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Thursday, March 29, 2012

Regulations, the not so hidden tax on everyone

This study came from Assemblyman Dan Logue's website.  It was done by  Varshney and Associates of El Dorado Hills. The link to the PDF report is HERE. It should open the eyes of the liberals who say we don't have enough regulations to keep those evil capitalists on line.


This study measures and reports the cost of regulation to small business in the State of California. It employs an original and unique approach using a general equilibrium framework to identify and measure the cost of regulation as measured by the loss of economic output to the State’s gross product, after  controlling for variables known to influence output. It also measures second order costs resulting from regulatory activity by studying the total impact – direct, indirect, and induced. The study finds that the total cost of regulation to the State of California is $492.994 billion which is almost five times the  State’s general fund budget, and almost a third of the State’s gross product. The total cost of regulation results in an employment loss of 3.8 million jobs which is a tenth of the State’s population. Since small business constitute 99.2% of all employer businesses in California, and all of non-employer business,  the regulatory cost is borne almost completely by small business. The general equilibrium framework
yields the following results:

• The direct cost of the regulatory environment in California is $176.966 billion in lost gross state output each year. The direct cost does not account for second order costs.

• The total loss of gross state output for California each year due to direct, indirect, and induced impact of the regulatory cost is $492.994 billion.

• In terms of employment this total output loss is equivalent to the loss of 3.8 million jobs for the state  each year. A loss of 3.8 million jobs represents 10% of the total population of California. In terms of  labor income, the total loss to the state from the regulatory cost is $210.471 billion. Finally the indirect business taxes that would have been generated due to the output lost arising from the regulatory cost is $16.024 billion.

• The total regulatory cost of $492.994 billion is four to four and a half times the total budget for the  state of California, and almost five to six times the general fund alone. Further, given the total gross  state output of $1.6 trillion for California in 2007, the lost output from regulatory costs is almost a  third of the gross state output.

• The indirect business taxes lost could have helped fund many of the state’s departmental budgets. As an example, the indirect business taxes lost are 60 times the budget of the Office of Emergency Services,  and would have paid for almost half the budget of the Department of Education.

• The total cost of regulation was $134,122.48 per small business in California in2007, labor income not created or lost was $57,260.15 per small business, indirect business taxes not generated or lost were $4,359.55 per small business, and finally roughly one job lost per small business.

• The total regulatory cost of $492.994 billion translates into a total cost per household of $38,446.76 per household, or $13,052.05 per resident. The total cost per household comes close to the median household income for California.This study provides the most comprehensive and complete analysis of the total regulatory burden in California. The study and findings have implications for policymakers
and those in charge of the regulatory environment. The results also suggest that future research should attempt to understand how to minimize the intended and unintended costs of regulation. Since small businesses are the lifeblood of California’s economy constituting 99.2% of all employer businesses, efforts to make the regulatory environment more attractive will make California a more attractive state for doing business. This in turn will improve the state’s output, employment, labor income, indirect business taxes, economic climate, quality of life, living standards, and growth in 2007.

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