Death By 1,000 Paper Cuts: The High Cost of U.S. Government Regulation

Although Tax Day took place last month, the American people pay for the government through more than taxes. That is right -- there is the hidden cost of regulation that very few directly see. But the Competitive Enterprise Institute (CEI) has shown the cost in its latest Ten Thousand Commandments report. CEI estimated that U.S. government regulations cost the country $2.117 trillion. If U.S. regulation were an economy, it would be bigger than the Canadian economy. 

This hidden cost is equivalent to costing the average American household $16,016 annually, which is the equivalent of 16 percent of income. Aside from housing, these regulations cost more than any other cost of living, whether it is health care, food, transportation, or entertainment (see below).

 

The National Association of Manufacturers (NAM) put the estimate at an even more indicting figure of $2.6 trillion (Crain and Crain, 2023). Last year, the Cato Institute estimated that U.S. regulatory compliance to firms was 1.3 to 3.3 percent of its total wage bill (Trebbi et al., 2024). Why should we care? Higher regulations translate into higher prices of goods, slower wage growth, and fewer job opportunities. As the Mercatus Center illustrates in its report, these regulations disproportionately affect low-income households (Chambers et al., 2019). The higher prices also make it more difficult for smaller businesses to grow (Chambers and Collins, 2016).

As I brought up in 2016, each regulation has its unique effects. There is no "typical regulation." As such, we should analyze the individual impact of each regulation. That being said, the cumulative effect of increased regulation on the United States has a way to stifle economic growth and prosperity. While I have my criticisms of DOGE, I hope that a second term of Trump can at least come with cutting more red tape and needless regulations.