Regulatory Taxation

Member Group : Jerry Shenk

Government costs Americans far more than the direct taxes we pay, because taxes don’t include the costs of regulatory compliance. Compliance costs are built into the prices of goods and services purchased by American consumers, including by those who pay no income taxes.

In his 2014 review of the cost of government regulations, "Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State," Wayne Crews of The Competitive Enterprise Institute estimates the annual cost of compliance with federal regulations to be $1.863 trillion – more than Canada’s Gross Domestic Product.

Canada’s national economy is the world’s tenth-largest.

Regulatory costs are "hidden taxes" on consumers and household budgets that stall families and the national and local economies.

Crews estimates that, on average, regulations add $14,974 annually to American household budgets, or nearly a third of 2013’s median household income.

Regulatory "taxes" exceed every item in household budgets except housing – more than food, transportation, entertainment and savings.

In 2013, the government issued 3,659 new regulations – one every 2 ½ hours — most by unelected, faceless, largely-unaccountable federal bureaucrats whose livelihoods are derived from telling others what to do.

In effect, federal agencies have become a nearly-independent fourth "branch" of government.

America’s high jobless rate, a lagging economy and inflation demand that the constant expansion of government regulation be controlled. Not only does regulation create artificial inflation by increasing the costs of the products we buy, the business resources necessary for compliance displace actual production.

For example, the Sarbanes-Oxley Act of 2002, an "accountant accountability" regulatory law, was a hastily-passed overreaction to the auditing failures which enabled the Enron, WorldCom and Tyco scandals. Unsurprisingly, the regulatory response to these auditing failures yielded unintended consequences.

Despite post-scandal political demands to "manage" accounting firms, the passage of Sarbanes-Oxley made big winners of the huge accounting firms that extract millions in fees for conducting the business audits the law requires.
By placing onerous requirements on public companies, the federal law created a money machine for auditors.

More than outside auditing costs have increased. Regulated businesses lose productivity when company executives and employees spend time accumulating, formatting and certifying the data necessary to meet regulatory requirements. Head count and associated internal costs are increased simply to meet compliance standards.

Guess who pays for those regulatory inefficiencies.

Regulation by bureaucratic fiat can be worse. Consider, in December, 2010, the Environmental Protection Agency unilaterally declared plant food — carbon dioxide — a greenhouse gas. Cap-and-trade legislation failed in Congress, but the EPA would implement its provisions by regulatory means.

Bureaucratic edicts comprise a labyrinth of government approvals, permits and oversights, thousands of which insult the ability of Americans to make their own informed, voluntary decisions about food, energy, education and healthcare, among many others.

In order to improve real income and living standards for lower and middle income Americans, strengthen our currency and improve trade balances, we must, among other priorities, make sure the free-market private sector is the largest, fastest growing share of the national economy.

Removing unnecessary government impediments to business and industry is essential to job- creation and American competitiveness in global markets.
To help rejuvenate our economy, America’s business regulatory burden should be reassessed and the regulatory environment reformed.

Following rigorous cost/benefit analyses, only Congress should be allowed to approve regulations generating significant end-user costs. And new regulations should be reevaluated periodically.

Consumers would benefit by organizing independent regulatory review boards to advise/work with Congress to overhaul current regulations, eliminating the obsolete while leaving reasonable regulations simplified, improved or untouched.
Industries, trades and businesses should have voices in the regulatory environment in which they do business. Expanded regulation favors large, established businesses having more resources and superior economies of scale to deal with compliance costs..

Because they have smaller customer and employee bases over which to spread additional costs, generally, small businesses, the engine of American job creation, are hit hardest by regulation.

Crews calculates that firms with fewer than 20 employees pay an average of $10,585 per employee compared to $7,755 for those with over 500, putting smaller businesses at competitive disadvantages.

So, it’s essential that small businesses, the segment of American business least able to absorb the costs of regulations and most hurt by them, be well-represented in the end formulations of regulatory structures.

Sensible regulations can protect consumers, investors, workers and the environment. Americans should follow the rules.

But, first, the rules must make sense.