Federal agencies issue thousands of regulations every year. These regulations are often the means through which various government policies and programs are implemented. Many of these regulations are administrative or routine in nature and have little or no compliance cost associated with them. A number of these regulations can, however, have a substantial effect on the economy in the form of costs, benefits, and transfer payments. Over the past 70 years, Congress and various Presidents have created a set of procedures agencies must follow to issue these regulations, some of which contain requirements for the calculation and consideration of costs, benefits, and other economic effects of regulations. Federal regulations are the product of delegated legislative authority from Congress—agencies may promulgate regulations only with the authority from Congress to do so. As such, Congress has shown an interest in conducting oversight of those regulations, both on the individual level for particular regulations and also for the regulatory system as a whole. One way for Congress to conduct oversight of the regulatory system as a whole, some say, is to monitor the total cost and benefits of federal regulation. Comparing the estimated costs against the benefits would provide some insight into the potential tradeoffs of regulation. In recent years, many Members of Congress have expressed interest in various regulatory reform efforts that would change the rulemaking process. Proponents of these efforts argue that the system under which agencies currently issue federal regulations is outdated, and that federal agencies should be required to conduct more rigorous economic analysis of their regulations. Opponents of these regulatory reform efforts argue that adding to federal rulemaking requirements could cause fewer regulations to be issued by federal agencies or could create delays in the issuance of federal regulations. As part of this debate, it has become common for supporters of regulatory reform to comment on the total cost of federal regulation. Estimating the total cost of regulations is inherently difficult. Current estimates of the cost of regulation should be viewed with a great deal of caution. Scholars attempting to identify an estimate for the total cost of regulation have taken two primary approaches that lead to radically different conclusions about the total economic effect of regulation. In this report, these two approaches are referred to as the "bottom-up" and the "top-down" approaches or methods. In short, the bottom-up approach aggregates individual cost estimates produced by federal agencies. The top-down approach relies on macroeconomic modeling to find a causal relationship between larger economic factors, such as gross domestic product (GDP), and a proxy measure intended to represent the overall amount of regulation. The two approaches use entirely different methods and produce radically different results. In 2014, the most frequently cited cost estimates resulting from each of these studies ranged from $57-$87 billion (using the bottom-up method) to $2 trillion (the majority—almost $1.5 trillion—of which was arrived at using the top-down method). This report analyzes these two approaches for estimating the total cost of federal regulations. In discussing each approach, the report provides an overview of the advantages, a brief case study, and an analysis of the potential issues or inherent problems using the case study to illustrate the concepts. The objective of this report is not to provide an estimate of the total costs and benefits of federal regulations, but rather, to inform the broader regulatory reform debate by identifying the difficulties in providing such estimates and potential problems inherent in the methods that exist. The first approach to aggregating the total costs and benefits of federal rules is generally referred to as a "bottom-up" approach. This method relies on estimates of costs and benefits that agencies produce during the rulemaking process, pursuant to several requirements. The bottom-up approach aggregates these estimates of costs and benefits that agencies calculate in individual rulemakings, using the sum as a government-wide total. Understanding the requirements under which agencies conduct these estimates—specifically, knowing when agencies are required to estimate costs and benefits, and when they are not—is important for understanding the advantages and disadvantages of the bottom-up approach. The primary requirement for most agencies to calculate estimates of costs and benefits when issuing rules is under Executive Order 12866. That executive order requires covered agencies to assess costs and benefits for "economically significant" rules at the proposed and final rule stage. Economically significant rules are defined in the executive order as those that may "have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities." The term "effect on the economy" means that a rule may be considered economically significant if it has costs or benefits of over $100 million. Other provisions of Executive Order 12866 encourage agencies to consider costs and benefits during the rulemaking process for all rules, although those other provisions do not require a complete, detailed cost-benefit analysis for non-economically significant rules. Executive Order 12866, issued