The Cost of Regulation

The benefits of the federal regulatory state outweigh its costs, the Office of Management and Budget found in a preliminary governmentwide cost-benefit analysis.

According to OMB's draft report on the cost of federal regulations, the dollar benefit of economic, environmental and social regulations for 1997 will be $298 billion, compared to a cost of $289 billion.

"The net benefits of regulation issued to date is positive," OMB reported, warning, however, that its analysis should not be considered a complete assessment of the costs and benefits of regulation.

"It is extremely difficult, if not impossible, to estimate the actual total costs and benefits of all existing Federal regulations with any degree of precision," OMB said. "We hope that this is just the beginning of an important dialogue to improve our knowledge about the effects of regulation on the public, the economy, and American society."

OMB combined data from several previous studies and gathered information from agencies on regulations that cost at least $100 million annually, including administrative costs within the government and the cost businesses and citizens incur complying with regulations. OMB estimates those large-scale regulations account for 90 percent of the cost of all federal regulations. Environmental regulations accounted for half of the costs and economic regulations accounted for 30 percent. The other 20 percent of costs came from other social regulations, including health and safety rules.

The benefits of environmental regulations outweigh the costs by $18 billion by OMB's estimates. The benefits of social regulations are two and a half times greater than their costs based on OMB's analysis, much of that coming from highway safety rules. OMB estimated negligible benefits from economic regulations.

The Heritage Foundation, a conservative think tank, has estimated the cost of federal regulations at nearly $700 billion a year. The foundation attributes much of that to volume--the Code of Federal Regulation has over 130,000 pages of regulations and agencies issue over 1,800 regulations every year.

OMB warned that the government should not devote too much time and money to try to develop a precise cost and benefit analysis for federal regulations as a whole. Instead, specific regulations should be evaluated based on their costs and benefits, OMB recommended.

"Real economic improvement comes from expanding those significant regulatory programs that provide benefits that are greater than costs and contracting those programs that provide benefits that are less than costs. The substance is in the details, not in the total," OMB said.

Congress instructed OMB to conduct the analysis and seek public comment on reforming or eliminating "any federal regulatory program or program element that is inefficient, ineffective, or is not a sound use of the Nation's resources." OMB is accepting public comment on the draft analysis through Sept. 1.