How A New President Can Roll Back Bureaucracy, Part 4: Expand Number of Rules Receiving Cost Analysis

This is the fourth post in a series on how the next president can reduce the scope of bureaucracy. Earlier installments have addressed a freeze on rulemaking, the role of law and economics staff in policymaking, and rule review and repeal.

Part 4: Reduce Dollar Thresholds that Trigger Regulatory Impact Analyses

The Office of Management and Budget (OMB) conducts review of some significant or major rules’ cost-benefit analyses, but not quite as many or as deeply as we are often led to believe. The proportion “audited” is quite small.

Also the annual White House reports rounding up such reviews are increasingly late, with last year’s the latest ever. The 2016 report remains outstanding.

The emphasis on formal regulatory review concentrates on “economically significant” rules; generally those deemed to have economic effects of $100 million annually. Rules presumed non-major tend to be disregarded since formal review of them is not required. That means costs or burdens on regulated parties are generally unheeded.

For example, the Federal Communications Commission’s sweeping open Internet order (aka “net neutrality”) was, incredibly, not regarded as economically significant. It was christened a mere “prophylactic” rule, despite huge industry-altering effects.

So, sometimes economically significant rules simply are not acknowledged as such. Even during the Carter-era regulatory review programs, when the $100 million major-rule threshold originated, there were a “suspiciously large number of regulations…projected to cost $90-95 million.” Rules’ actual costs may surpass the arbitrary threshold, but get ignored or understated by agencies just enough to evade scrutiny.

These agency shenanigans all point to another regulatory liberalization option for a new president.

Along with reinstating moratoria, listening to the advice of economists, and devising criteria for a periodic review and sunsetting, the president (or, of course, Congress) may also reduce the flow of rules that escape analysis simply by lowering the threshold at which written Regulatory Impact Analyses get prepared or at which White House review is triggered. The essence of what needs doing, though, is simply questioning rules’ potential costs more thoroughly.

The current $100 million threshold translates into written and reviewed cost-benefit analysis for a handful of rules. Obviously more rules would be brought within that supervisory umbrella simply by lowering the bar to $50 million or $25 million. Taking this step will not automatically improve how cost and (especially) benefit tallies are performed, of course; it just flags more regulatory output for scrutiny and possible questioning.

In fact, if net-benefit analysis rather than cost analysis persists, exploitation of the regulatory analysis process to create the impression of net benefits will continue.

It is also likely that some agencies may strategically adapt behavior to the likelihood of review, and present major rules larger than truly intended as a “negotiating” tactic to give the appearance of compromise, while instead expanding their sphere of influence.

Such conducts can be confronted; President Reagan’s E.O. 12291 formalizing central OMB review of rules and regulations also specified that the Director of OMB could order rules to be treated as “major” even if agencies had not designated them as such, thereby activating a review requirement.

The upshot here is that the $100 million threshold for regulatory review is a good thing, but should be regarded as a starting point. More rules should be subject to cost analysis and subsequent reconsideration and review.


Also in this Series:

How A New President Can Roll Back Bureaucracy, Part 1: Freeze Regulations Temporarily

How A New President Can Roll Back Bureaucracy, Part 2: Boost Regulatory Review Resources and Free Market Law and Economics Staff at Agencies

How A New President Can Roll Back Bureaucracy, Part 3: Professionalize Review, Revision, Repeal and Sunsetting of Regulations

This series builds upon recommendations in “One Nation Ungovernable? Confronting the Modern Regulatory State,” in Donald J. Boudreaux, ed., What America’s Decline In Economic Freedom Means for Entrepreneurship and Prosperity, Fraser Institute and Mercatus Center at George Mason University (2015), pp. 117-181.