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90 IRET Policy Bulletin 1 (2005)

handle is hein.taxfoundation/iretpbul0049 and id is 1 raw text is: March 9, 2005 No. 90 THE COST OF GOVERNMENT REGULATION: BEYOND THE INITIAL IMPACT Government regulation affects much of the economy. The purpose of regulation is to create social or economic benefits that would not occur naturally in a pure market economy, or to avoid hidden costs that the market economy does not fully reflect. Benefits of regulation may be real, as with the prevention of accident, injury, or disease, or the reduction of damage from pollution. Benefits may be subjective, as with policies that alter the distribution of wealth or income by means of price supports, subsidies, or transfer payments. The benefits of regulation are not without costs. Regulation of drugs may prevent the introduction of products with harmful side effects, but it may also delay the release of lifesaving products. Inspection of food may prevent disease, and safety features on cars may prevent injury, but they also raise the price of food and transportation. The benefits and the costs of regulation are generally hard to measure precisely. Whether a regulation provides a net benefit or a net cost is often difficult to determine. It is important to try, however, in order to help policy makers and the public make wise decisions as to whether and how much to regulate. Hidden costs of regulation Unfortunately, most of the cost of regulation is hidden. Much of the cost of government regulation is off-budget, that is, it does not appear on federal, state, or local government books. As a result, government officials at all levels regard regulation as costing much less than it really does. They see the direct, on-budget costs of paying for the federal, state, and local agencies that are set up to administer the regulations, such as OSHA, the IRS, the EPA, the SEC, and the DMV. However, they do not see the costs imposed on the private sector by the government mandates. In fact, these private sector costs affect government budgets if they result in tax deductible business expenses, and if they reduce economic output and taxable incomes. The costs of regulation imposed on the private sector (even if tax deductible) are a very real cost to society, and should be netted against the anticipated benefits of the regulations. Some costs are readily apparent, such as the investment cost to a utility of adding a scrubber to a smokestack, or the value of the time a taxpayer must spend preparing tax returns, or his cost of Institute for IRET is a non-profit, tax exempt 501(c)3 economic policy research and educational Research organization devoted to informing the public about policies that will promote on the economic growth and efficient operation of the market economy. Economics of 1710 Rhode Island Avenue, N.W., 11th Floor 9 Washington, D.C. 20036 Taxation (202) 463-1400 . Fax (202) 463-6199 * Internet www.iret.org