The figure comes from a study by Lafayette College professors Nicole and Mark Crain that was commissioned by the Small Business Administration's Office of Advocacy, an independent unit of the agency that's specifically tasked with finding ways to remove regulations. But after critics, like the liberal think tank Center for Progressive Reform, pointed out major concerns with the study's accuracy, the Congressional Research Service gave it a detailed look.
In their follow-up report, CRS identified a few major problems with the Crains' study. First, it relied on a World Bank index comparing different countries' economic regulations to generate a huge percentage of its number -- more than 70% -- using methodology that one of the index's own authors said misinterpreted their data. For example, the SBA study measured the US's regulatory burden against an ideal nonexistent economy instead of a similar advanced economy that scored highly in the World Bank study. Using a country that fits the bill, like Ireland, would reduce the overall cost for this portion of the study by two-thirds alone.
The CRS also took note of complaints by the Office of Management and Budget that the SBA study used a patchwork of old estimates to determine the cost of various rules andn regulations, some of which were calculated as long as 30 years ago. Since the cost of compliance had already been factored in for a lot of these rules the results are often no longer relevant. For example, removing a regulation demanding power plants filter out a certain chemical would have no effect on annual costs today if it were removed, since the plants were already fitted to meet the new requirement decades ago. Nor would car companies likely get rid of any number of safety features if regulations requiring them disappeared overnight. Boosting the overall number higher, the SBA study always picked the highest estimate whenever citing estimates with a range of possible costs.
But perhaps most importantly, the study didn't factor in any of the benefits provided by regulations. OMB put out an analysis in 2010 that covered only major regulations issued from 1999 to 2009 and concluded they were a significant net gain for the economy on the whole. By their estimates, federal regulations cost around $42-55 billion per year, but saved taxpayers $127-616 billion per year at the same time.