Costs and Benefits of US Government Regulations

Regulations Worth the Costs, Says OMB Report

Semi truck passing in front of a mound of newly-mined coal
Proposed Federal Regulations on Coal Energy Met With Ire in Coal Country. Luke Sharrett / Getty Images

Do federal regulations – the often controversial rules enacted by federal agencies to implement and enforce the laws passed by Congress -- cost taxpayers more than they are worth? Answers to that question can be found in a first-ever draft report on the costs and benefits of federal regulations released in 2004 by the White House Office of Management and Budget (OMB).

Indeed, federal regulations often have more impact on the lives of Americans than the laws passed by Congress.

Federal regulations far outnumber laws passed by Congress. For example, Congress passed 65 significant bills laws in 2013. By comparison, the federal regulatory agencies typically enact more than 3,500 regulations every year or about nine per day.

The Costs of Federal Regulations

The added expenses of complying with federal regulations born by business and industries have a significant impact on the U.S. economy. According to the U.S. Chambers of Commerce, complying with federal regulations costs U.S. businesses over $46 billion a year.

Of course, businesses pass their costs of complying with federal regulations on to consumers. In 2012, the Chambers of Commerce estimated that the total cost for Americans to comply with federal regulations reached $1.806 trillion, or more than the gross domestic products of Canada or Mexico.

At the same time, however, federal regulations have quantifiable benefits to the American people.

That’s where the OMB’s analysis comes in.

"More detailed information helps consumers make intelligent choices on the products they purchase. By that same token, knowing more about the benefits and costs of federal regulations helps policymakers promote smarter regulations," said Dr. John D. Graham, director of the OMB’s Office of Information and Regulatory Affairs.

Benefits Far Exceed Costs, Says OMB

The OMB’s draft report estimated that major federal regulations provide benefits of from $135 billion to $218 billion annually while costing taxpayers between $38 billion and $44 billion.

Federal regulations enforcing the EPA's clean air and water laws accounted for the majority of the regulatory benefits to the public estimated over the last decade. Clean water regulations accounted for benefits of up to $8 billion at a cost of $2.4 to $2.9 billion. Clean air regulations provided up to $163 billion in benefits while costing taxpayers only about $21 billion.

Costs and benefits of some other major federal regulatory programs included:

Energy: Energy Efficiency and Renewable Energy
Benefits: $4.7 billion
Costs: $2.4 billion

Health & Human Services: Food and Drug Administration
Benefits: $2 to $4.5 billion
Costs: $482 to $651 million

Labor: Occupational Safety and Health Administration (OSHA)
Benefits: $1.8 to $4.2 billion
Costs: $1 billion

National Highway Traffic Safety Administration (NTSHA)
Benefits: $4.3 to $7.6 billion
Costs: $2.7 to $5.2 billion

EPA: Clean Air Regulations
Benefits: $106 to $163 billion
Costs: $18.3 to $20.9 billion

EPA Clean Water Regulations
Benefits: $891 million to $8.1 billion
Costs: $2.4 to $2.9 billion

The draft report contains detailed cost and benefit figures on dozens of major federal regulatory programs, as well as the criteria used in making the estimates.

OMB Recommends Agencies Consider Costs of Regulations

Also in the report, OMB encouraged all federal regulatory agencies to improve their cost-benefit estimation techniques and to carefully consider costs and benefits to taxpayers when creating new rules and regulations. Specifically, OMB called on regulatory agencies to expand use of cost-effectiveness methods as well as benefit-cost methods in regulatory analysis; to report estimates using several discount rates in regulatory analysis; and to employ formal probability analysis of benefits and costs for rules based on uncertain science that will have more than a $1 billion-dollar impact on the economy.

Agencies Must Prove Need for New Regulations

The report also reminded regulatory agencies they must prove that a need exists for the regulations they create. When creating a new regulation, OMB advised, "Each agency shall identify the problem that it intends to address (including, where applicable, the failures of private markets or public institutions that warrant new agency action) as well as assess the significance of that problem."