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Susan Dudley and Jeff Rosen

Watch for hidden taxes

By Susan Dudley and Jeff Rosen
June 12, 2009
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THE OBAMA administration's macroeconomic policies to "stimulate" the economy have been unprecedented and visible, costing Americans in the trillions, including $787 billion for the "stimulus," a $410 billion "omnibus" spending package (on top of last September's $800 billion "minibus" spending), and another $600 billion or more for the financial bailout, over and above all the automatic federal entitlement spending. In addition, even ignoring this year of "stimulus" spending, the president's proposed budget for fiscal year 2010 would increase annual spending from $3 trillion last year to $3.6 trillion next year, while adding more to the federal debt in the president's first two years than the prior eight years combined.

While economists disagree on whether these macroeconomic policies will actually help the economy in the short or long run, no one disagrees with their goal - a robust, growing economy that continues to offer Americans fulfilling opportunities to pursue their dreams.

Unfortunately, there are less visible microeconomic government actions that are likely to counteract these policies, hindering our economic recovery and preventing us from realizing that goal. Many of these are included in the administration's Spring 2009 regulatory agenda, with hundreds of planned regulations spread across many agencies.

Unlike spending and associated taxes, which are subject to approval by both the legislative and executive branches and are visible to the public, regulatory decisions don't face the same checks and balances and their effects are far less transparent. They represent a hidden tax, not easy to measure and track, but borne by American taxpayers, consumers, and workers nevertheless. And often, regulations benefit vocal, well-organized interest groups at the expense of the broader public.

Take, for example, the administration's recent actions to impose Davis-Bacon wage requirements on a wide range of stimulus projects, which will ensure higher-than-market wage rates for a few, and increase costs for all taxpayers. Or, the delay of the Interior Department's five-year plan for off-shore oil leases, and cancellation of 70 other oil leases on the mainland. The termination of a cross-border trucking arrangement with Mexico may please certain interest groups, but has already led to trade sanctions and will harm imports and exports that benefit American consumers.

In its first 100 days, the Obama administration completed 23 economically significant proposed and final regulations, eight more than the Bush administration during the same period (and more than any president before him).

Some of these regulations will have significant effects, such as two new final regulations from the Department of Transportation. The DOT estimates that its new regulations tightening the fuel economy of new cars and trucks will cost consumers more than $1 billion for model year 2011 vehicles and its new rules requiring stronger vehicle roofs will add another $1 billion or more per year. The Labor Department suspended regulations providing for the employment of temporary agricultural workers. The Department of Interior issued final regulations broadening requirements for its staff to be consulted on any project that might increase greenhouse gas emissions (though ironically, on May 8, it announced it would retain a separate Bush-era regulation circumscribing the role of its staff on such projects). And if Congress doesn't intervene, EPA's proposal to regulate global warming under the Clean Air Act could potentially lead to the most far-reaching and costly regulation ever, subjecting tens of thousands of new facilities to such EPA regulations for the first time, most of them small businesses operating in every part of the country.

Some of these new regulations may have merit, but one would be hard-pressed to argue that any are urgent. The new administration's number one priority should be getting our economy back on track, and the costs and consequences of competing objectives should be as visible to the American people as the stimulus spending programs that have received so much attention. Under the circumstances, actions that impose sizable hidden taxes on American citizens should be put on hold, or at least exposed to much more careful evaluation to be sure their merits outweigh their costs and burdens on our struggling economy.

Susan Dudley is a former administrator of the Office of Information and Regulatory Affairs at the White House Office of Management and Budget. Jeff Rosen is former general counsel and senior policy adviser at the White House Office of Management and Budget.

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