Pledge Takes On Overregulation

Though much of the commentary on the GOP’s “Pledge to America” has forcused on the areas of taxes and spending, the provision that may contain the most important economic impact could be document’s promise to rein in regulation.

The pledge contains a specific and important policy proposal that would go a long way toward reining in the regulatory state and restoring constitutional, accountable government. It is along the lines of recommendations we at the Competitive Enterprise Institute have made in our publications such as the biannual Agenda for Congress and annual Ten Thousand Commandments by CEI Vice President Clyde Wayne Crews.

On page 8 of the 21-page document, in the section entitled “Our plan to end the uncertainty and create incentives for job growth,” there is an important sub-pledge to “rein in the red tape factory in Washington.” It makes the important point — one that CEI and other free-market groups have long been stressing — that “excessive federal regulation is a de facto tax on employers and consumers.”

More importantly, this section contains a substantive idea that would in effect regulate the growth of the regulatory state. The document states: “We will require congressional approval of any new federal regulation that has an annual cost to our economy of $100 million or more. This is the threshold at which the government deems a regulation ‘economically significant.’ If a regulation is so ‘significant’ and costly that it may harm job creation, Congress should vote on it first.”

The principle of “no regulation without representation” is something Crews and others at CEI have been shouting from the hilltops for years, usually to deaf ears in Congress, even among Republicans. But it looks like with this pledge, lawmakers are at least hearing part of the message that the legislative branch needs a mechanism of accountability for costly and counterproductive regulations that stem from the laws Congress passes.

And in this case, the pledge has been preceded by proposed legislation in the current Congress. Rep. Geoff Davis (R-Ky.) introduced the REINS Act almost a year ago containing this very provision of affirmative congressional approval for major rules. The bill now has more than 70 co-sponsors. This week, Sen. Jim DeMint (R-S.C.) introduced a Senate companion with 12 co-sponsors.

The issue is not just one of good politics or even good policy, but of constitutional government as well. Article 1, Section 1 of the Constitution vests “all legislative powers” in the U.S. Congress. Yet what most often happens in today’s administrative state is that regulators in the executive branch, technically changed to enforcing provisions of laws, actually write much of the law as applied.

Sometimes this takes place due to creative interpretations, such as defining a farmer’s wetland the size of a mud puddle as a “navigable waterway” under the Clean Water Act. But more often than not, Congress under the control of both parties has been deliberately vague so as to pass the buck to regulators and escape accountability. New York Law School Professor David Schoenbrod has called this practice — and his critique of it published by Yale University Press — “Power Without Responsibility.”

The recently passed 2,500-page Dodd-Frank Act, for instance, gives the Bureau of Consumer Financial Protection the power to ban an “abusive” financial product without defining what “abusive” means. You can bet when the agency defines as “abusive” a product or service that many constituents like, Congress will wash its hands of the matter and blame the agency.

Similarly, the Sarbanes-Oxley Act of 2002, passed after Enron by a GOP-controlled House and signed by President George W. Bush, required companies to maintain and accountants to sign off on “internal controls” without defining what these were. The SEC and Public Company Accounting Oversight Board broadly interpreted the term to include trivial items such as the number of letters in an employee’s password.

This broad interpretation has cost companies a bundle and made it prohibitively expensive for smaller companies to raise capital by going public, while serving little purpose for shareholders. Not just Republicans, but Democrats from Speaker Pelosi to Sen. John Kerry have called these rules excessive. But in eight years under both parties, Congress did nothing to provide relief from these rules until this year when it passed a partial exemption in Dodd-Frank for the very smallest public companies.

“No regulation without representation” is a simple, good-government rule that should be embraced by both parties. The GOP pledge should be commended for recognizing the principle, although time will only tell if words will be followed through with actions.