logo

The Misguided Notion of a Regulatory Cap

image
Created: 20 April, 2012
Updated: 13 October, 2022
2 min read

federal_regulation

The idea of a regulatory cap has been kicking around in conservative policy circles, but it has now gained an important adherent in the form of Governor Mitt Romney. He pledges to impose “a regulatory cap of zero dollars on all federal agencies.” To translate this into ordinary English, a zero cap means that, if an agency wants to adopt one regulation to protect the public, it needs to abolish an existing regulation – even if both regulations produce benefits that are greater than their costs, and even if they affect different companies. To give a concrete example, if FDA wanted to ban a chemical that causes cancer in foods, it would have to repeal the ban on another carcinogen or allow more e. coli on meat. That’s a bit hard to fathom.

What’s the rationale for a regulatory cap? Here’s how the Romney website explains it:

An agency may be able to conceive of ten different regulations, each imposing costs of $10 billion while producing at least as much in social benefit. Moving forward might sound like a great idea to the typical regulator. But imposing those regulations, no matter what the social benefits, has a similar effect to raising taxes by $100 billion. Regulatory costs need to be treated like the very real costs they are.

The analogy between a tax and a regulation is appealing, since a regulation often requires a company to spend money. But the analogy is misleading. If a regulation produces greater benefits than costs, it’s not like a tax that just transfers funds from individuals to the government. Instead, it’s an investment that makes society as a whole better off. There’s also another key distinction between regulations and taxes. Income taxes reduce the returns to working and saving, but regulations reduce the returns from polluting, contaminating food, discriminating against women and minorities, defrauding investors, and undermining the stability of the banking system. As the tech people say, that’s a feature, not a bug.

There’s very little evidence that regulations are hurting the economy, and no evidence at all that we have too many regulations whose benefits exceed their costs. Governor Romney’s website refers to an estimate of the cost of regulation as “$1.75 trillion annually—much higher than the entire burden of individual and corporate income taxes combined.” That’s over 10% of the country’s GDP. The implications are that a tenth of the nation’s employees and resources are devoted to regulatory compliance, and that people would have much more money in their pockets if we doubled taxes (raising the top rate to 70%) while eliminating regulation. That strains credulity. Thus, it’s not clear that a regulatory cap would be addressing a real problem.

In the end, a regulatory cap amounts to a pretext for repealing regulations or blocking new ones without regard to their benefits. A more sensible approach for conservatives is to continue to insist on cost-benefit analysis, rather than a blinkered approach that only considers one side of the balance.

Latest articles

votes
Wyoming Purges Nearly 30% of Its Voters from Registration Rolls
It is not uncommon for a state to clean out its voter rolls every couple of years -- especially to r...
27 March, 2024
-
1 min read
ballot box
The Next Big Win in Better Election Reform Could Come Where Voters Least Expect
Idaho isn't a state that gets much attention when people talk about politics in the US. However, this could change in 2024 if Idahoans for Open Primaries and their allies are successful with their proposed initiative....
21 March, 2024
-
3 min read
Courts
Why Do We Accept Partisanship in Judicial Elections?
The AP headline reads, "Ohio primary: Open seat on state supreme court could flip partisan control." This immediately should raise a red flag for voters, and not because of who may benefit but over a question too often ignored....
19 March, 2024
-
9 min read
Nick Troiano
Virtual Discussion: The Primary Solution with Unite America's Nick Troiano
In the latest virtual discussion from Open Primaries, the group's president, John Opdycke, sat down ...
19 March, 2024
-
1 min read
Sinema
Sinema's Exit Could Be Bad News for Democrats -- Here's Why
To many, the 2024 presidential primary has been like the movie Titanic - overly long and ending in a disaster we all saw coming from the start. After months of campaigning and five televised primary debates, Americans are now faced with a rematch between two candidates polling shows a majority of them didn’t want....
19 March, 2024
-
7 min read