Can Fiscal Budget Concepts Improve Regulation?

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by Susan E. Dudley, Director
July 16, 2015

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Abstract

Despite efforts to ensure that new regulations provide net benefits to citizens, the accumulation of regulations threatens economic growth and well-being.[2] As a result, the U.S. legislature is exploring the possibility that applying fiscal budgeting concepts to regulation could bring more accountability and transparency to the regulatory process.[3] This paper examines the advantages and challenges of applying regulatory budgeting practices, and draws some preliminary conclusions based on successful experiences in other countries.

As an OECD paper observes, “while governments are required to account in detail for their fiscal spending, regulatory costs or ‘expenditures’ are still largely hidden and there is still no accountability for the total amount of regulatory expenditure which a government requires.”[4]

Taxes, and subsequent spending, are one way the federal government redirects resources from the private sector to accomplish public goals. Regulation of private entities—businesses, workers, and consumers—is another. Like the programs supported by taxes, regulations provide benefits to Americans. However, the costs associated with regulatory programs are not subject to the same checks and balances.

Because regulatory costs are less visible (regulations have been called a “hidden tax”[5]) and they are assumed to be borne by businesses (even though individual consumers and workers ultimately bear them), regulatory tools may seem preferable to direct spending programs for accomplishing policy objectives. Without a more transparent accounting of regulatory costs, efforts to constrain their growth will be hampered.

Other countries are applying budgeting tools to improve regulatory transparency and accountability, and impose some constraint on growing regulatory burdens. Notably, the Netherlands, the United Kingdom, and Canada have adopted requirements to offset the costs of new regulations by removing or modifying existing rules of comparable or greater effect. This paper explores how such a practice might work in the U.S.

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[1]   Susan E. Dudley directs the GW Regulatory Studies Center and is a Distinguished Professor of Practice in the Trachtenberg School of Public Policy and Public Administration in the George Washington University.

     Ana Maria Zarate Moreno, a graduate student in the Trachtenberg School and research assistant in the Regulatory Studies Center, made valuable contributions to this paper, particularly with respect to understanding other countries’ experiences with regulatory offsets.

[2]     Michael Mandel and Diana G. Carew. Regulatory Improvement Commission: A Politically-Viable Approach to U.S. Regulatory Reform, Progressive Policy Institute Policy Memo, May 2013.

[3]     On June 23, 2015, the U.S. Senate Committee on the Budget and Committee on Homeland Security and Governmental Affairs held a joint hearing on “Accounting for the True Cost of Regulation: Exploring the Possibility of a Regulatory Budget,” http://www.budget.senate.gov/republican/public/index.cfm/hearing-schedule?ID=ccc69281-d86e-4f7c-aa17-d0a49c510893.

[4]     Nick Malyshev, A Primer on Regulatory Budgets, OECD Journal on Budgeting, 2010/3.

[5]     Wendy L. Gramm, Regulatory Review Issues, October 1985–February 1988, 63 Administrative Law Review, 2011.