A Tax By Any Other Name….

by Don Boudreaux on May 31, 2009

in Regulation, Taxes

Wayne Crews and Ryan Young, with the Competitive Enterprise Institute, explain that regulation is a form of taxation.  Here are the opening paragraphs:

We need a breather to take it all in: TARP, a $787 billion stimulus bill and a projected $1.845 trillion budget deficit. But lost among all the spending commotion is yet another trillion-dollar poker hand — federal regulation.

Compliance costs from thousands of regulations — pouring out from over 60 departments, agencies and commissions — amounted to $1.17 trillion in 2008. The federal government spends an additional $49.1 billion just to administer and enforce its rules. This figure is on par with federal income tax revenue ($1.2 trillion) and Canada’s entire 2006 GDP ($1.265 trillion).

(By the way, I’m proud to say that Wayne and Ryan each earned his Master’s degrees at GMU Economics.)

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K Ackermann May 31, 2009 at 1:40 pm

Is there any way to get Mark Crain's study? Has it been peer reviewed?

I would think that savings of this magnitude could easily be slammed home, but it would have to point to specific savings, not just costs.

For instance, regulations against underage smoking have some cost associated with them, but probably some benefits too.

Also, what is the cost of enforcing the regulation banning the regulation of swaps?

There is a problem with one aspect of the article: having congress be the sole authority on regulations just concentrates more power into a highly political arena. The statement:

Congress passed 285 laws last year, compared with 3,830 final rules from agencies. The alphabet soup of agencies should answer to Congress for the regulatory burdens they impose.

implies that congress would be handling approx. 10 a day, every day of the year. The staff required to do that would be large enough to be called agencies.

The obvious retort to that is less regulation, and that undoubtedly true, but who gets to decide which ones get looked at, people with no experience in the matter under consideration?

I love the idea of sunset provisions. It makes infinite sense, and that's too bad because that alone disqualifies it from consideration by congress.

K Ackermann June 1, 2009 at 2:17 am

Spammers really suck. Please don't make us do skill tests or squint at funny letters to post.

Is it coming from a consistent IP that can be killed?

TrUmPiT June 1, 2009 at 3:22 am

I blame Milton Friedman for all the red tape. He said that corporate social responsibility was a myth; that companies were in business to make money, period. This sorry implication of this amoral stance was that a business could, no must, pollute a stream to make an extra penny if there was no LAW against it. Unfortunately, people believed uncle milty, and they thrust it upon government to make businesses do the right thing. It was no longer the company's fault for selling tainted meat, it was the government inspectors' fault. I've left out the ugly, slow, faulty legal system — rigged in more ways than one in favor of the well-to-do — whereby everybody sues everybody else on an ongoing basis. Even here, thanks to that MF, people expect government to sue and fine the corporation for misdeeds such as anti-competitive practices. Like they are really going to police themselves when it's not profitable to do so. That's the paradox that he conveniently overlooked: no government and no social responsibility of business. Plainly, that will never work out. When did I fully realize that Dr. MF was a loser? When he commandeered a youthful choir to sing an inane song about the fact that business are in business to make money. You can watch it for yourself on Youtube. Wow, how enlightening! What an weird little man he was; and a hero, and cult figure to the equally strange and misguided.

Methinks June 1, 2009 at 8:19 am

implies that congress would be handling approx. 10 a day, every day of the year. The staff required to do that would be large enough to be called agencies.

To pass that many laws after adequate debate and thought would take an enormous staff and a lot of time. To pass laws the way congress passes laws takes a monkey, a stash of bananas and a button.

Justin June 1, 2009 at 8:33 am

Professor Boudreaux,

Can you point me in the direction of any legal cases involving the use of Federal Agencies to set 'rules' instead of using congress to enact 'laws'

It seems to me that this was a disastrous precedent and I am seriously wondering what justification was offered and accepted in order for it to have reached its present level of popularity.

case in point:
"Congress passed 285 laws last year, compared with 3,830 final rules from agencies."

How is this possible?

vidyohs June 1, 2009 at 10:25 am


Good one, had to laugh on that one.

