High Costs of Regulations Leave Some Advocating for 'Regulatory Budgets'

Posted 24 January 2013 | By

Fiscal responsibility is a popular discussion-starter in Washington, DC, of late. Budgets are in need of balancing; deficits in need of being made sustainable; future growth of programs reined in. This much a broad spectrum of politicians agree on. But now some conservative thought leaders are advocating that something else be put on the table: a budget for regulations.

The idea is something of a departure from most think tanks, which tend to approach regulatory policy on something more of a piecemeal basis. For instance, a regulation from the US Food and Drug Administration (FDA) establishing current good manufacturing practices (CGMPs) for pharmaceuticals is vastly different from an Environmental Protection Agency (EPA) rule on automobile emissions.

Regulation: Death by a Thousand Cuts?

But approaching the issue of regulation from a piecemeal perspective is to miss the cumulative costs of regulatory policymaking, writes Sam Batkins of the American Action Forum, a conservative-leaning think tank that tallies the costs of regulations on a recurring basis.

Take, for example, some of the world's top pharmaceutical and medical device manufacturers: 3M, Pfizer, Merck and Abbott Laboratories.

The four companies reported paying a combined $2.6 billion in 2012 to comply with regulatory costs, not counting the ability of those costs to prevent their products from reaching market. That's time spent employing staff, filling out forms, outfitting new technologies to meet standards and conducting other compliance activities. Pfizer alone spent $2.1 billion in 2012 complying with regulations, AAF's analysis showed.

Title 21 of the Code of Federal Regulations (CFR), the code under which FDA's regulations are promulgated, grew substantially in size and cost in 2012. Eight new regulations cost industry $626 million in additional staff time, or 1.4 million hours.

That isn't to say there aren't associated benefits as well-after all, each cost is another entity's profit. For example, good manufacturing practices might cost an employer money up front, but they probably won't have to conduct as many recalls, won't be sued as often and will benefit from improved consumer confidence in their products.

Is a Regulatory Budget the Answer?

But it does raise a question: Should agencies be given a "regulatory budget" that they must adhere to? University of Chicago economist Casey Mulligan and others argue they should.

"Politicians have devised various budgetary gimmicks to help disguise what they tax and spend, and the sunset provision that led to next month's fiscal cliff is one of them," he wrote in a recent opinion piece for The New York Times. "Nevertheless, experts and even the voting public get an idea of the importance of taxes and spending in the economy by looking at budget totals and perhaps a few of the largest line items. The same cannot be said for regulation, which lacks any official budget."

"As with taxes and spending, we cannot necessarily conclude that more regulation is 'bad' or 'good,' but it would be helpful for experts and voters alike to see a rigorous accounting for government regulation," he concluded.

"Without a comprehensive accounting of cumulative regulatory burdens, review of independent agencies, or enhanced congressional oversight, the year-end report next year will mimic 2012's grim regulatory biography," wrote Batkins.

Their questions raise others as well, particularly in an era of increasing budgetary austerity: Could regulatory agencies be subject to an annual regulatory budget in terms of cost impositions? Could they be restricted in the number of pages of regulations they promulgate? Could they be locked into a certain ratio of costs relative to benefits, such that only those regulations with a high benefit are considered in certain budgetary years?

For now, those are all hypotheticals, but perhaps ones that could one day be on the table for consideration.


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