AEI-Brookings Joint Center

An Analysis of the Second Government Draft Report on the Costs and Benefits of Federal Regulations


Executive Summary

This paper critically reviews the draft of the Office of Management and Budget's second report on the costs and benefits of federal regulation. The purpose of this analysis is to offer constructive recommendations for improving that report. Our main conclusion is that the OMB report represents an improvement over the previous year in terms of the quantity of information presented and the nature of the presentation. However, it still has some serious problems that need to be addressed. Perhaps the most serious deficiency is that the OMB fails to take adequate advantage of its in-house expertise in providing a candid assessment of the costs and benefits of regulation.

1.Introduction

The direct costs of federal environmental, health, and safety regulation have grown dramatically in recent decades, and are probably on the order of $200 billion annually. These regulatory costs, which are about the size of all federal domestic, non-defense discretionary spending, are expected to grow significantly in the next decade. The benefits of those regulations are even less certain. Yet, the economic impacts of regulation receive much less scrutiny than direct, budgeted government spending.

The potential gains of regulatory reform are substantial. Research suggests that more than half of the federal government's regulations would fail a strict benefit-cost test using the government's own numbers. Moreover, there is ample research suggesting that regulation could be significantly improved, so we could save more lives with fewer resources. One study found that a reallocation of mandated expenditures toward those regulations with the highest payoff to society could save as many as 60,000 more lives a year at no additional cost.