Compliance Cost

Compliance cost is the money that businesses and individuals must put forth in order to abide by legislation. The case of the United States will be used here to exemplify this concept.

When a bill passes through Congress and is signed by the president, it has the force of law and supersedes any and all state and local laws on the same matter. These laws, though always well intentioned and meant to improve society, often force costs onto the more local governments, as well as private organizations and citizens. This has been especially true since the 1980s, with the introduction of privatization and marketization as a private agency that implements the government's will as opposed to a branch of the government. Though these organizations have a significant amount of independence in creating and providing goods, policymakers do not have control over them. When a federal law is passed, these private companies must make the subsequent changes within the company to be in compliance with the new law, and the money they spend in order to do so is known as the compliance cost.

While compliance costs were low in the 1980s, they began to rise drastically during the George H. W. Bush and Bill Clinton administrations. Laws were passed that had the potential to help American society, but it meant changes had to be implemented as well. The Clean Air Act and the Americans with Disabilities Act (ADA) in 1990 are the two commonly cited examples of federal legislation demanding high compliance costs. While environmental protection and antidiscrimination measures are ideas that everyone is in favor of, by the government passing a law at the national level and demanding its implementation on the state and local levels, costs are inevitability incurred. Today, if compliance costs were equally distributed among all American citizens, each household would pay approximately $7,000 annually, which would amount to $670 billion a year. In addition, these numbers do not count the money provided by the federal government itself. Often with such laws, there is some form of federal matching program, where the federal government does offer a certain amount of money for the program at hand, but never enough to cover all the costs.

Regulations and mandates, such as the one previously mentioned, are considered by many to be “stealth taxes.” If the government does not have the money to pay for a program and does not want to formally increase taxes on the public, a piece of legislation such as the ADA is sometimes employed. These laws can create the changes the federal government wants on the local levels without having to dedicate as many resources. These costs are instead transferred to those the specific legislation affects. With the passage of the ADA, for example, all companies had to ensure that their place of business was handicap accessible and it was, therefore, their responsibility to make sure there are wheelchair ramps, handicap bathroom stalls, and other such physical amenities. For this specific law, the compliance cost was incredibly high for businesses around the country that had to make the necessary structural changes. Regulation is a necessary part of accountability and oversight; [Page 136]without it, the elected government would be completely ineffectual. However, costs that come with these regulations sometimes outweigh the benefits of the legislation. Policymakers and businesses alike must determine what regulations are economically feasible and whether their results are worth the costs they incur.

...