The Regulation Tax Keeps Growing- Blame Washington, not China, for the decline of American manufacturing

September 28, 2010

The Wall Street Journal has a good editorial regarding the cost of federal regulations in the United States, explaining federal regulations’ cost on business.   Some highlights:
 
·         “The annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008…. This cost is in addition to the federal tax burden of 21%, for a combined cost of 35% of national income.”
 
·         “[I]ndividuals and businesses bear the burden of the $1.75 trillion cost of regulations, and small businesses bear a disproportionately large share of the compliance costs. Businesses must close, reallocate activity, absorb, or pass on the expense of complying with regulatory requirements.”
 
This is a copy of the authors’ study to the Small Business Administration.  And this is a link to the article.
 
While the editorial and report focus  on federal regulations’ disproportionate impact on small businesses generally,  it is important to appreciate the role regulation plays in the context of domestic energy and manufacturing investment. Global businesses must make decisions on where to invest based upon a number of factors, but regulatory certainty ranks among the top factors.  Government “take” may be easier to see, for example, when a government raises a manufacturer’s tax rate.  But in some ways, increased regulation is even more onerous because at least taxes come after the manufacturer has made some sort of profit. With excessive regulation, ultimate profitability is less certain.    
 
EPA’s rulemakings with respect to global warming, ozone, industrial boilers and coal ash and DOI’s deepwater moratorium and de facto shallow water moratorium are good examples of the sorts of policies that have tremendous cost on business and consumers. Punitive government taxes, excessive regulation and restrictive access policies directed at energy and manufacturing businesses will raise energy prices. Therefore, the benefits must equal or exceed the costs of such policies.  Given that the economy for the foreseeable future appears to be fragile, and given the importance of energy to our economy’s health, it is essential that policymakers be mindful that such policies not cause self-inflicted unilateral damage to the US economy and consumers.