bulk of those regulations are in place because they benefit special interests and certain businesses. Do a little “trolling” on web sites like Citizens Against Government Waste or Center for Defense Information.
“Federal criminals?” I think the real enemy is ourselves. Recall all the angry town hall meetings back in 2009. Lots of people, many on Medicare, ranting against government ran health care when they themselves are getting government health care benefits. Go figure.
We on Medicare are aware that we’re at the mercy of government. We’re also aware that any doctor who agrees to treat us is underpaid and will have to make up the difference with other patients. If ObamaCare guarantees that all doctors will be underpaid no matter who they see, I predict a decline in the quality of doctors, as soon as the current doctors are able to retire. Why would anyone spend the time and money to become an underpaid government slave??
I was opposed to Bush’s prescription drug addition to Medicare, but at least it was done under his watch rather than under the watch of Harry & Nancy & Barack, all of whom would be happy to cripple drug companies, or at least the drug companies who don’t contribute mightily to their campaigns. And while I hear the Dems chortling that Bush the Terrible added the expensive drug benefit to our national piggy bank, I don’t hear even one of them recommending its repeal; their biggest complaint seems to be that it’s too kind to drug companies.
Whatever the result of ObamaCare, I predict that no congressman or president will be harmed. Because they’re special.
And P.S., all of that “waste, fraud and abuse” that happens under government funded healthcare will be multiplied under ObamaCare. Although health insurance companies have incentives to reduce waste, fraud and abuse, government couldn’t care less–except at election time, when they promise to eliminate it. Every election.
The people at townhalls on medicare were taxed for decades at 15.3% and most will never get back anything close to what they put in. Some will get nothing back if they die early.
Your libwit talking point doesn’t wash.
And no, I’m not on medicare, I just have a brain and can tell the difference between confiscated income coming back in dribs and drabs and government give-aways, be it to preferred voting blocks or fascistly controlled corporate campaign contributers.
Well I am glad to hear that Medicare is taking in more than it is spending.
The problem is that people are using up MORE dollars in retirement and health care than they have paid in. Otherwise, we would have a big surplus.
does anything you say ever make sense?
at least this one is short enough that it only takes a moment to see how hopelessly illogical it is. Stay with that in the future and I may read your comments for a quick laugh.
The first generation got a free ride. The last generation gets screwed. The problem with Social Security and Medicare is that the current recipients are being paid with the money of the current contributors. As long as more new contributors are found, faster than recipients are generated, the system stays afloat. Otherwise it doesn’t. It’s the same reason Ponzi schemes are illegal. That the government is running it does not change the mechanics, nor does it change the results. The only question is who gets it in the rear.
This is true, but it isn’t the biggest problem.
The biggest problem is that the system was designed to give unlimited benefits. Sounds good. Buys votes. Can’t work for long, no matter what.
Ryan explains clearly that there are only a couple of solutions to the Medicare problem (other than stopping the programs entirely): rationing (the marxist solution), or capping the payments (Ryan’s solution). Neither one solves the problem people want solved (fulfilling the promise of unlimited benefits), because solving THAT problem is impossible.
The marxist solution puts the power of life and death in the hands of unelected commissars. Ryan’s solution put the power of life and death in the hands of families and doctors. The other approach, doing nothing, destroys the country.
It’s an easy choice for any thinking person.
Final and conclusive evidence that Unfettered Capitalism and the Unfettered Free Market belong in the same Zoo as the unicorn, the basilisk, the hippogriff and the Yeti—often spoken of, never seen.
So, the high cost of regulating capitalism proves that “unfettered” capitalism is a bad thing?
I’m have a little trouble with that logic.
Hmmm. Maybe that’s because it’s completely illogical?
Pro-reason: suggest you do a little research of your own before spouting off that others are “lib-wits.” I spent a number of years working for Social Security. People who paid in the maximum will get everything they and their employers paid back in a certain number of years. I don’t recall the exact number of years since it can vary depending on how much was paid in. After that, they live off the taxpayers.
In terms of your proposed solutions, you note rationing is a Marxist solution. I suspect that the Republicans in Arizona, who decided to ration health care when they were limiting access to organ transplants for a while, would be surprised to hear they’re now Marxists.