If you’re a business leader or conservative economist who worries that the federal government is strangling the economy in red tape, 2012 was a banner year. If you’re a consumer advocate or an environmentalist anxious for the government to do more to boost public health … ditto.
For the anti-red-tape crowd, there’s this: The federal government imposed an estimated $216 billion in regulatory costs on the economy last year, nearly double its previous record, the conservative American Action Forum think tank calculates in a new report. That figure represents a mixture of lifetime costs – how much one regulation will affect the economy over time – and annualized costs, because agencies estimate regulatory costs differently.
The same report calculates that the regulations put nearly 87 million hours of paperwork burdens on the economy, or the equivalent of a year’s work for some 43,000 full-time employees.
Three-quarters of those costs were driven by a pair of environmental rules. Aggressive new fuel-economy standards for cars and trucks are expected to make new vehicles more expensive in the coming years. Limits on mercury emissions from coal- and oil-fueled power plants are expected to push up electricity prices. The big paperwork drivers were the Dodd-Frank financial regulation law and the Affordable Care Act.
The study omits the flip side of the regulations, the one that should please consumer and environmental groups: the estimated benefits of those regulations, including lives saved and improvements in public health. By the government’s calculations, those benefits are large.
The mercury rule, published in February, delivers a $37 billion to $90 billion in health benefits annually, compared with its $10 billion yearly cost, according to the Environmental Protection Agency. The EPA estimates that the auto standards covering 2017 through 2025, published in October, will cost drivers $150 billion but save them $475 billion on fuel costs alone. (In both cases, conservative groups have challenged those calculations, arguing that costs will be much higher and benefits much lower than the government claims.)
The American Action Forum study goes beyond government estimates and tries to examine the costs of regulatory compliance that large companies reported paying last year. In reviewing those public financial filings, researchers found that 30 large companies reported spending on average about $1 billion a year in compliance costs. The hardest-hit sector was manufacturing.
Regulations appear to drag more on the bottom line of smaller firms than of larger ones, the study concluded after comparing compliance costs to the firms' total stock market capitalization. As the report notes, “regulatory costs consumed 6.7 percent of Honeywell’s market cap ($50 billion), compared to just 1.6 percent for General Electric ($221 billion), even though GE reported higher regulatory spending. The same was true for energy, where ExxonMobil had the lowest share of costs/market cap, after reporting the highest regulatory burdens, $2.7 billion.”
That disparity can give big firms an advantage in the marketplace, says Sam Batkins, the Forum’s director of regulatory policy. “Sometimes a big company might want a big regulatory overhaul because they know they can absorb those new costs better than their competitors can.”
There’s something in that idea for both sides of the regulatory debate, too.