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Rep. Paul D. Ryan of Wisconsin recently unveiled a plan to address poverty and increase opportunity and upward mobility for low-income Americans. While many commentators may focus on the congressman’s proposals to reform education and the social safety net, Ryan’s plan also suggests important reforms in another area that significantly affects low-income households: regulation.
According to Rep. Ryan’s anti-poverty plan, federal regulations impose a heavy burden on low-income American households. Our research at the George Washington University Regulatory Studies Center shows just that: regulations often leave low-income Americans paying a heavier price than their neighbors.
For example, energy efficiency standards for everyday household appliances — such as dishwashers, furnaces, and air conditioners — cause prices to increase and push some low-income consumers out of the market. Our recent analysis of the Department of Energy’s efficiency standards for furnace fans showed that the agency’s rule benefits high-income households at the expense of lower-income households, effectively acting as a transfer payment from America’s poorest to the well-off.
Earlier this year, research from the Stanford Institute of Economic Policy Research found that the poor bear the heaviest burden of regulations that target climate change. This corresponds with our own research on energy efficiency standards and biofuel regulations, both of which are intended to improve the environment, but end up costing poor households the most.
Unfortunately, these regressive effects aren’t confined to a single rule — they’re pervasive in federal regulations. In a working paper for the Mercatus Center, Diana Thomas finds that “regulation has a regressive effect: It redistributes wealth from lower-income households to higher-income households by causing lower-income households to pay for risk reduction worth more to the wealthy.” This is because regulations which reduce risks incur unavoidable costs that are passed on to every household, regardless of income. For households that are struggling financially, these costs consumer larger portions of disposable income and limit the available options.
These rules don’t address immediate risks to public health or safety, but they do limit consumer choices and increase prices, which disproportionately impacts low-income households. While some Americans can make room in their budgets for more expensive fuel, groceries, and appliances, those who can’t are left to make tough decisions about how to spend limited household resources.
Ryan’s anti-poverty plan would require agencies to determine the effects of the rules on low-income Americans, and would require Congress to review federal regulations that would disproportionately affect the nation’s poorest households. Given the disproportionate impact of regulations on low-income Americans, these reforms are a step in the right direction for ensuring that federal regulations do more good than harm.
Sofie E. Miller is a senior policy analyst at the George Washington University Regulatory Studies Center, and is editor of the Regulation Digest.