For decades, conservatives have focused on spending cuts, tax reform, and budgetary discipline as the primary levers to rein in the federal deficit and drive economic growth. However, one of the most significant, yet frequently overlooked, factors affecting both federal spending and economic performance is regulation. Regulations don’t just impose compliance costs on businesses; they also have profound fiscal consequences for government spending, procurement, and revenue collection.
During a recent episode of my Federal Newswire Lunch Hour podcast, AFPI's Matthew Jensen and I discussed the fiscal burden of regulatory overreach and how deregulation can be a powerful tool for deficit reduction. More importantly, we explored how Congressional reconciliation presents a unique opportunity to roll back costly regulations while achieving spending reductions.
The Fiscal Cost of Overregulation
When people talk about regulations, they often focus on how they increase compliance costs for businesses, slow job growth, and hinder innovation. What’s often ignored is the fact that federal regulations impose direct costs on government spending. Agencies must enforce and oversee these rules, which means hiring more bureaucrats, developing new reporting systems, and allocating resources to compliance and enforcement efforts. The Biden administration’s unprecedented regulatory expansion has compounded these costs, driving federal outlays even higher.
During our conversation, Jensen agreed with the CPAC Center for Regulatory Freedom's assessment that federal regulatory costs have doubled from $2.25 trillion to over $4 trillion annually under the Biden administration. That’s a massive drain on the economy, and a significant portion of this burden falls on the federal budget itself. Regulatory requirements drive up the cost of government procurement, inflate entitlement expenditures, and reduce economic activity that would otherwise generate tax revenue.
Regulation and the Federal Deficit
At a time when federal spending continues to outpace revenues, cutting unnecessary regulations can provide a much-needed fiscal boost. Currently, the federal government collects around $5 trillion annually in revenue but spends over $7 trillion, creating a $2 trillion deficit that will only grow larger if spending isn’t brought under control. Eliminating costly and redundant regulations can have two immediate effects:
Reduce direct government spending – Fewer regulations mean fewer bureaucrats needed to enforce them, lower procurement costs, and streamlined government operations.
Boost revenue through economic growth – Cutting excessive regulations spurs job creation, innovation, and investment, leading to higher tax revenues without raising rates.
Using the Reconciliation Process to Achieve Regulatory Reform
A major takeaway from our discussion was how budget reconciliation can serve as a vehicle for meaningful regulatory reform. Reconciliation is a powerful legislative tool that allows Congress to pass budget-related measures with a simple majority vote, bypassing the filibuster in the Senate. Traditionally, reconciliation has been used to address tax and spending policies, but as there is a strong case for including regulatory rollbacks in future reconciliation bills.
Here’s why:
Regulations impose direct fiscal costs by increasing government spending—making them budgetary in nature.
The Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) should be tasked with evaluating the fiscal impact of regulations, providing data that supports their inclusion in reconciliation efforts.
Deregulation stimulates economic growth, which directly affects federal revenues—a clear budgetary consideration.
The Opportunity for a Pro-Growth, Pro-Taxpayer Agenda
With President Trump back in the White House and a Republican-controlled Congress, there is an unprecedented opportunity to use reconciliation to not only extend the Tax Cuts and Jobs Act (TCJA) but also pursue aggressive deregulation. Trump’s second term has been framed around cutting red tape, reducing regulatory burdens, and unleashing economic potential. The same reconciliation bill that extends tax cuts can and should include provisions to eliminate wasteful regulations.
Key Deregulatory Priorities for Congress
Eliminating Outdated and Costly Regulations – Many regulations currently on the books were upheld under the old Chevron deference standard, which allowed federal agencies broad discretion in interpreting laws. Now that Chevron is being reconsidered by the courts, it is time for Congress to revisit and repeal regulations that lack a strong statutory foundation.
Reducing Regulatory Dark Matter – Trump’s first term took significant steps toward limiting the impact of so-called “regulatory dark matter”—guidance documents, memos, and informal agency rules that have the force of law but bypass Congressional oversight. Congress should codify Trump’s reforms into law to permanently restrain bureaucratic overreach.
Streamlining Environmental Permitting – Major infrastructure projects have been stalled due to excessive environmental regulations. Congress should use reconciliation to overhaul the National Environmental Policy Act (NEPA) and related statutes that create unnecessary delays and increase costs.
Aligning Regulatory Cuts with Fiscal Goals – Congress should mandate that OMB include cost-benefit analyses of regulations in budget reports. This would make it easier to identify and repeal rules that drive up federal spending.
Research from AFPI and the Case for Action
An incredibly important and helpful development in the push for regulatory reform is the fiscal modeling work being done at AFPI’s Center for American Prosperity. Matthew Jensen and his colleagues have developed new methodologies to quantify the exact fiscal impact of regulations, making it easier for lawmakers to justify including deregulation in reconciliation packages.
This research has already provided compelling evidence that cutting excessive regulations could shrink the deficit by hundreds of billions of dollars over the next decade—all without raising taxes or cutting essential services. Deregulation is not just about reducing bureaucracy, but also about reducing government waste and improving budgetary efficiency.
A Path Forward
As Congress prepares its next reconciliation package, conservatives must ensure that regulatory reform is front and center. Eliminating wasteful regulations is one of the most effective ways to reduce federal spending, shrink the deficit, and grow the economy—all while restoring individual liberty and reducing government interference in the private sector.
The Biden administration left us with an unprecedented regulatory state, one that has doubled in cost and is dragging down economic productivity. Now is the time to reverse course. By using the reconciliation process to pair tax relief with targeted deregulation, conservatives can deliver real results for American families, businesses, and taxpayers.
Conservative scholars have provided the research and framework necessary to make this happen. Now, it’s up to Congressional leaders to seize this opportunity and enshrine pro-growth, pro-taxpayer policies into law. If they do, they won’t just be cutting taxes or balancing the budget—they’ll be restoring America’s economic freedom for generations to come.
