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hidden regulatory compliance costsGovernment Regulatory
Compliance Cost Report
- summary page -

Substantial hidden costs imposed on the private sector
by federal, state, and local government regulations

By Michael Hodges - email
updated August 2011
- a chapter of the Grandfather Economic Reports -

Government is costing us more than its reported spending,
and it's difficult to see the huge extra costs of complying with government regulations.

The larger the share of the economy consumed by federal, state & local government spending
the more the flow of regulations impacting the private sector with compliance costs.

Complying with government regulations consumes $2 Trillion
($1,590 billion federal mandates, $446 billion state & local government mandates)
- 17.5% of the economy's national income - $6,610 per man, woman and child -

- adding this regulation cost to $19,109 government spending per person
equates to $25,719 per person of government impact -

AND - compliance costs small business more per employee than big business -

AND - this does not count compliance cost impacts of the Patriot Act, Sarbanes-Oxley or new healthcare regulations

- federal expenditures on regulatory activity increased 2.7 times faster than economic growth since 1960 -

Federal, state & local overnment mandated regulatory compliance costs are huge amounts: as much as all spending by state & local governments (education, police, welfare, etc.), or twice as much as social security & Medicare spending, or 3 times more than national defense. And, government does not budget or account for these huge costs - although $100 hammers are accounted. Despite congressional mandates, government has been dragging its feet for years to account, measure & control - thereby placing the economics of our young generation at incalculable risk.
(The late Nobel Laureate Dr. Milton Friedman, in various letters to this author, continually stressed the importance of studying this critical area of regulatory compliance costs and the basic information used herein. How right he was!)

Of $2.036 trillion total regulatory costs, federal regulatory compliance costs are 1.59 trillion (incl. about $200 billion + for paperwork just complying with tax codes, which is rapidly increasing); state & local government compliance costs are estimated at $446 billion.

[This Regulation Cost report includes picture-charts that you have not seen, and is part of the series of Grandfather Economic Reports - of economic threats facing young families and their children, compared to prior generations]

If a nation has a goal of continually increasing real income & economic living standards for its citizens, plus a strong currency, positive international trade balance and minimum debt, it must make sure its free-market private sector is by far the largest and growing share of the national economy.

The larger the section of the economy that is consumed by government spending, and the higher the regulatory costs mandated, the smaller the effective share of the economic pie remaining to the 'free-market private' sector. (It is the intent of this report to review the costs and trend of regulations, not the possible benefits vs. liabilities of various regulations).

You are now viewing the 'start-up' page of the Regulation Cost Report (a link at the bottom of this page takes you to the full report and charts) - - To help summarize the full Regulation Cost Report of the next page, included below is one of the data color pictures.

Govt outlays + regulatory costs 1947-todayThis chart looks at the economy as a pie (as measured by national income), in 1947 compared to today. Its easy to understand - - let me help.

The shrinking (blue) slice of the total economy is the free-market Private Sector's share of the economy - -reduced from a 74% share of the economic pie in 1947 to a 32% share today.

That's a HUGE reduction - - a transfer of 42% of the economy from the private sector to government spending and its mandated regulatory compliance costs.

This was caused by two factors:
1. The red slice of the pie on the chart: the share of the economy dependent on government (federal plus state & local) spending increased faster than growth of the economy - - the federal + state + local government-spending share of the economic pie expanded from 22% to 50.5% of the economy. Although the total economy grew in size during this period the proportion owned by government spending grew even faster. This is also shown in the Grandfather Government Growth Report.
2. The yellow slice of the pie on the chart: the share of the economy's national income consumed by regulatory compliance costs mandated by these government entities also increased faster - - regulatory compliance costs growing from 4% of the economic pie to a 17.5% share (13.6% federal mandates and 3.8% state & local govt. mandates), the subject of this regulation cost report.

So - during this period government at all levels increased control of the economy by 42 points - - made up of an additional 28 points in spending and an extra 14 points in mandated regulatory compliance costs.

The more of the economic pie consumed/controlled by government spending, the smaller the portion left for the free-market private sector.

Most agree the private sector (not the government sector) is the prime generator of long-term real median family incomes, living standards, real private savings and freedom. This chart indicates the private sector has lost a big hunk of its share of the total economic pie, by increases in government spending and by the cost of complying with government-mandated regulations - - all increasing faster than total economic growth.

Additionally, compliance costs small business more per employee than big business. In 2004, according to a report released by the U.S. Small Business Administration's Office of Advocacy, small businesses spent $2,365 more per employee to comply with federal regulations than their larger counterparts. Companies employing fewer than 20 employees spent an average of $7,647 in 2004 on items ranging from tax and environmental compliance to international trade and workplace requirements. That's 45 percent more per employee than at companies with more than 500 workers.

Note - this Regulation Cost Report, a chapter of the Grandfather Economic Report series, is based on government reported spending, inflation and population data contained in appendix tables of annual 'Economic Reports of the President Transmitted to the Congress' published each February  - and regulatory spending data from two learned studies referenced on page 3 of this report. While government spending and population data is readily available the same cannot be said for regulatory compliance costs which are not accounted by any levels of government, such depending on private studies which are few and far between. This report utilizes several learned studies, and is intended to add information to this subject of regulatory compliance costs. This report, first issued in 2002 and updated in 2005, assumes similar compliance cost ratios to federal spending as contained in the original issues and references to be similarly applied to recent published government spending, inflation and population data to arrive at such estimated compliance costs for 2010, since subsequent to the first issue no other such studies have been located. Readers are encouraged to do their own research on this subject, and also to notify this author [via email] of any found more recent learned studies considered relevant and reliable in addition to here contained, May more effort be made to account for and control these huge costs, just as so emphazised by the late Nobel Laureate Dr. Milton Friedman in his communications with this author.

- you have viewed the Regulation Compliance Cost summary page -

FULL REGULATION COST REPORT + dramatic chart pictures,

with color pictures you have never seen
(a picture is worth a thousand words - and, knowledge is power if you have it)

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Copyright 1997-2011 Michael W. Hodges. The Grandfather Economic Report series is the intellectual property of its author; all rights reserved under Copyright Conventions. Permission to redistribute all or part of this series for non commercial purposes is granted by the author, provided the associated web page address is included and full credit given to the Grandfather Economic Report and the author, Michael Hodges. Notice appreciated via email.