American industry has a new reason to be optimistic. The Supreme Court’s recent decision to stop courts from deferring to bureaucrats’ interpretation of the law should prevent many costly new regulations in the future.
While this breakthrough is welcome, it doesn’t alleviate the existing regulatory burden on companies. We still need more deregulation.
Although estimates of the cost of regulation vary, they invariably are large. The latest edition of the Competitive Enterprise Institute’s annual publication, “Ten Thousand Commandments,” put the cost of regulation at just under $2 trillion in 2022, or about 8% of the U.S. economy. The National Association of Manufacturers estimated this cost was nearly $3.1 trillion, closer to 12% of economic output.
By either estimate, the cost of U.S. regulations exceeds the total economic output of countries such as South Korea, Russia and Australia. The higher estimate is also larger than the entire U.S. manufacturing sector ($2.6 trillion).
That’s right: American regulations may cost the economy more per year than all American manufacturers produce, combined — and by a margin of 20%.
Manufacturers bear a massive part of the burden. Politicians of all stripes talk a good game about boosting American manufacturing, but too many of them promote harmful policies.
That same estimate by the National Association of Manufacturers reveals the discrepancy. Economist Daniel Ikenson summarized it this way in his report on “industrial headwinds” for the Club for Growth Foundation’s “Freedom Forward” policy handbook:
“Whereas the average U.S. company pays approximately $13,000 per employee annually to comply with federal regulations, the average U.S. manufacturer pays more than $29,100 per employee – more than double.”
The growth rate is also disproportionately heavy on manufacturers: While the cost per employee for all companies grew a whopping 30% over 10 years, the cost for manufacturers soared by 48% during the same time period.
Ronald Reagan famously said, “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
Almost 40 years later, we continue to see this play out before our eyes.
Ikenson draws on the example of the 2022 CHIPS Act, which seeks to spur a rebirth of the U.S. semiconductor industry. The law includes tens of billions of dollars in subsidies for chipmakers. But Ikenson notes that the money doesn’t come cheaply for the recipients (much less for taxpayers):
“For example, the subsidy terms of the (CHIPS Act) include non-germane requirements, such as recipients using organized labor and providing ample childcare services for their workers. Semiconductor manufacturers must also comply with Clean Air requirements; these are so burdensome that the delays in the permitting process often render the sought investments unviable from the outset.”
That’s a reminder that regulation doesn’t only burden companies with required standards. It also burdens them with poor processes and enforcement by government agencies. Delays cost time, and when it comes to doing business, time is money.
Perhaps the subsidies wouldn’t be needed – or at the very least, not on the scale we are seeing in laws like the CHIPS Act – if agencies would regulate more reasonably.
If the agencies won’t reform themselves, other branches of government can do something about this.
Congress should start by insisting on more oversight of runaway bureaucrats. The proposed REINS Act provides for congressional votes on “major rules” before they could be implemented. That should include regulations that cost companies more than $100 million a year. Some have also suggested creating a Congressional Regulations Office, to scrutinize executive actions in a similar manner to how the Congressional Budget Office examines federal spending.
Rather than addressing the symptoms of a problem they created, the feds need to stop causing the problem in the first place.