Don, et. al.,

Of course the cost of complying with regulations is a hidden tax and this is one of the big reasons I am so vocal against government, particularly congress, and not just fussing about laws.

The authors of the report above show the same pointed and repeated naivety of the public in general, in that they tell us what congress should do to correct the problem.

LOL, congress has no incentive to correct the problem, hell's bells they are the ones that created the problem, and it isn't by accident or just oversight, it is deliberate. It is how they generate more income to lavish on themselves and their vote buying efforts!

Congress has their constitutional authority to ooperate out of control of anyone or any other authority, they certainly do not have to answer as a body to the people, why would they change?

This naivety and ignorance in the people is the real problem. By the very document that the people adore, congress has cut themselves free from oversight and accountability, while generating and retaining deniability and irresponsibility. Because of the committee system, no stupid or evil action of congress can be hung on one individual unless one knows what the committee system does. Even the committee chair can gain cover by pointing a finger at his committee, if he so choses, and most do.

The second most devastating naivety and ignorance in the people is the stupid assumption that when a man is elected, or appointed, he becomes suddenly wiser than he was the day before confirmation, and assumes that mantle of benevolent sainthood that directs the cornacopia of goodies back to the constituent. They forget that a pest control operator is on Wednesday exactly what he was on Tuesday, and never grows particularly in wisdom, only in political ability.

Power is delegated down through agencies to individuals in the field, and there most of the real day to day decisions are made, also by people no more qualified in general than the people they supposedly serve. It is these people that the public interacts with on a regular basis, and some of these "servants" couldn't pour piss out of a boot if the instructions weren't printed on the heel of the boot; yet, their decisions carry weight and have force behind them.

This entire system consumes an enormous sum of the people's money in the efforts to reach compliance with all the regulations created by their agencies and administered by mediocrities at the street level. As the authors of the article above pointed out, the cost is passed to all of us as a hidden tax.

Congress isn't going to change, and they certainly aren't going to tweak or retune the system of revenue collection.

Drain the cesspool inside the beltway, fill it in with radioactive waste, pave over it and then glaze the surface with nukes, so that no living creature can get near it ever again. Disperse government out among the people where we can keep them in the crosshairs.

vidyohs June 1, 2009 at 12:57 pm

This thread on regulations as taxes may not be the exact appropriate place for this comment, but I think it brushes up against it.

Was listening to my radio as I shaved and heard a Reliant Energy advertisement.

The ad mentioned a feature that has puzzled me for at least two decades now.

The new Reliant Energy, I am told, is now back and as strong as ever, and has many plans, meaning paying different fees per KW hour, to choose from.

"Plans to choose from", curious thing to say in my opinion.

Reliant Energy provides electricity for a price, why would the price flucuate when the product does not? It is electricity, and electricity doesn't come in models or styles.

It isn't as if I were chosing a car at a Honda dealership, where I had options on which one sutited me best.

There is no bright or dim electricity, no left hand or right hand electricity, no upscale electricity to compare to rough unfinished electricity as a base model.

It is electricity.

How the hell did anyone ever manage to convince the public that there should be a varying prices for that basic product.

Am I, or you, to be convinced that I should pay more or less than another? How can this be so unless there is some sort of subsidy in play that we aren't aware of. Then the question is, who is providing the subsidy and why?

I can only look to the idea that we are a nation of fools.

K Ackermann June 1, 2009 at 1:37 pm

vidyohs, you bring up an interesting point…

I'll be damned if I can find it again, but Sigmund Freud, of all people, talked about the eventual and inevitable loss of privacy.

He said two things dovetailed toward that end: first, the state, using security as an excuse would seek to learn everything about a person's private life and use that information for control and to maximize tax collection.

The second one was very interesting. He claimed that the most profitable sale of goods and services is when maximum information is known about a potential customer, because that information can be used to stroke a person in personal ways (I'm paraphrasing).

This obviously would have been before the days of mass production, but if you think about it, even Bic, with their disposable pens and lighters, started producing them in themes. They wrap a picture of the flag, or a busty woman which costs them 1/4 cent, and they charge 29 cents for it.

