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The Rising Tide of Red Tape

by Michael Tasselmyer / /

Just a few weeks ago Washington, D.C. required tour guides to pay $200, pass an exam, and obtain licensure before giving tours around our nation's capital. However, this regulatory measure was recently overturned in favor of DC-area small-business owners, Bill Main and Tonia Edwards. The owners of the tour guide company, "Segs In The City," originally sued in 2010 to have the licensing system abolished on the basis of free speech. The recent decision is a major victory for Main and Edwards, but offers a glimpse into the much larger issue of economically challenging regulation.

Federal and state governments are constantly producing more "red-tape," and its creation often goes unnoticed until the regulation has taken a stranglehold on individuals and small-businesses. Unlike taxes, which usually have a direct and immediately visible effect, regulation often creeps into our daily lives without receiving the same scrutiny that taxation receives. This is a serious problem since regulatory laws have massive costs, measured in both time and money.

Cass Sunstein, former head of the White House Office of Information and Regulatory Affairs, was quoted in 2011 as saying there is no "tsunami" of regulation to worry about. Three years later, there may not be a tsunami but there is no doubt a rising tide. According to research by the Competitive Enterprise Institute (CEI), it costs Americans $1.863 trillion to comply with federal regulations in 2013, making U.S. regulatory costs higher than the GDPs of countries like Canada and Australia.

Since 1994, the U.S. has issued an average of more than 3,500 regulations a year, or about nine per day. Also, in 2013 the Federal Register contained 79,311 pages, the fourth highest total ever. The Register's two largest volumes were in 2010 and 2011, including the 81 major rules -- those that have a $100 billion impact or greater -- that the President has issued annually since he took office. This all adds up to make regulation cost $14,974 per household, or 23% of the average household income of $65,596.

CEI's report also includes an "Unconstitutionality Index." This is a ratio of regulations by federal agencies compared to the legislation passed by Congress and signed into law. In 2013, the ratio was 51-1, which means that there were 72 new laws and 3,659 new regulatory rules, or a new regulation every 2½ hours. Six federal agencies, including the Departments of Commerce, Treasury, Interior, Health and Human Services, and Transportation and the Environmental Protection Agency, account for 49.3 percent of these regulations. Many of the regulations these agencies create hit small-businesses the hardest. Firms with 20 or fewer employees pay an average of $10,585 per employee in regulatory costs, while firms with 500 or more pay an average of $7,755 per employee.

At a time when state and local economies are in dire need of job growth, and government budgets are strained for every single dollar, cutting "red tape" is a cheap, politically savvy way of raising much needed funds. This is an especially prudent choice for local governments, since complex federal laws like Dodd-Frank and the Affordable Care Act impose significant costs for consumers and employers throughout the country. With this in mind, taxpayers should pay close attention to regulations proposed at every level of government, which can have far-reaching economic impacts.

Special thanks to NTUF Research Associate Alex Eblen for authoring this post.