NCPA - National Center for Policy Analysis

The Missing Reform: Regulatory Tax Credits

November 28, 2011

Across the country, people seeking work in harmless occupations are forced to spend thousands of dollars and otherwise productive hours complying with regulations.  All of these costly policies slow economic activity and prevent the creation of jobs and wealth.  Unfortunately, efforts to rein in excessive regulations have been inadequate.  The fundamental problem is that government has little reason to stop overregulating because it loses little from such overregulation, say Nick Dranias and Byron Schlomach of the Goldwater Institute.

One of the most innovative and economically stimulating means by which the regulatory burden can be reversed is the implementation of a regulatory tax credit.  This credit would allow taxpayers to reduce their taxes in an amount equal to the cost of complying with excessive regulation, forcing policymakers to carefully consider the costs of new regulations and ensure they are truly designed to protect public health and safety.  The credit would also be a powerful job-creation tool -- by discouraging overregulation and the costs associated with it, businesses would be freed to invest and hire.

Because such a policy would create a significant change in U.S. tax and spending policy, its stipulations and boundaries must be well-defined in order to ensure optimal participation and limit fraud.  To this end, three broad components would have to be concretely established:

  • The definition of "excessive" regulations would have to be clearly established and easily understood so that claiming entities could know the circumstances under which they are entitled to relief.
  • The accounting and cost-tracking methods would have to be standardized so that tax credits could be accurately assessed.
  • Filers would have to be made aware of exactly which taxes their credits could be filed against.

To accomplish the first objective, a catchall definition would have to be established with explicit criteria for determining if regulation is excessive.  For the second objective, it is crucial that the credit be able to compensate filers for time and effort, in addition to absolute costs.  The final objective is important in that it forces those governments that levee the excessive regulations to support the resulting tax credits.

Source: Nick Dranias and Byron Schlomach, "The Missing Reform: Regulatory Tax Credits," Goldwater Institute, November 9, 2011.


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