Red tape chokes economic freedom

How much does federal regulation cost Americans each year? The question is not an easy one.

While the revenues and expenditures of the government are budgeted and accounted for each year, the costs of regulation are largely hidden from view, paid for indirectly via higher prices, fewer choices, and less innovation. The best estimates of the total cost, however, have come from a series of reports commissioned by the Small Business Administration (SBA). The latest such report was released today by the SBA’s Office of Advocacy, and the results are startling.

Rules and restrictions imposed from Washington now cost Americans some $1.75 trillion each year. That is sharply higher that the $1.1 trillion in costs reported in 2005 in the SBA’s last such study.

Some of this increase comes from identification of regulatory costs that were not included in earlier reports. Yet much represents new regulatory burdens—including a $445 billion increase in the cost of economic regulation.

No matter how you slice it, $1.75 trillion is a lot of money. It is far more than Americans pay in income taxes each year. It’s about the same as the GDP of Italy. Per household, the regulatory tab works out to some $15,000—almost as much as the average family spends on housing.

The study, co-authored by economists Nicole V. Crain and Mark Crain, probably shouldn’t come as a surprise. During the past few years, spanning two presidencies, the tide of regulation has risen at an alarming rate. And more is to come: 2010 promises to be a record year for imposing rules, and the full impact of new health care and financial regulations have yet to be felt.

There is no magic bullet to stop this excessive growth, although reform efforts are growing in Congress. Sen. Jim DeMint (R-SC) is set to introduce a bill that would require congressional approval of all major new rules that impose a significant cost on country as a whole or on a particular industry (The bill is identical to one already introduced in the House by Congressman Geoff Davis [R–KY]).

Whatever the eventual cure, the reform process, like many others, must begin with recognition that there is a problem. Today’s report makes that problem virtually impossible to miss.