by President Clinton, has remained in effect since 1993, and it was reaffirmed in 2011 by President Obama in Executive Order 13563. The estimates that agencies produce under Executive Order 12866 are subject to review by the Office of Management and Budget (OMB). Specifically, agencies submit their rules and cost-benefit analyses to OMB's Office of Information and Regulatory Affairs (OIRA), the agency within OMB responsible for reviewing regulations and cost-benefit analyses. OMB has issued a number of guidance documents agencies are required to follow when estimating costs and benefits of regulations. In addition to these executive order requirements, certain statutory requirements for cost-benefit analysis, or other types of regulatory impact analysis, sometimes require agencies to calculate costs, benefits, and other economic effects of rules. The Regulatory Flexibility Act (RFA) requires regulatory impact analyses for proposed and final rules that will have a "significant economic impact on a substantial number of small entities." Title II of the Unfunded Mandates Reform Act (UMRA) requires agencies to analyze and reduce costs associated with federal mandates upon state, local, and tribal governments and the private sector. However, in practice, the RFA and UMRA apply to a fairly small number of rules. Finally, agencies may be required under their own authorizing statutes to calculate and/or consider the costs and benefits of their rules. The bottom-up approach for estimating costs and benefits aggregates the estimates produced under these requirements, producing a total, government-wide figure for the costs and benefits of regulation. The bottom-up approach to estimating the costs and benefits of federal regulation has several potential benefits. First, this approach sums up actual estimates of costs and benefits that agencies have calculated for individual regulations, and, as described above, most of these estimates have undergone review from OMB. Second, under the requirements discussed above, agencies estimate both costs and benefits, which allows the bottom-up approach to compare total estimated costs to total estimated benefits. Such information can be valuable for evaluation of cost-effectiveness of regulation generally (i.e., what the benefits received are for the costs invested) and it allows for calculation and evaluation of a ratio of costs to benefits. Third, the components of the bottom-up approach to measuring costs and benefits could be validated by conducting analysis ex post , or after the fact, of what the costs and benefits of specific regulations actually turned out to be. This could be done, for example, as part of agencies' retrospective review process, in which agencies reanalyze existing rules and may consider making amendments to those rules in light of the ex post analysis. Agencies do not always conduct retrospective review of their regulations, however, and a retrospective review does not necessarily include a reevaluation of the initial cost-benefit analysis to test its accuracy. But some such studies have been conducted in recent years by scholars and observers of the regulatory process. Despite these and other potential advantages of using a bottom-up approach to aggregating costs and benefits, certain issues—and potential caveats—should be taken into consideration. To help illustrate some of these issues, this report first introduces a case study: the most well-known and widely cited bottom-up study of the total costs and benefits of regulation. The report then uses the case study to analyze and discuss some of the problems with a bottom-up study. The most well-known bottom-up study is the report to Congress on the benefits and costs of federal rules, which OMB compiles annually. Since the 1990s, OMB has estimated the total costs and benefits of federal regulations pursuant to various federal requirements. The initial requirement was in Section 645 of the Treasury, Postal Service and General Government Appropriations Act, 1997, which required the Director of OMB to submit a report by September 30, 1997, that provided—among other things—"estimates of the total annual costs and benefits of federal regulatory programs, including quantitative and nonquantitative measures of regulatory costs and benefits." Similar requirements were contained in other appropriations bills in subsequent years; as of 2015, the current requirement for OMB to report on the total annual costs and benefits of federal regulations is under the Regulatory Right-to-Know Act, which was enacted in 2000 as part of the Treasury and General Government Appropriations Act for FY2001. That provision required OMB to submit to Congress each year, along with the President's budget, An accounting statement and associated report containing- (1) an estimate of the total annual costs and benefits (including quantifiable and nonquantifiable effects) of Federal rules and paperwork, to the extent feasible- (A) in the aggregate; (B) by agency and agency program; and (C) by major rule; (2) an analysis of impacts of Federal regulation on State, local, and tribal government, small business, wages, and economic growth; and (3) recommendations for reform. OMB has submitted a report to Congress each year with a total of the costs and benefits produced by federal agencies pursuant to the requirements discussed above.