Regulation Destabilization: Time For Reform, Washington

On Feb. 14, President Obama will release his fiscal budget.  It’ll be big. But even that alternate universe tells only part of the story of Washington’s reach in the economy today. In fact, it’s precisely half the story.

An eye-opening report by Nicole and Mark Crain for the Small Business Administration finds that regulations cost some $1.75 trillion annually [3]. For perspective, that’s half the level of 2010 spending of $3.5 trillion [4]. For more perspective, the federal budget itself didn’t hit regulation’s current height until 1999.  Over 3,000 federal regulations pour out of 60-plus departments, agencies, and commissions [5] annually, many of which impact small businesses disproportionately.  Numerous hundreds of regulations yet to come from the new financial reform and ObamaCare legislation herald new suffering for small businesses and threaten job creation.

Regulations are the off-budget, hidden costs of government. The federal budget leaves them alone.  But at long last they’re getting some new scrutiny.  Rep. Darrell Issa’s (R-CA) Committee on Oversight and Government Reform is holding a hearing called “Regulatory Impediments to Job Creation [6]”  in the wake of his recent public request to businesses, trade groups and think tanks for identifying “regulations that have negatively impacted job growth.”  The congressman made made those submissions available online [7] and they make for 1,947 pages and 104 megabytes of reading.

It’s natural that spending receive primary emphasis;  but the game has changed and it’s increasingly apparent that spending and regulation both, not just spending, require fundamental overhaul that tightly harnesses the congressional and agency overreach into our private and commercial lives.  Real reform will require an unprecedented relinquishing of power by agencies and legislators that I still think neither appreciates. Indeed, the tendency to overspend and run up deficits will increase the pressure to regulate instead.

That’s why administrative tinkering, like cost-benefit analysis “requirements” that leave assessment of benefits up to the very agencies imposing the costs and benefiting from mission creep, can’t solve today’s crisis of excessive government.

In addition to cutting taxes and reducing the paperwork that paralyzes business and job creation, it’s imperative as a starting point to inventory all the legislation and regulations that impact a small business as it grows [8], and systematically set about rolling it all back. Obama’s recent executive order on regulations described getting rid of outdated or “just plain dumb” rules, but represents no real war on red tape [9].  We need one, though; hiring more workers and gaining more customers should not incur penalties in the form of onerous new laws and rules.

The means to restore congressional accountability over unelected agency bureaucrats, if Congress really wants to do it, exists in the form of the Regulations from the Executive In Need of Scrutiny (REINS) Act, recently re-introduced by Rep. Geoff Davis (R-KY) in the House, and by Sen. Rand Paul (R-KY) just this week in the Senate [10].  Requiring a congressional vote on all agencies’ major rules (those expected to cost over $100 million) and controversial future business regulations–before they become binding–is one of the keys to rational governance.

Delegation of lawmaking power to unelected agencies is officially out of control; Examples include EPA’s endangerment finding, unauthorized imposition of “net neutrality” by the FCC, energy efficiency rules, new regulations arising from the recent massive health care and financial legislation, and more.

Regulations should not accumulate endlessly in this manner. New major ones should be approved by Congress, and all of them should sunset or expire unless renewed by Congress. Legislation to that effect should be a priority for the new Congress, given the U.S. economy at this point in history.  Congress shouldn’t stop there; going further, to achieve real regulatory reform, hearings like the one Rep. Issa is holding this week can also explore and enact the following steps among others:

• Implement a moratorium freezing non-essential new rulemaking;
• Implement a bipartisan Regulatory Reduction Commission to review the regulatory state as a whole and enact a non-amendable package of cuts and purges (possibly along similar lines as the Defense Base Realignment and Closure Commission). Former U.S. Sen. Phil Gramm created a comprehensive plan for this in the 1990s, which merits attention today;
• Increase regulatory flexibility for small businesses;
• Create better channels for small businesses to dispute onerous rules;
• Require supermajority points of order for unfunded mandates;
• Create a basic Regulatory Report Card to accompany the federal fiscal budget;

Put simply, Congress can comprehensively and systematically wall off further government interference with the small businesses and enterprises that are America’s engines of job and wealth creation. And it should do it. Markers like the REINS Act and the Issa effort provide the opportunity. Global competitors are likely to liberalize if we don’t.

It can’t be said enough; the approach needed is an extensive campaign to “Liberate to Stimulate [11].” Congress need not tell the grass to grow, it just needs to take the rock off the top of it.