Economic Outlook: The cost of compliance

By ANTHONY HALL, United Press International  |  Jan. 23, 2013 at 10:31 AM
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Last year was a very costly year in terms of regulations, a think-tank's study indicates.

The study put together by Sam Batkins of the American Action Forum found regulations passed into law in 2012 would cost $236 billion in compliance costs. Collectively, that might be called a compliance line-item in the nation's gross domestic product, which could be figured in like imports, as a net negative factor.

Lawmakers also scratched some regulations in 2012 and that would erase $2.5 billion in compliance costs, the study said. The report said that would make 2012 the most expensive year in terms of net compliance costs compared to any other included in the study, The New York Times reported.

It is, of course, a sensible endeavor to figure out how much a new regulation will cost U.S. businesses. A new law can put a business out of business. Further, the benefits of that can be shoe-horned into a calculator, as well. Complying with a law can reduce legal fees down the road.

Complying with an environmental law can reduce clean-up costs down the road, and it can also create another opportunity for the business community to profit.

It takes money to make money, but many times a regulation helps. Somebody, after all, makes money on all those catalytic converters now required as a pollution control device on a vehicle's exhaust system. And catalytic converter corporations, presumably, pay taxes on these profits, as well.

That said, no fair including costs passed down to customers as part of the expense of a new regulation.

Restitution is also a piece of the regulatory picture. In one simple model, a county hires a dog enumerator, who earns $33,000 per year and generates $10 per dog permit and squeezes a few thousand dollars in fines out of non-compliant dog owners each year. In this case, the example involves taxpayers, not business, but the concept is the same.

Those $50 fines for an unlicensed dog are part of the bargain. In the corporate world $1 billion settlement that ends up as restitution for victims of company malfeasance is allowed to be included as an tax-deductible business expense. Corporate lawyers figure this into their negotiations over settlements -- it's the reverse of getting a tax break for adding jobs to a local economy. In this case, corporations get a tax break for cheating the community.

Speaking of lawyers, reports said the government-ordered review of bank foreclosures came to a quicker-than-expected $8.5 billion settlement with 10 banks because the government and the banks were concerned about the cost of the review.

News reports put the legal fees for foreclosure scrutiny at $600 and more per hour, which has created a scandal in its own right.

The long and the short is some consider regulations to be an industry unto itself. There are the direct costs to businesses, the societal costs and benefits and innumerable spin-off side deals where money can be made.

In international markets Wednesday, the Nikkei 225 index in Japan lost 2.08 percent while the Shanghai composite index in China gained 0.25 percent. The Hang Seng index in Hong Kong shed 0.1 percent while the Sensex in India added 0.23 percent.

The S&P/ASX 200 in Australia climbed 0.18 percent.

In midday trading in Europe, the FTSE 100 index in Britain rose 0.15 percent while the DAX 30 in Germany added 0.08 percent. The CAC 40 in France slipped 0.5 percent while the Stoxx Europe 600 was flat, rising 0.02 percent.

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