They are selling psychology, and chances are your electricity company is too.

Let me guess, you can choose from paygo at a rate that is north of 11 cents, or you can choose a 'smoothed' plan that averages the month to month cost, but is promoted while seasonal usage is low.

Something tells me they are not looking to give money away, but take more money in without actually providing greater benefit.

yet another Dave June 1, 2009 at 3:42 pm

Not to defend Reliant Energy (I don't know anything about them), but I did work at an electric utility for a couple of years. You are basically correct about the nature of electricity, but the cost to generate the electricity varies dramatically depending on the power plant, fuel source, etc. As a result, the cost per KWH is much higher during high demand times when they have to run lots of plants at high output, and lowest during low demand times when they run only the cheapest power plants.

vidyohs June 1, 2009 at 4:19 pm

y a d,

I understand that generation of electricity will vary with method, but it is still electricity that is being produced, the nature of electricity doesn't change whether it is produced by hydro or coal power; so, why not a fee for it that strikes the medium that gives profit to the power company what ever conditions may bring.

I suspect that in the end, no matter what razzle dazzle they bring to the table, we all still pay the same rate. I am just too lazy to work on proving it.

I do know that my wife and I checked out a number of companies supposedly offering low rates and discovered that in the end we would have wound up paying almost exactly what we are paying now.

Kevin June 1, 2009 at 9:44 pm

In competitive electricity markets, most of the differences in retail pricing for a given person are accounted for by differences in the costs of:

price risk management products

Different electricity providers can vary significantly in their cost structures for these services.

K Ackermann June 2, 2009 at 5:49 am

I have a river behind my house that I could use to cool my house all summer long.

My plot map shows my property extends to the center of the river, but that is bull, because the state can do whatever they want on the land extending 10 feet from the river bank on all Oregon waterways. I don't even know what 10 feet means, since the bank changes location at times.

I am prohibited from impeding the flow of the river, or changing its temperature. No a little bit, but zero is how much I can change it.

I want to run a 6' x 6' maze of copper tubing underneath the riverbed. For every 1kw that I run a compressor, I would get 5.8kw of cooling potential.

It's not the fine that scares me, it's the civil suit for causing heat pollution. Who knows what they would assess that as. They couldn't even measure the heat increase, but they could calculate it.

vidyohs June 2, 2009 at 6:16 am


Why do they have to know? Can't you figure out how to do it in such a fashion that it isn't visible to the skunks?

Betcha could if you worked at it in your head for awhile.

John Dewey June 2, 2009 at 2:24 pm

vidyohs: "Am I, or you, to be convinced that I should pay more or less than another? How can this be so unless there is some sort of subsidy in play that we aren't aware of."

As I understand it, vidyohs, the plans differ in these dimensions:

1. number of months of commitment;
2. portion of electricity generated by wind;
3. amount of energy risk assumed.

No 1 must reflect the lower marketing costs the company incurs once it locks in customers for 12 months. Rates are guaranteed for duration of the contract.

I cannot imagine how the company can designate which homes receive the wind-produced electricity in the grid. No. 2 sounds like a feel-good option that simply generates more revenue for Reliant.

Option 3 allows for use of a natural gas price index in determining one's electricity bill. These customers start off with a lower rate and gamble that gas prices will remain low.

Reliant offers plans with varying combinations of the dimensions.

John Dewey June 2, 2009 at 2:28 pm

I forgot to mention another option offerred by Reliant – and most other utilities. Customers can choose average usage billing rather than actual usage billing. Customers choosing this option pay based on the average usage from the previous rolling 12 months.

vidyohs June 2, 2009 at 8:25 pm

John Dewey,

I recognize all of your 1 thru 3, it just seems like a shell game to me in the end.

BTW on the last can I point out that on the averaging payment scheme, they still get you in the end when it is reconciled at the end of the year. Been there, done that.

Basically I was just throwing out the topic to see what reaction I would get from people who are brighter than I am.

Thanks to all.

Blair Stover June 10, 2009 at 5:17 pm

Very informative post. Keep it up!

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