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Regulation As Ruinous As Taxation

Pete Sepp of the National Taxpayers Union has an op-ed posted yesterday at Investor’s Business Daily in which he points out that regulation can be just as ruinous as taxation. The “case in point,” he says is “a recent Environmental Protection Agency report on the costs and benefits of the Clean Air Act.” He goes on to explain:

“While this report estimates that CAA's regulations will generate $2 trillion in benefits by 2020, EPA Administrator Lisa Jackson has in the past boasted: "For every one dollar we have spent, we get more than $40 of benefits in return." The agency's latest study claims that rate of return could range from 30-1 to 90-1 in the most optimistic case.

“Our society can and should acknowledge the importance of clean air to our well-being, but how credible are these claims? According to a new analysis from economist David Montgomery commissioned by National Taxpayers Union, more than 90% of EPA's "return on investment" figure stems from feelings rather than facts — a distinction that could be used to justify more flawed rule-making throughout government.”

The NTU’s press release points out the economic analysis:

“reveals the very large net regulatory benefits touted by EPA rely on apples to orange comparisons, where the vast majority of the benefits have none of the financial reality that the costs do.

“In its Clean Air Act appraisal, EPA substitutes calculated misdirection for solid analysis” explained NTU Executive Vice President Pete Sepp. “Nearly all of EPA’s promised $2 trillion in benefits from existing regulations stem from feelings rather than fiscal improvements.

“Federal regulators arrived at their staggering figures by polling individuals on how much they’d be willing to pay to reduce risks in general, mostly using estimates from studies of occupational risks unrelated to air pollution.”

“Dr. Montgomery added “while less than 3 percent of the EPA’s purported benefits will show up as additional jobs or real output in the economy, 100 percent of the costs will do so. Even EPA’s own macroeconomic analysis shows that existing air pollution regulations are a net drag on the economy. And EPA’s tally doesn’t even take into account the costs of its pending new ozone standards and regulations on electric utilities over the next decade.” (emphases in the original)

In the conclusion of the report (requires Adobe), Dr. Montgomery writes:

“The cost-benefit analysis has been portrayed as finding benefits in excess of costs by a ratio as high as 90 to 1.  These are not tangible benefits that take the form of increased output and jobs. They are the result of problematic techniques for ascertaining a theoretical concept of how much people would be willing to pay to avoid an increased risk of death.  This concept, if applied well, may have some merit in helping guide policy makers towards spending programs that a society considers worthwhile, but the monetized estimates of such benefits are entirely conceptual and do not inject any real spending power into the economy.

“The macroeconomic study probably over-estimates beneficial effects of reduced mortality and morbidity on output of goods and services and on total employment.  Even so, EPA finds costs, not benefits, to the economy as a whole.  The macroeconomic analysis finds that in the most favorable case, net tangible benefits are only $18 billion or 1% of what the cost-benefit analysis has been used to claim.  The 90 – 1 ratio becomes more like 1 – 1.

“When the questionable effects on mortality are eliminated from the macroeconomic analysis, there are only net costs of $109 billion in 2020. This directly contradicts other claims that regulations create jobs and stimulate economic growth on their own, independently of whether they have any environmental benefit.  EPA‘s own analysis shows this is not true."

To learn more about the National Taxpayers Union, read their “About NTU” webpage.

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