Put a Ceiling on Overregulation

President Barack Obama may have inadvertently revealed one area of common ground with the Republicans during his recent news conference laying out sharp differences with the GOP.

“We’re reviewing government regulations, so that we can fix any rules in place that are an unnecessary burden on business,” Obama said, following up on his calls earlier this year for repealing “outdated regulations that stifle job creation.”

This language sounds strikingly similar to language in the House GOP’s “Plan for America’s Job Creators,” released in May. “We must remove,” this plan states, “onerous federal regulations that are redundant, harmful to small businesses and impede private-sector investment and job creation.”

Though both parties now want the debt ceiling package to address issues of economic growth, no one has put measures to rein in regulation on the table. Since Obama and GOP leaders are saying that overregulation is a barrier to job creation, it’s time to make regulatory curbs part of the debt ceiling negotiations.

Regulations cost the U.S. economy roughly $1.75 trillion per year, according to the Small Business Administration’s Office of Advocacy. The 2010 Federal Register, which spells out all new government regulations, stands at an all-time high of 81,405 pages, as counted by the Competitive Enterprise Institute’s annual study, “Ten Thousand Commandments” (which, in full disclosure, was written by one of the authors of this piece).

There is strong precedent for including regulatory reform in a debt ceiling deal. In 1996, President Bill Clinton’s and the Republican-controlled Congress’s sharp differences resulted in a breach of the debt limit for more than four months, as well as a shutdown of government services that took more prominence in the headlines. The GOP Congress ultimately yielded in its demand that Clinton had to sign on to a balanced-budget plan with deep spending cuts.

In return, however, the $5.5 trillion debt ceiling hike that Clinton signed advanced another major GOP concern: overregulation. The Congressional Review Act expedited the process for Congress to block a regulation after a final rule had been issued. It also added judicial review provisions to the Regulatory Flexibility Act to help ensure that regulations weren’t overly burdensome to small business.

Clinton praised the law for “respond[ing] to the legitimate concerns of small businesses regarding regulatory burdens” in his signing statement.

The ideological gulf today between Obama and the GOP on many of these regulations is indeed wide. It may be unrealistic to address specific rules stemming from the health care and financial overhauls in the debt ceiling deal.

Yet since both Obama and the GOP recognize that regulation can be a barrier to growth, the 2011 debt ceiling package can update the accountability framework from 1996 to hold regulatory agencies more answerable to Congress and the courts. Any hike in borrowing authority should be linked to passage of major elements of bills in Congress to reform the regulatory process.

First, a debt ceiling deal should include passage of the Freedom Act sponsored by Sen. Olympia Snowe (R-Maine). Fifty-three senators — including six Democrats — supported this bill when it was voted on as an amendment in June. The act is designed to give small business more access to the courts to challenge rules.

Even with judicial review, current rules that require agencies to minimize costs for smaller firms lack teeth — because firms must first “exhaust” time and money-consuming challenges with the agencies before they get their day in court. This can be difficult, if not close to impossible, for small firms that might have trouble securing money for day-to-day operations, let alone a costly lawsuit.

Snowe’s bill could make this process easier for smaller entrepreneurs by allowing suits to be filed as soon as a rule is proposed.

Just as this bill attempts to give the courts more oversight over regulations, the proposed Reins Act (Regulations from the Executive in Need of Scrutiny Act) is devised to do the same for Congress. It would require that major rules estimated to cost the economy $100 million or more must be approved by both houses of Congress.

The bill has been praised by respected scholars, including New York Law School Professor David Schoenbrod and Case Western Reserve University professor Jonathan Adler. Adler writes in the current issue of the policy journal Regulation: “Requiring congressional approval before economically significant rules may take effect ensures that Congress takes responsibility for major regulatory policy decisions.”

He notes that the Reins Act designs a streamlined procedure for approval of regulations that is not subject to filibuster. Adler compares the bill to legislation creating “fast-track-trade authority or base closing” procedures, arguing that it is unlikely to delay “needed regulatory initiatives.”

Meanwhile, Virginia Sen. Mark Warner’s “one-in, one-out” proposal for balancing new regulations by getting rid of old ones at least helps put a “ceiling” on today’s regulatory enterprise. It belongs on the table, too.

Balancing the budget and reducing spending are important in addressing fiscal woes. But to resolve the current “ceiling” we suffer on job creation, we must reduce the “regulatory budget” of costly mandates faced by entrepreneurs.