Anybody who runs a business or engages in regulated activities knows that government red tape imposes a significant burden. Those burdens can be very high, deterring entrepreneurs from launching companies, restraining the growth of those that already exist, and driving some people to operate illegally rather than try to deal with an administrative state that specializes in obstructionism. But just how much do federal regulations cost us? A new report from the Competitive Enterprise Institute (CEI) tries to tally the price tag—and warns that Washington, D.C. needs major reform.
The Out-of-Control Regulatory State
That the regulatory state is out of control isn’t really a debatable point. The Federal Register lists 445 agencies with the legal authority to publish regulations. Forbes noted that “federal departments, agencies, and commissions issued 3,853 rules in 2016, while Congress passed and the president signed 214 bills into law.” In May of last year, the White House acknowledged that “the United States is drastically overregulated” and that “the Code of Federal Regulations contains over 48,000 sections, stretching over 175,000 pages….Worse, many carry potential criminal penalties for violations.”
The Trump administration tried to roll back the regulatory state during its first term, only to see its efforts reversed by the Biden administration. As characterized by the creation of the Department of Government Efficiency (DOGE), in its second term the Trump administration rededicated itself to deregulation, though successes have been limited. Suffice it to say that Americans still live under enormous regulatory dead weight.
“Federal regulation’s total compliance costs and economic effects are at least $2.153 trillion annually, and certainly vastly higher,” comments CEI’s Clyde Wayne Crews in Ten Thousand Commandments, 2026, the latest edition of the think tank’s annual regulatory snapshot. “This marker is essentially unchanged from last year, as [President Donald] Trump’s reported annualized regulatory costs savings of approximately $15 billion are offset by inflation applied to legacy economic costs of coincidentally similar magnitude.”
Part of the problem in tallying the total cost of federal regulations is that hundreds of agencies issue an uncountable flood of rules that hobble lives, business, and the economy in unpredictable ways. We know red tape hampers growth and prevents the creation of businesses, but we don’t really know how much better off we’d be in the absence of those administrative burdens.
Compliance Costs Strangle the Economy
“Just as consumers shoulder much of the corporate income tax and tariff burden, regulatory compliance costs and mandates borne by businesses percolate through the economy and materialize as higher prices, lost jobs, and lower output,” writes Crews. “Off-budget regulatory costs can drag down the economy, just as overspending can.”
If you balk at the idea that federal regulations impose costs of over $2 trillion on Americans, you should be aware that CEI is restrained in its assessment. As the report points out, other sources assign even higher price tags to regulatory burdens. Three years ago, the National Association of Manufacturers (NAM) estimated that “the total cost of federal regulations in 2022 is an estimated $3.079 trillion (in 2023 dollars), an amount equal to 12% of U.S. GDP.” That NAM report added that “the annual cost burden for an average U.S. firm is $277,000, the equivalent of 19% of the average firm’s payroll expenses.” For manufacturers with fewer than 50 employees, the NAM put regulatory compliance costs at $50,100 per employee per year.
Compliance costs aren’t expressed in only monetary terms, they also require time and effort. According to the Office of Management and Budget, for Americans supplying required information to federal agencies “in FY2022, the total paperwork burden…was 10.34 billion hours, compared to 9.97 billion hours in FY2021.”
While we can’t know the full impact of such administrative dead weight, it’s not difficult to envision that such expense prevents the launch of some businesses, hampers the growth of others, and results in fewer jobs, less competition, and reduced prosperity.
Limited Deregulation Isn’t Enough
Federal rulemaking has plunged during Trump’s second term, to what CEI’s Crews describes as “the lowest rule tally of all time, compared to the prior record low of 2,964 in 2019, also under Trump.” But, he emphasizes, decades of accumulated red tape remains in place, imposing vast “legacy” costs on Americans who enjoy only minor relief from current deregulatory efforts. “Trump’s regulatory streamlining has not actually translated into governing less,” cautions Crews. The White House continues to impose burdens through jawboning (implicit and explicit regulatory threats), the exercise of emergency powers, antitrust measures, surveillance and data collection requirements, and other intrusive policies.
In other words, despite deregulatory rhetoric and (some) action, the Trump administration actively participates in the decades-long shift in American governance which has resulted in “the executive now doing most lawmaking” in place of an almost vestigial legislative branch. To the extent that there’s a solution to the metastasizing regulatory state, Crews believes, it lies in Congress reasserting its constitutionally defined role.
Congress Needs To Reassert Its Role
“Congress needs to reclaim its responsibilities,” Crews recommends. It should repeal or amend “statutes that sustain the counterproductive regulatory enterprise. It must abolish, downsize, defund, and deny appropriations to agencies, subagencies, and programs.”
The CEI report also suggests that regulatory sunsetting should become standard practice, so that rules automatically expire after a certain period of time rather than living on as administrative accretions that impose permanent costs. It also calls for the “inventorying of guidance documents to prohibit the rise of largely untraceable rule equivalents that can substitute for conventional rulemaking.”
Whether members of Congress want to reassert their role and take on the hard job of debating legislation and casting votes is an open question. The body has largely degenerated into a combination madhouse and steppingstone to gigs as media talking heads. It’s difficult to imagine politicians who ran for office largely so they could raise social media follower count suddenly discovering a desire to legislate or repeal legislation.
But in the absence of a reinvigorated Congress, the administrative state will continue to metastasize. Red tape and compliance costs will consume Americans’ wealth, leaving us all poorer and less free.
The post Report: Federal Regulatory Compliance Costs $2 Trillion Annually appeared first on Reason.com.
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