Biz group: Cost of fed regs eclipses $2 trillion

The National Association of Manufacturers (NAM) asserted Wednesday that federal regulations cost more than $2 trillion a year, a total equivalent to 12 percent of the nation’s gross domestic product. 

The study, which reviewed more than 37,000 rules, argues that complying with federal regulations costs the American economy $2.028 trillion in lost economic growth annually.

”Washington needs to stop paying lip service and start streamlining regulations," NAM President Jay Timmons said.

The powerful business group's new study, while contentious, could serve as fodder for a renewed Republican assault on the Obama administration's rule-making agenda ahead of the midterm elections.

Timmons said the business group would be "very pleased" if the report made its way into federal campaigns in the weeks leading up to Election Day.

"If it helps shape the debate for the elections, then all the better," he said.

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Public interest groups quickly contested the report, compiled by a pair of economists whose previous cost estimate of federal red tape was widely questioned. Nicole and Mark Crain, economics professors at Lafayette College, drafted a 2010 report for the Small Business Administration placing the annual cost of federal rules at $1.75 trillion. 

That figure was disputed by proponents of stronger health and safety protections, who suggested it was inflated via the use of a cost metric created by World Bank officials. 

A subsequent Congressional Research Service report raised questions about the use of the metric, known as the “regulatory quality” index, which involves perceptions of the costs of economic rules and reflected roughly 70 percent of the $1.75 trillion estimate. 

“One of the authors of the regulatory quality index said that Crain and Crain misinterpreted and misused the index, resulting in an erroneous and overstated cost estimate,” according to the report from the nonpartisan CRS. 

On Wednesday, Nicole Crain said the NAM report did not rely on the regulatory quality index for the study, instead using a different method of measurement — the World Economic Forum's global competitive index. Still, the economists added an appendix to the report concluding that both metrics yielded essentially the same totals.

But the change in methodology did not satisfy critics, who found fault with the inclusion of perception data in the analysis. Further, groups criticized the report for not factoring the economic benefits of regulations such as reduced national healthcare costs linked to air quality rules. 

"They still pretend to project actual costs by relying on opinion surveys, and they still refuse to account for the enormous benefits of regulation to the economy and to Americans’ health and well being," said James Goodwin, a senior analyst at the Center for Progressive reform.

Amit Narang, a regulatory policy advocate at the nonprofit group Public Citizen, said any study ignoring benefits should be viewed as “one-sided” and “asymmetrical.”

He brushed off the study, saying the government has distanced itself from the Crains' 2010 findings.

“It’s telling that NAM had to resort to the Crains, whose last study on the cost of regulations, virtually identical to this one, didn’t pass the laugh test and had to be completely disavowed by the Small Business Administration after it tarnished their reputation.”

The Crains have steadfastly defended their methodology, and their 2010 study enjoyed significant traction. The figure has frequently been cited in media reports and congressional hearings, often by lawmakers arguing for regulatory reform legislation. 

In Congress, House Republicans are ratcheting up their fight against the president’s regulatory agenda before lawmakers adjourn to focus on campaigning.

On Tuesday, the House passed a bill meant to block the Environmental Protection Agency’s bid to clarify its authority over streams and smaller bodies of water. Later this month, the House GOP plans to push through a package of more than a dozen bills meant to promote economic growth by tamping down on agency rule-making. 

While the bills have little chance of passage in the Democratic-controlled Senate — and would face a presidential veto even if they did — Republicans believe their focus on lessening federal red tape will help them in their elections.

The manufacturing sector, which has rebounded significantly from the 2007 economic crisis, says it has been hit disproportionally by regulations in recent years.

Businesses within the industry faces costs equal to $19,564 per employee, according to the NAM study.

“Manufacturers have long cited more and more complex regulations as a barrier to their growth, and today, we have new data demonstrating the true burdens shouldered by manufacturers throughout the supply chain, particularly the smallest firms, in complying with growing federal mandates,” Timmons said. 

This story was updated with additional information at 2 p.m.