Regulations ensure a healthy environment, safe workplaces, and fair and competitive markets. However, they can be costly for consumers, businesses and the economy. Balancing desired regulatory objectives with growth and innovation should be central to U.S. regulatory policy and lies at the heart of Business Roundtable’s philosophy of “Smart Regulation.”
The Office of Management and Budget (OMB) estimates the cost of “major” rules enacted in the last decade total nearly $100 billion per year in current dollars. While regulators estimate that the benefits produced by these regulations are even larger, regulations often interact with one another, creating additional market distortions and leading to higher and often underestimated costs.
This “cumulative regulatory burden” is difficult to quantify, but reputable estimates suggest that the impact is substantial:
- One study found that the labor costs of compliance alone were at least $79 billion per year in 2014 (or nearly $100 billion in current dollars).
- Another found that regulatory restrictions dampen economic growth by 0.8% per year, suggesting that the cumulative regulatory burden imposed roughly $200 billion in additional costs in 2022.
The cumulative regulatory burden affects businesses and the broader economy in two key ways:
- Compliance Costs — New regulations require significant investment in labor, equipment and processes to ensure compliance, with labor typically accounting for two-thirds or more of compliance costs. Some of these costs are onetime investments (e.g., developing a compliance system; installing new equipment), but many others are recurring, particularly those related to hiring or retaining compliance workers.
- Opportunity Costs — Estimates of the cumulative regulatory burden often focus on compliance costs because they are easier to measure, but opportunity costs are arguably even more important. High regulatory costs can lead firms to shift resources away from R&D activities, reduce investment, and delay or prevent new projects, resulting in less innovation. Excessive regulation can also cause job and wage losses, deter companies from going public, and reduce entrepreneurship and new business starts.
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