The Right Level of Regulatory Rigor

A proposal by Rep. Paul Ryan, R-Wis., to require federal agencies to assess the effects of regulations on the poor continues to generate considerable debate — a debate, which is long overdue.

Benefit-cost analysis of regulations, as currently practiced by federal agencies, usually just compares total benefits with total costs. But those costs and benefits tend to fall on different people. In order to judge whether or not a regulation is regressive, the analysis must look at both the benefits and costs for each group affected by a regulation. Regulations whose costs to the poor outweigh the benefits to the poor are regressive. And if lifting the poor out of poverty is a priority, regulations with regressive effects ought to face higher hurdles.

Regulations tend to increase prices of goods and services. In this way, regulations act like a regressive sales tax. Because the poor have lower incomes than the rich, these price increases consume a larger share of a poor person’s income than a rich person’s income.

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