News Story

Federal Red Tape Costing Michigan Families and Businesses Billions

We'd be 25 percent richer if regs stopped growing in 1977

Federal regulations are costing Americans about $4 trillion in lost economic output every year, and Michigan is one of the states hardest hit by the mandates and impositions.

That’s the conclusion of a new study from the Mercatus Center, a think tank based at George Mason University, which looked at the cumulative growth of federal regulations from 1977 to 2012. The researchers estimated that if regulations had been held in check since 1980, the nation's Gross Domestic Product (GDP) would be 25 percent larger today: $20 trillion instead of $16 trillion.

That $4 trillion in lost output amounts to $13,000 for every American.

Patrick McLaughlin is a senior research fellow at the Mercatus Center. He authored the report with Bentley Coffey and Pietro Peretto, who are professors at Duke University.

"What we wanted to examine is how the accumulation of regulations affects firms' choices,” McLaughlin said. “For example, does it change R&D expenditure, or expansion plans? Those sorts of business investments lead to innovation and higher productivity, which, in the long run, drive economic growth."

The study looks at regulations passed by federal bodies that have an impact on 22 industries (from manufacturing industries to real estate to health care). It uses a model that analyzes how those regulations have affected investments and the projected results of those investments. The report finds that real GDP growth would have been 0.8 percent higher each year, on average, for the past few decades.

A separate regulatory database from Mercatus looks at which states are most affected by federal rules. RegData determines how the mix of regulations affect state economies by analyzing the number of rules relevant to each industry in each state. Michigan is the state 17th most affected by federal rules, with the main industries suffering from regulation being auto production and parts manufacturing, real estate, scientific and technical services, retail trade, and wholesale trade.

The Environmental Protection Agency by far has the most regulations affecting Michigan, with more than 20,000 restrictions on automobile production alone. Other entities preventing business production are the Internal Revenue Service, the Food and Drug Administration, the Drug Enforcement Administration, and others relating to alcohol, air and highway travel, housing, and more.

Assuming the regulations are affecting investment in Michigan equally to other states, federal regulations are costing the state well over $100 billion in lost productivity each year.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.