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The Stake In The Economy’s Heart

When the president and 103rd Congress get down to the serious business of setting an agenda for the coming year, nothing-except, perhaps, tax cuts-could be more important than deregulation.But don’t expect miracles: Too many of the new faces coming to Washington are regulatory zealots in the mold of Ralph Nader. Giving business some additional breathing …

When the president and 103rd Congress get down to the serious business of setting an agenda for the coming year, nothing-except, perhaps, tax cuts-could be more important than deregulation.

But don’t expect miracles: Too many of the new faces coming to Washington are regulatory zealots in the mold of Ralph Nader. Giving business some additional breathing room is not exactly their highest priority.

Still, one way or another, they need to face facts: Government mandates on business are the stake in the economy’s heart. Things won’t get much better until the stake is removed.

While business has made known its “opposition” to much of the regulation, it hasn’t put up much of a fight. If it weren’t hurting the rest of us so much, I’d be tempted to say, “OK, business is getting what it deserves.” But “business,” in the fullest sense, is all of us. When a company raises its prices or drops a product line, because some new law or bureaucratic edict makes it necessary, we all suffer: workers, consumers, investors.

The picture today could hardly be grimmer. During the summer, for example, there was much pulling of hair and gnashing of teeth when the U.S. Department of Health and Human Services denied Oregon’s request for an exemption from Medicaid mandates which determine who gets how much care, when, and under what circumstances. In effect, Oregon sought permission to ration state-financed health-care services to those who would benefit most.

On moral grounds, there is reason to oppose making life-and-death decisions dependent on some bureaucrat’s financial calculations. But even if HHS Secretary Louis Sullivan had wanted to go along, he couldn’t: It would have run counter to the new Americans With Disabilities Act. This act establishes one of the most onerous regulatory regimes ever imposed on U.S. society.

Hypothetically, it would be unlawful under the act to treat an 87-year-old quadriplegic with AIDS differently than a 30-year-old mother of four. Even without the lawsuits that would have sprung from Oregon‘s decision to perform economic triage on Medicaid patients, federal bureaucrats at the Equal Employment Opportunity Commission expect as many as 12,000 employment discrimination cases in the first year of the disabilities act. And who will get sued? Businesses-who else?

The Americans With Disabilities Act, however, is just the tip of the iceberg. As of midyear 1992, twice as many people (124,994) worked full-time to issue and enforce federal government regulations as lived in the city of North Little Rock, AR. At the end of Reagan’s second term, the red tape army was about 20 percent smaller, “just” 104,360.

The Federal Register, which officially catalogs all the dotted i’s and crossed t’s the regulators come up with, also has grown dramatically. In 1988, Washington’s complete book of rules was a tidy 53,376 pages, more than 26 times the size of the two-volume District of Columbia Yellow Pages. But this was nothing; by the end of 1991, just three years later, the total climbed to 67,716 pages. And that was before the Americans With Disabilities Act went into effect.

These regulations, of course, carry both direct and indirect costs. The direct cost, in constant 1987 dollars, was estimated at more than $11 billion in 1991, up from less than $9.6 billion in 1988. This is the money government spends on regulation-related salaries, paperwork, overhead, enforcement, and lawsuits.

Lawsuits, especially, eat up a good deal of government time and dollars. For example, the Internal Revenue Service doesn’t want companies to depreciate the value of intangible assets-just bricks, mortar, and machinery. Yet, intangible assets such as computer software, contract agreements, and goodwill decrease in value over time every bit as much as new plants and equipment-and the IRS has gone along with such deductions some of the time. However, since business and the taxman have frequently disagreed on when and under what circumstances such deductions are appropriate, this has become America’s second most-litigated tax issue.

According to former IRS Commissioner Fred T. Goldberg Jr., the agency spends “an average of about 6,000 staff hours and at least $160,000 in out-of-pocket expenses per case.” When he gave these, figures to the House Ways and Means Committee, the IRS had a backlog of several hundred such cases.

The indirect costs-meaning the higher prices consumers pay at the cash register, the economic drag caused by reduced productivity, sales lost to foreign competitors, and the people who needlessly suffer or die because new drugs languish in the laboratory awaiting government approval-are even higher, somewhere between $800 billion and $1.66 trillion per year, depending on how they’re calculated and who does the calculating. If the higher estimate is closest to the mark, we have an extraordinary situation: The cost of regulation now exceeds the country’s total tax liability.

Meanwhile, the juggernaut grinds on. Legislation to expand the reach of the Resource Conservation and Recovery Act (RCRA)-a bureaucratic nightmare that even the Environmental Protection Agency views as unwise, unnecessary, and a real economy-killer-is working its way through Congress. The price tag could be as much as $30 billion a year.

The health-care reformers haven’t given up either. Though The Heritage Foundation (among others) has proposed a market-oriented reform plan that would be budget-neutral and would remove this burden from business’ back, there still is strong support in Washington for telling business that health care is its legal responsibility. This would add billions more to the burden.

On this issue, business is all over the field. Corporate opposition to the disabilities act was weak; I guess one wouldn’t want to he snubbed at the country club as an insensitive clod. That also could explain why the kooky-Left environmental crowd was able to stuff the costly 1990 Clean Air Act amendments up business’ snout. Those amendments required 55 new regulations to implement, according to the White House.

Some businesses, of course, have been stellar in their opposition to all this nuttiness, as have some business associations. The Aluminum Association and National Food Processors Association, for example, earned special bragging rights for the sanity they helped bring to the debate over RCRA. As Aluminum Association President David Parker pointed out during the debate: “Government edicts can’t change either the laws of nature or the laws of economics. Recycling aluminum cans has been successful because recycling produces benefits for both business and consumers.” But, he noted, “Congress can’t pass a law that will make it similarly attractive to recycle aluminum foil.”

The result of all this can be seen every day in the unemployment statistics and in the pained faces of the jobless. It also can be found in corporate earnings reports.

Interestingly, while corporate CEOs tell me they’re spending more time than ever on public policy matters, corporate America has been a virtual bystander in the war of ideas-a pacifist instead of a player. Sure, most large corporations hire lobbyists and consultants, but they frequently support their political enemies financially, play both sides of the fence philosophically, and retreat at the first sign of controversy.

Until they figure out which side they are on and fight like hell to win, there will be no real incentive for Congress to slow the regulatory juggernaut. It would, of course, be the right thing to do. But I wouldn’t hold my breath.


Edwin J. Feulner, Ph.D., is president of The Heritage Foundation, a Washington, D.C.-based public policy research institute. He also serves on the board of several other foundations and research institutes. Dr. Feulner is the author of “Conservatives Stalk the House.”

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